Views
Positive accounting can be associated with the contractual view of the firm. The firm is viewed as “a nexus of contracts” and accounting one tool to facilitate the formation and performance of contracts. Under this view, accounting practices evolve to mitigate contracting costs by establishing ex ante agreement among varying parties. For example, positive accounting postulates that conservatism in accounting –in this sense defined conditionally as requiring lower (higher) standards of verifiability to recognize losses (gains)– has origins in contract markets, including managerial compensation contracts and lender debt contracts. As an example, absent conservatism, managerial compensation agreements may reward managers based on current reports that later evidence indicate were unwarranted.
The contractual view of positive accounting puts it in tension with value relevance studies in accounting: the latter contend that accounting’s primary role is to value the firm, and thus practices like conservatism are sub-optimal. The value relevance school emphasizes the usefulness of accounting information to equity investors in contrast to its usefulness in contracting exercises.
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Famous quotes containing the word views:
“Your views are now my own.”
—Marvin Cohen, U.S. author and humorist.
In conversation, after having taken a strong position in an argument and heard a complete refutation of his position.
“I shall do less whenever I shall believe what I am doing hurts the cause, and I shall do more whenever I shall believe doing more will help the cause. I shall try to correct errors when shown to be errors; and I shall adopt new views so fast as they shall appear to be true views.”
—Abraham Lincoln (1809–1865)
“Parents must begin to discover their children as individuals of developing tastes and views and so help them be, and see, themselves as thinking, feeling people. It is far too easy for a middle-years child to absorb an over-simplified picture of himself as a sloppy, unreliable, careless, irresponsible, lazy creature and not much more—an attitude toward himself he will carry far beyond these years.”
—Dorothy H. Cohen (20th century)