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.
Read more about this topic: Positive Accounting
Famous quotes containing the word views:
“The word “conservative” is used by the BBC as a portmanteau word of abuse for anyone whose views differ from the insufferable, smug, sanctimonious, naive, guilt-ridden, wet, pink orthodoxy of that sunset home of the third-rate minds of that third-rate decade, the nineteen-sixties.”
—Norman Tebbit (b. 1931)
“Taught from their infancy that beauty is woman’s sceptre, the mind shapes itself to the body, and, roaming round its gilt cage, only seeks to adorn its prison. Men have various employments and pursuits which engage their attention, and give a character to the opening mind; but women, confined to one, and having their thoughts constantly directed to the most insignificant part of themselves, seldom extend their views beyond the triumph of the hour.”
—Mary Wollstonecraft (1759–1797)
“No work of art ever puts forward views. Views belong to people who are not artists.”
—Oscar Wilde (1854–1900)