This paper discusses the statement: “there is no universally accepted accounting theory.” In addition, it offers some basic and historical background regarding accounting and discusses the different approaches to develop an accounting theory, before describing three common accounting theories. Finally, the reality of the above statement and the factors that confront a universal accounting theory are debated.
Accounting is a very old science as it is strictly related to the first forms of trade in the old world. According to Belkaoui (1992: 22), the Committee on Terminology of American Institute of Certified Public Accountants (AICPA) defines accounting as follows:
“Accounting is the art of recording, classifying and summarising in a significant manner and in terms of money, transactions and events which are in part at least, of a financial character, and interpreting the results thereof.”
Belkaoui (1992: 22) believes that such a definition is limited and a broader alternative is offered that defines accounting as:
“The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.”
The history of accounting is of importance to those wishing to understand existing and future accounting practices. Historically, the first form of accounting practices was bookkeeping. Bookkeeping resulted from a need of ancient traders in Chaldean, Babylonian, Akkadian, and Assyrian civilizations (Belkaoui, 1992). Those ancient traders developed advanced trading practices to track their costs and incomes. This of course, led to record keeping as the best. Belkaoui states that the earliest known form of record keeping dates back to 3000 B.C. which was found in Old Irak (Belkaoui, 1992).
Egyptian and Chinese civilisations also had old accounting practices for handling both treasury and other government accounts. In Greek civilisation, there was a famous accountant named Zenon. He managed the estates of Apollonius (a Greek minister of finance). Zenon was the first to introduce the first Responsibility Accounting System according to Belkaoui (1992).
In the Roman civilisation, taxes and social classes were dependent on declared properties. As a result, taxpayers were supposed to submit clear financial statements. Of course, these factors enforced the existence of bookkeeping in the ancient world. During the sixteenth, seventeenth and eighteenth centuries, a huge transition in accounting took place. Luca Pacioli introduced the Italian double-entry method. Later on, new methods were introduced to handle fixed assets (Belkaoui, 1992).
According to Schroeder and Clarke (1998), between the years 1900 and 1973, several bodies were introduced to establish and improve financial accounting standards, practices, and reporting.
These bodies included the American Institute of Accountants (AIA) which was established in 1916.Then, in 1934, the Securities and Exchange Commission (SEC) was established. In 1937, the American Institute of Certified Public Accountants (AICPA) was formed as a result of a merger between the AIA and the American Society of Certified Public Accountants(Schroeder and Clarke, 1998).
A theory in its simplest form is an explanation of a certain phenomena, a set of observations. The theory can be understood as a generalisation used to organise data into meaningful information.
Glautier and Underdown (1991) argue that theories are supposed to be concerned with the explanation of a set of observations. Also, they argue that relating an existing theory to a set of observations or coming up with a theory that relates to a set of observations is essentially having the same objective which is providing an explanation to these observations.
Need for an Accounting Theory
Webster define a theory as “a systematic statement of principles.” Also, it gives a more detailed definition:
“A formulation of apparent relationships or underlying principles of certain observed phenomena which has been systematically accumulated, organised, and verified well enough to provide a frame of reference for future actions” (Schroeder, Richard et al., 1998:1).
The second definition gives some reason for the need of an accounting theory. These reasons include organising accounting practices and handling future changes. Of course, a theory can be applied into practical areas of interest. An accounting theory makes it easier to understand accounting in a professional way.
Developing Accounting Theory: Approaches and Methods
An accounting theory should provide accountants with guidelines for how to represent a summary of financial data for activities during a year. Of course, this information should be useful to people who are going to use it in making decisions and judgments.
Glautier and Underdown (1991) list three common approaches that have been used to develop accounting theory previously. These approaches are:
Decision Usefulness Approach
They classified the Decision Usefulness Approach into two types: empirical and normative (Glautier and Underdown, 1991).
On the other hand, there have been several approaches to develop accounting theory. These approaches make use of other classical methods of reasoning such as the ethical, sociological and economic approaches.
The descriptive approach developed theories that are concerned with what accountants should do. Descriptive theories use induction. Usually, inductive reasoning will begin by making enough observations by looking at similar instances and practices before drawing a generalised conclusion.
Glautier and Underdown (1991) state that the descriptive approach has attempted to relate the accounting practices of accountants to a generalised accounting theory.
Usually, descriptive approaches lead to descriptive or positive theories. These theories are concerned with existing accountants’ practices. Descriptive theories explain those practices and make it possible to predict future behaviours. Glautier and Underdown (1991) offer a useful example with regards to such predictions. By applying the descriptive theory, one can easily predict that the receipt of cash will be entered in the debit side of a cash book.
The Decision Usefulness Approach resulted from the great interest in behavioural researches in accounting during the 1970s (Glautier and Underdown, 1991). This type of approach resulted into two main theories: Empirical and Normative theories.
The Empirical theory resulted from the increase in empirical research in accounting. The objective of such research was to have reliable results that would positively influence decision making. This objective forced the use of advanced statistical techniques. The increase in university accounting courses resulted in a great number of students that were capable of carrying out advanced and sophisticated quantitative research.
On the other hand, the Normative Theory concentrates on which decision models should be selected by decision makers in order to make logical decisions.
The third approach mentioned by Glautier and Underdown (1991) is the Welfare Approach. This approach can be considered as an extension to the decision-making approaches. The main objective of the welfare approach is to increase social welfare through rational decisions based upon reliable accounting information.
Common Accounting Theories
The positive theory is mainly explaining existing accounting practices and observed accounting phenomena (Schroeder, Richard et al., 2001). Belkaoui (1992) believes that positive accounting theory is looking into why accounting practices have developed into the way they are today. Then, the positive theory explains or predicts accounting events. Many positive accounting theory supporters are optimistic due to that positive approach is getting more supporters.
Belkaoui (1992) noted criticism of positive theory including the point that the theory concept is based on an obsolete philosophy of science and that theories of empirical science do not have positive statements on “what is.”
The normative theory focuses on what should be instead of what is (Belkaoui, 1992). Therefore, it is on the contrary side to positive theory. This theory is based on a set of objectives. It was developed using the deductive approach that uses logic. Normative theory advocates agree on a set of objectives, believing that these objectives are the best for accountants. Then they deduce their hypotheses and principles. Their next step is to apply this theory to real life accounting practices and events. Actually, normative theory will depend on its advocates and the level of harmony they can reach on the agreed set of goals.
Although the normative approach is very important in regulating the industry and developing new accounting practices, it may not handle possible future effects caused by new theories that may change accounting practice in the future.
Agency theory tries to describe financial statements and their basic accounting theories (Schroeder, Richard et al., 2001). This theory emerged from the relationship that exists between managers and shareholders. Agency theory assumes that individuals always try to increase their own expected utilities. Also, it assumes that they are creative in doing so. This theory is based on the fact that there is an agreed relationship between two parties. The first is the agent (usually the managers of a firm) and the second is the principal or the stakeholders. The principal agrees to let the agent act on his or her behalf. This usually happens because stakeholders are not capable or not trained sufficiently well to handle the firm in the manner that the managers can. An issue arises here which is the conflict of interest. This issue can be solved through several methods that ensure mutual benefit to both sides such as bonuses or a percentage for the agents. One negative point regarding agency theory is that it is based on the assumption that both parties are trying to maximise his own expected utilities. This assumption is not accepted politically or socially.
Universally Accepted Accounting Theory
From the previous elaboration on accounting theories, it is clear that there are different approaches to develop them. In addition, there is a wide and diverse range of accounting practices all over the world. Generally Accepted Accounting Principles (GAAP) is the standard framework of guidelines for financial accounting used in the United States of America. The obstacle that prevents GAAP becoming the principles on which global accounting theory is developed is that every country has its own standard accounting practice version of GAAP, usually set by a national governing body.
Currently, there is no Universally Accepted Accounting Theory. It seems that having such a theory will not occur in the near future. This is due to many factors, including the fact that using different approaches to develop such a theory will result in different theories. Also, establishing international standards is a very tricky process due countries seeking to protect the privacy of their domestic legal and economic matters. In addition, it is difficult to have one theory that satisfies all needs.
Of course, it is important to have guidelines to assist users with no accounting knowledge to understand company accounts. Also, there should be similar guidelines for accountants to handle multi-national firms and establishments.
Although some may argue that there is no need for such a universal theory as we are doing well without it, there is still a need for such a theory even if it is not as perfect as it should be.
To sum up, establishing Universally Accepted Accounting Theory can be a very complicated process. This paper discussed the statement: “there is no universally accepted accounting theory.” It gave a brief historical background and some basic information relating to accounting. It discussed the different approaches used to develop accounting theories, as well as the three common accounting theories. Finally, the essay elaborated on the fact that currently there is no universal global accounting theory.
Belkaoui, A. (1992) 3th edition, Accounting Theory. London: Dryden Press
Glautier, M. W. E. and Underdown B. (1991) 4th edition, Accounting Theory and Practice. London: Pitman Publishing
Schroeder, R. G. and Clarke, M. W. (1998) 6th edition, Accounting Theory: Text and Readings. London :John Wiley
New Restaurant Business and Operations Plan
Delicias, unlike other typical restaurants, will provide a unique excellent food at value pricing within an entertaining atmosphere. Delicias will be setup due to an increasing demand in value for everything the food purchased; customers are not willing to accept anything that does not meettheir expectations and a need for entertaining while dining. Delicias will provide soups/salads, appetizers, desserts and entrees to the San Diego market.
I will setup this business to provide the customers with value for their purchase and to realize profits from the business. The business will be able to meet its objective by offering value pricing and entertaining environment to its customers. This will be a lucrative business and I expect to open other restaurants with a similar setup in future.
Restaurant Description/Concept Statement
The restaurant will start out as a simple sole proprietorship I will be the owner. The founder will focus on both the operation and financial management of the restaurant. The founder has a Masters Degree in Business Management and Administration and has been working for various restaurant companies for over 5 years. The wealth of experienced gained and the educational background of the founder enables the founder to successfully manage and run the restaurant. The founder has chosen to engage in sole proprietorship to ensure that business decisions are made quickly. Secondly, sole proprietorship has been preferred because the founder has not found any other people with similar business ideas. The business will be small thereby generating a small profit margin and there could be problems while sharing profits.
Delicias will be a great place to eat since it will be combining an intriguing atmosphere with excellent and interesting food that is also very good for the people who eat within the restaurant. I am looking for fair profit and a rewarding place where my employees can work.
Vision Statement: Delicias restaurant is a place where customers come to relax, get enteretained while they relax and enjoy delicios food. From the moment our customers walk into the the restaurant, they are welcomed by a warm atmosphere, entertaining music and courteous employes.
Delicias restaurant will be located in San Diego, California at La Jolla. La Jolla has been chosen for the restaurant location because it has higher scale neighborhoods, where the people would more easily pay for a more expensive lunch or dinner. The restaurant will be a modern style architecture, simple yet elegant.
The patio area will be full of seasonal flowers and palm trees and a nice water fountain to accent the outdoor ambiance. The inside will have high ceilings and a stone floor with modern tables and chairs. The kitchen will be at one end of the restaurant, with a long horizontal window, so the guests can enjoy the process of their food. A variety of good wines is also necessary in a great restaurant, so it will need to have a wine cellar, I would like it to be also visible to the guests so they can see our wide variety and how beautiful a wine cellar can be. Tablecloths, plates, glasses and silverware will also be simple, very modern and spacious to provide the “look” for my plates.
A study conducted in Britain in 2003 among the restaurant owners showed that the restaurants can increase their profit margins by playing classical music within the restaurant while customers eat. This is because diners spend an average of 10% more per meal while listening to classical music than while listening to other forms of music such as pop music. A restaurant which has no music is unlikely to record high sales because the customers are likely to be bored and this reduces their spending. The ambience of a restaurant is a very important aspect. At Delicias, clients will expect to have a nice time, where they eat delicious food and relax. Therefore, my clients will enjoy a nice classic music while they are eating and bounding.
Delicias will focus on soups/salads, appetizers and entrees. Salad recipes will be used to provide the customers with a diverse and unusual menu. Delicias has also realized the demand of the customers in San Diego for healthy dishes and will be providing a wide mix of healthy food to meet this demand. The customers around San Diego like going out with their friends and family members to places where they can relax and get entertained and are willing to spend money to get these services. Therefore, I want an American style so they can feel comfortable like if they were going to eat at home, but with the touch of fine dining. The touch of fine dining will be giving by the ambience, decoration and food presentation.
Several items will be given to the customers as collaterals. The aim of these items will be to ensure that the customers are assured of the quality of the service and products the restaurant offers them. The collaterals will also create a good relationship between the management, the employees and the customers. Some of the collaterals which will be given include printed menus, business cards and gift cards.
An effective marketing plan will be drafted and implemented and will comprise a combination of local media and the restaurant marketing programs. The in-store marketing programs are considered more effective because they will be utilized at the restaurant while having direct contact with the customers. This will include the use of table tents, in-store tour given to every new customer, outdoor marquee message changed weekly, wall posters, yearly birthday parties and grand opening celebration. Other media will be engaged once the restaurant expands. For example, Radio campaign will be used to advertise our products and services and the management will make live presentation on the radio about its services. Newspaper campaign will also be used to place several large adverts throughout the month to explain the restaurant concept to the customers in San Diego. The best form of advertisement will be word of mouth. The restaurant will attract more customers by providing quality and healthy food within a cool and entertaining environment to the customers. The prices will be affordable and the food will be served in a clean and friendly environment. Emails containing interior pictures of the restaurant will be sent to prospective customers.
The management will employ three different marketing tactics to increase customer awareness of the restaurant. Delicias most important tactic will be word of mouth or in-store marketing. This marketing strategy has been chosen because it is cheap but has a great potential of attracting more customers. The Local Store Marketing (LSM) will be the second marketing tactic. These marketing plans require low budget plans. However, the use of the media has a wider customer effect but this will not used because the business is just starting and has not generated enough money for the adverts.
Delicias main focus in marketing will be to increase customer awareness among the customers in San Diego and the neighboring towns. Delicias will also direct all of its tactics and programs toward the goal of explaining what the restaurant offers and how it offers to the existing and prospective customers. The products will be priced fairly, keeping standards high, and executing the concept.
Furthermore, there will be no outside marketing for the first sixty days of business. The restaurant will also target festival seasons to attract more customers. However, the management of the restaurant will be careful not to bring in more customers than the restaurant can accommodate and serve effectively.
All menu items will be moderately priced. This will be done by ensuring that the food are of high quality and this will assist the restaurant in being the value leader in the restaurant business within San Diego.