Accounting

VOL.8 NO.2

Winter Theory:
2007
Missing in Action?
B Y G . R . C L U S K E Y, J R . , D B A , C PA ; C R A I G R . E H L E N , D B A , C PA , C F E ;
A N D R I C H A R D R I V E R S , P H . D . , C PA

LITTLE HAS CHANGED IN THE 500 YEARS SINCE LUCA PACIOLI INTRODUCED ACCOUNTING

“THEORY” BY DESCRIBING THE ACCOUNTING PRACTICES IN USE AT THE TIME AND

EXPLAINING THE RATIONALE BEHIND THE METHODS.

EXECUTIVE SUMMARY What is accounting theory? And where is it? Accounting theory seems similar in some respects
to generally accepted accounting principles—we know it exists, but no single source defines and enumerates it. Even
in our doctoral programs, where one would expect accounting theory to be studied and promulgated, little evidence
exists that accounting theory consists of anything more than a cursory review of current FASB issues or economic
transactions and firm value. Based on our recent review of 88 accounting doctoral-granting institutions in the United
States, we identify several different approaches to teaching accounting theory that have been or currently are used in
accounting doctoral curricula.

ecent corporate and audit failures have program. Lack of accounting theory (guiding and

R involved both accountants and auditors, the

very professionals expected to police and
stop corporate mugging of the public’s
investments. These practitioners need
accounting theory—a conceptual framework—to guide
and inform accounting practice, thus producing trans-
parent reporting, which is the foundation of the invest-
informing practitioners) in accounting doctoral curricula
could indicate a need for change to those curricula.
Likewise, presenting accounting theory as anything
other than a conceptual framework smacks of following
rather than leading accounting practice. Is accounting
theory—the basic foundation of accounting—really
leading the profession or merely following its practices?
ing public’s confidence. The basic explanation of accounting theory as the
Our study surveys accounting theory in doctoral pro- conceptual framework for applying accounting principles
grams. Specifically, the study attempts to identify how was debated throughout the last century. The American
doctoral programs define accounting theory and to mea- Accounting Association (AAA) published a series of
sure the level of inclusion of accounting theory in each “Statements of Accounting Principles” in The Accounting

M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 24 WINTER 2007, VOL. 8, NO. 2

Review (1936, 1941, 1948, and 1957) in an attempt to ples of historical cost, revenue recognition, matching,
establish a basis for accounting statements and to devel- full disclosure, materiality, and conservatism.6
op accounting concepts.1 While accounting principles Throughout history, accounting theory—a framework
were being debated and developed, accounting theory— of accounting principles—has always followed after
which would provide the conceptual framework for accounting practice. Luca Pacioli is considered the
application of accounting principles—was allowed to lag. father of accounting because one chapter of his Summa
In 1966, AAA published A Statement of Basic Account- Mathematica described double-entry bookkeeping prac-
ing Theory. To do this, it created the Committee to Pre- tices. That chapter essentially explained accounting as
pare a Statement of Basic Accounting Theory, which it was practiced at the time, but it also took the addi-
attempted “...to establish a foundation of concepts from tional step of justifying why it made sense. More than
which particular practices can be judged.”2 Later, in 400 years later, Paton and Littleton described their
1977, AAA published Statement on Accounting Theory and efforts on behalf of developing accounting theory as “a
Theory Acceptance. In it, the Committee on Concepts and coherent, coordinated, consistent body of doctrine” that
Standards for External Financial Reports admitted that could be expressed as standards if desired. What then
“...a single universally accepted basic accounting theory followed was a set of definitions and (again) a justifica-
does not exist at this time.”3 tion of current accounting practice.7
In the first volume of his five-volume Essays in All was relatively quiet until the Industrial Revolu-
Accounting Theory, Carl Devine describes accounting tion and the rise of corporate entities. The need to
theory as “the entire complex of logical rules, primitive build factories and machines required vast amounts of
terms, semantic rules of correspondence, interpreta- capital. Accounting for these very long-lived organiza-
tions, definitions, theorems, etc., necessary to explain tions was and continues to be a stretch for a system that
...behavioral or physical observations.”4 Thomas Evans was developed to account for 18-to-36-month joint ven-
defines theory as “a coherent set of hypothetical, con- tures. The most drastic efforts to first correct abuses
ceptual, and pragmatic principles forming a general and then determine a coherent theory of accounting
frame of reference for a field of study.”5 Evans refers to generally were spurred by the investing public’s signifi-
William Paton and A.C. Littleton when he defines cant losses. Chief among the abuses during the latter
accounting theory as “a coherent, coordinated, consis- part of the 19th and early 20th centuries was the arbi-
tent body of doctrine expressing the standards by which trary write-off of significant expenses directly against
corporation accounting may be judged.” Both of capital rather than through the income statement.
Evans’s definitions are consistent with the 1966 and George May, representing the AIA (the American Insti-
1977 AAA publications. tute of Accountants, a precursor of the American Insti-
We see that several accounting theorists have defined tute of Certified Public Accountants (AICPA)), began
accounting theory as being a conceptual framework consulting with the New York Stock Exchange in 1927
consisting of accounting principles to guide and inform and developed a Committee for Cooperation with the
accounting practitioners, educators, and researchers. In stock exchange a few years later to determine voluntary
reality, however, accounting principles—the basis of standards that would prevent such abuses.
accounting theory—have followed rather than led And so it went. Public losses from the stock market
practice. collapse of 1929 led to passage of the Securities Act of
1933 and the Securities and Exchange Act of 1934. The
AC CO U N T I N G T H E O RY Securities & Exchange Commission (SEC) was estab-
In their book, Intermediate Accounting, Donald Kieso, lished, and public accounting just managed to continue
Jerry Weygandt, and Terry Warfield note that the basic its self-policing. The first standard-setting body, the
assumptions of accounting theory are monetary unit, Committee on Accounting Procedures (CAP), was creat-
economic entity, going concern, and periodicity. And ed by the AICPA in 1939. Although conceived to get
accounting theory’s foundation is based on the princi- ahead of practice by creating a theoretical foundation for

M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 25 WINTER 2007, VOL. 8, NO. 2

the standards issued, this body essentially became a ref- tower to do—defer to practice?
eree, choosing best practices from those available at the The upshot of accounting practice being based on
time. It did, however, establish certain codas, perhaps certain underlying assumptions (monetary unit, going
most significantly the all-inclusive income statement. concern, historical cost, and consistency) is that
Later, recognizing that the CAP was not meeting its accounting theory has a rather shaky foundation. For
intended purpose, the Accounting Principles Board instance, the monetary unit assumption depends on a
(APB) was created for the same purpose, but with a known fallacy (stable dollar assumption), hardly a solid
research mission added to its charge. The APB was giv- beginning for accounting theory. Likewise, the going
en funding for a research staff to enable it to meet the concern assumption is a necessary element for using
expected goal. Unfortunately, as that research mission historical cost, but it is a rather bold assumption, to say
stepped out toward a more coherent theory, the AICPA, the least. Even if we accept the going concern assump-
the parent body of the APB, issued what was essentially tion, using historical cost is somewhat questionable in
a disclaimer of opinion on the APB’s work.8 many situations. It is also said that we are to be consis-
Ten years later, to avoid having standards set by a tent as well as conservative in the application of
governmental entity, the APB was replaced by the accounting principles. The FASB’s 2004 exposure draft,
Financial Accounting Standards Board (FASB). The Fair Value Measurements, however, presents a single stan-
FASB’s formation, with the attendant Financial dard on fair value measurements for those standards
Accounting Foundation for funding and for insulating that require a departure from historical cost.10
the FASB from “politics,” was preceded by the same The bottom line is that accounting theory is based on
sort of fanfare about research and the establishment of a set of generally accepted accounting practices rather
theory. The evidence so far is that the FASB has been than principles or theory. For practice to be based on
neither insulated from politics nor on the forefront of these assumptions, perhaps in the hopes of protecting
the establishment of theory. It has stepped out to have the investing public, is one thing. But to offer as sound
holding gains and losses in securities and in foreign accounting theory what is basically no more than rec-
exchange recognized, but it softened on the “all-inclu- ommended best practices is intellectually to bankrupt
sive income statement” by having both reported for the the discipline. Even the august Journal of Accounting
most part directly against equity. Research has published a witty set of sayings from The
Additional studies, such as AAA’s A Statement of Basic Quotations of Chairman Mao Tse-Tung as accounting
Accounting Theory and Ray Ball and Philip Brown’s “An theory.11 The result has been that, without an accepted
Empirical Evaluation of Accounting Income Numbers,” underlying theory, it is virtually impossible to do mean-
follow this same pattern of theory contenting itself by ingful theoretical research.
merely being the disclosure and justification of current In search of theories to permit the development and
practice.9 Even when the FASB was charged with pro- testing of hypotheses, accounting researchers have bor-
viding Statements of Financial Accounting Concepts (SFAC) rowed from other disciplines—economic theory, financial
as an underlying basis for accounting theory, many of theory, information theory, and agency theory, to name
the same existing objectives and definitions reappeared but a few. Ross Watts and Jerrold Zimmerman have even
in the SFACs. combined the concepts of these and other theories into
In the 1970s, academia entered a debate that concep- what they refer to as “Positive Accounting Theory.”12
tualized accounting theory as a struggle between two With this background, it is no wonder that we found
groups—“true income” advocates vs. “decision useful” that doctoral programs do not agree on what constitutes
proponents. Should accounting (theory) provide finan- accounting theory. It did seem worthwhile, however, to
cial information that represented “true income” but was determine if any of the borrowed theories holds sway or
not useful, or should it provide financial information if existing doctoral programs are continuing the tradition
that was useful for decision making but not “fair,” of treating practice (current events/issues) as theory.
“objective,” “verifiable,” or “true”? What was the ivory

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SURVEY OF AC CO U N T I N G P R O G R A M S FINDINGS AND CONCLUSIONS
Using Hasselback’s 2002-2003 Accounting Faculty Accounting theory seems to be alive and well in the
Directory, we identified 88 accounting programs that majority of accounting doctoral programs participating
offer doctoral degrees in the United States (Table 1). in our survey. The lack of consistency in what consti-
These 88 accounting doctoral programs were sent a sur- tutes accounting theory, however, makes the outcome
vey (see Table 2) that addressed three major questions: problematic. The notion that accounting theory primari-
ly reflects current FASB topics and/or economic transac-
1. Do they offer an accounting theory course? If so, tions and firm value—and not a guiding and informing
what resources are being used (readings, texts, etc.)? conceptual framework for either accounting practice or
2. Is accounting theory “integrated” into their curricu- theoretical accounting research—is less than ideal. This
lum? If so, at what level (undergraduate, masters, or failing is reinforced by our finding that 63% of account-
doctoral)? ing doctoral programs offering accounting theory use
3. Regardless of the answers to the first two questions, readings from current research journals as source mate-
what did they consider accounting theory to be? rials for their accounting theory courses rather than
accounting theory textbooks.
We identified five approaches to teaching accounting Accounting theorists still seem content to explain
theory by examining the syllabi collected online from and rationalize practice as accounting theory rather than
graduate accounting programs and from a review of creating a conceptual framework of true accounting
accounting theory textbooks (Table 3). A sixth approach theory—an accounting theory that is both internally
was added based on telephone inquiries to accounting consistent and that serves as a model to guide and
doctoral programs. inform practice, much like a mission or vision statement
guides organizations.
R E S U LT S OF THE SURVEY Given these shortcomings, it appears that the current
Of the 79 accounting doctoral programs that partici- curricula of accounting doctoral programs need to
pated in our survey, 59 programs (75%) contain some change with respect to the basic foundation of account-
element of accounting theory. Forty-one programs ing (accounting theory). The theory we teach (and what
(52%) offer at least one accounting theory course (or a students hopefully learn) in our accounting doctoral
course they consider to be accounting theory) at the programs should be:
undergraduate, master’s, or doctoral levels or at more
than one level. Eighteen of the remaining 38 pro- 1. A framework to guide accountants in the develop-
grams “integrate” accounting theory into their curricu- ment of accounting practice,
la at some level. Of the 59 accounting programs that 2. A theory against which accounting courses can be
either offer accounting theory courses or integrate measured and through which accounting programs
accounting theory, 37 use readings only, 14 use other can be validated, and
texts, and 19 use accounting theory textbooks (see 3. A framework to guide accounting research.
Table 4). Some programs use a combination of text-
books and readings. L I M I TAT I O N S AND FUTURE RESEARCH
Accounting theory was defined by 60% of the As in all self-report surveys, the reported data are sub-
respondents as being “Current FASB Issues” and/or ject to the biases of the individuals responding—in this
“Economic Transactions and Firm Value” (see Table case, the faculty members or administrators responding
5). Only 11% declared accounting theory to be “tradi- on behalf of the accounting doctoral programs. The
tional,” which includes Edwards and Bell, Patton and focus of future research will be to expand, explore, and
Littleton, etc. Some respondents described their pro- validate these survey findings from accounting doctoral
grams by selecting more than one accounting theory programs to undergraduate and master’s accounting pro-
approach. grams. Specifically, the questions of defining accounting

M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 27 WINTER 2007, VOL. 8, NO. 2

Table 1: Doctoral Accounting Programs Surveyed from Hasselback’s
Directory 2002–2003

1 University of Alabama 45 University of Minnesota

2 University of Arizona** 46 University of Mississippi
3 Arizona State University 47 Mississippi State University
4 University of Arkansas 48 University of Missouri-Columbia
5 Boston University 49 University of Nebraska
6 University of California-Berkeley 50 New York University
7 University of California-Irvine 51 University of North Carolina
8 University of California-LA 52 University of North Texas
9 Carnegie Mellon University* 53 Nova Southeastern University
10 Case Western Reserve University 54 Ohio State University
11 University of Central Florida 55 University of Oklahoma
12 University of Chicago 56 Oklahoma State University
13 University of Cincinnati 57 University of Oregon
14 CUNY-Baruch College 58 University of Pennsylvania*
15 University of Colorado-Boulder 59 Penn State University
16 Columbia University 60 University of Pittsburgh
17 University of Connecticut 61 Purdue University
18 Cornell University 62 University of Rochester
19 Drexel University* 63 Rutgers University-Newark
20 Duke University 64 University of South Carolina
21 University of Florida 65 University of South Florida
22 Florida Atlantic University 66 University of Southern California
23 Florida State University 67 Southern Illinois University
24 George Washington University 68 Stanford University
25 University of Georgia 69 SUNY-Binghamton
26 Georgia Institute of Technology 70 SUNY-Buffalo
27 Georgia State University 71 Syracuse University
28 Harvard University 72 Temple University
29 University of Houston* 73 University of Tennessee
30 University of Illinois 74 University of Texas-Arlington*
31 Indiana University 75 University of Texas-Austin
32 University of Iowa 76 University of Texas-Dallas
33 Jackson State University 77 Texas A&M University
34 University of Kansas 78 Texas Tech University*
35 Kent State University 79 Tulane University
36 University of Kentucky 80 University of Utah
37 Louisiana State University 81 University of Virginia-Graduate
38 Louisiana Tech University 82 Virginia Commonwealth University
39 University of Maryland* 83 Virginia Polytechnic Institute and State University
40 University of Massachusetts* 84 University of Washington
41 Massachusetts Institute of Technology 85 Washington University
42 University of Memphis 86 Washington State University
43 University of Michigan 87 University of Wisconsin-Madison
44 Michigan State University 88 Yale University

**No Data—Did Not Respond **Elected Not to Participate

M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 28 WINTER 2007, VOL. 8, NO. 2

Table 2: Survey

1. [University] currently grants a doctoral degree in accounting: YES NO

2. Which approach(es) to Accounting Theory do you prefer:
Circle All That Apply

A. CPA Review Course

B. Traditional (Edwards and Bell, Paton and Littleton, Sterling and Chambers, Hatfield, Devine, etc.)
C. Contemporary (Current Issues Facing FASB)
D. Historical (History of Accounting and Review Development of GAAP)
E. Economic (Economic Transactions—Firm Value)
F. Accounting Matters in the World—Information for Decisions
G. Other: _______________________________________________________
3. Do you offer a course titled “Accounting Theory” or is a course considered to deliver
“Accounting Theory” offered at either the undergraduate, master’s, or Ph.D. level: YES NO
A. If NO, is Accounting Theory “integrated” into the accounting curriculum at any level: YES NO
B. If Accounting Theory is offered or “integrated,” at what level: Undergraduate M.S. Ph.D.
C. If YES (Accounting Theory Course is offered), then what course materials are used:
Circle All That Apply

1. READINGS—Journal Articles
2. TEXTBOOK (Title, Author) ____________________________________
3. COMBINATION
If you would like a summary of our research, please leave your e-mail address: ___________________________
Please return via FAX

Table 3: Accounting Theory Textbooks

William H. Beaver, Financial Reporting: An Accounting Revolution, 3rd ed., Prentice Hall, 1998.

Carl T. Devine, Studies in Accounting Research # 22 (I-V), AAA, 1985.

Thomas G. Evans, Accounting Theory: Contemporary Accounting Issues, 1st ed., South-Western, 2003.

Vernon Kam, Accounting Theory, 2nd ed., Wiley, 1990.

Richard G. Schroeder, Myrtle W. Clark, and Jack M. Cathey, Financial Accounting Theory and Analysis,
7th ed., Wiley, 2001.

William R. Scott, Financial Accounting Theory, 1st ed., Prentice Hall, 1997.

Ross L. Watts and Jerrold L. Zimmerman, Positive Accounting Theory, 1st ed., Prentice Hall, 1986.

Harry I. Wolk, Michael G. Tearney, and James L. Dodd, Accounting Theory: A Conceptual and Institutional
Approach, 5th ed., South-Western, 2001.

Stephen A. Zeff and Bala G. Dharan, Readings & Notes on Financial Accounting, 5th ed., Irwin/McGraw-
Hill, 1997.

M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 29 WINTER 2007, VOL. 8, NO. 2

Table 4: Accounting Theory Course Materials

Materials used in the accounting theory courses consisted of:

Readings (Journal Articles) 37
Other Texts, Intermediate, Advanced, FASB, GAAP, Gleim, Delaney, etc. 14
Accounting Theory Textbooks: 19
Beaver 3
Devine 0
Evans 2
Kam 0
Schroeder, et al. 5
Scott 3
Watts and Zimmerman 1
Wolk, et al. 3
Zeff and Dharan 2

Table 5: Accounting Theory Defined

Sixty-one of the 79 programs described an approach to “Accounting Theory” as one or a combination of:

Contemporary (Current FASB Issues) 40

Economic (Economic Transactions—Firm Value) 39

Historical (History of Accounting and Review of GAAP) 21

Accounting Matters in the World—Information for Decisions 15

Traditional (Edwards and Bell, Paton and Littleton, etc.) 14

CPA Review Course 3

TOTAL 132

theory, offering accounting theory courses or curricula Craig R. Ehlen, DBA, CPA, CFE, is professor of account-
integration, and determining source materials used will ing at the University of Southern Indiana, Evansville, Ind.
be surveyed to determine if possibly a “trickle down He can be reached at (812) 464-1785 or [email protected].
effect” exists from doctoral programs. ■
Richard Rivers, Ph.D., CPA, is associate dean, College of
G.R. Cluskey, Jr., DBA, CPA, CFE, is professor of account- Business Administration, Southern Illinois University—
ing at Troy University Dothan, Navarre, Fla. He can be Carbondale, Carbondale, Ill. He can be reached at
reached at (334) 983-6556, ext. 1266, or [email protected]. (618) 453-7966 or [email protected].

M A N A G E M E N T A C C O U N T I N G Q U A R T E R LY 30 WINTER 2007, VOL. 8, NO. 2

E N D N OT E S
1 American Accounting Association (AAA) Executive Commit-
tee, “A Tentative Statement of Accounting Principles Affect-
ing Corporate Reports,” The Accounting Review, June 1936,
pp.187-191; AAA, “Accounting Principles Underlying Corpo-
rate Financial Statements,” The Accounting Review, June 1941,
pp. 133-199; AAA Committee on Concepts and Standards
Underlying Corporate Financial Statements, “Accounting Con-
cepts and Standards Underlying Corporate Financial State-
ments,” 1948 Revision, The Accounting Review, October 1948,
pp. 339-344; AAA Committee on Concepts and Standards
Underlying Corporate Financial Statements, “Accounting and
Reporting Standards for Corporate Financial Statements: 1957
Revision,” The Accounting Review, October 1957, pp. 536-546.
2 AAA, A Statement of Basic Accounting Theory, 1966.
3 AAA, Statement on Accounting Theory and Theory Acceptance, 1977.
4 Carl T. Devine, Essays in Accounting Theory (Studies in Accounting
Research), AAA, 1985, p. 15.
5 Thomas G. Evans, Accounting Theory, Thomson South-Western,
2003, p. 16.
6 Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield,
Intermediate Accounting, 11th ed., John Wiley & Sons, 2004,
pp. 36-39.
7 William A. Paton and A.C. Littleton, An Introduction to Corpo-
rate Accounting Standards, AAA, 1940.
8 Robert T. Sprouse and Maurice Moonitz, A Tentative Set of
Broad Accounting Principles for Business Enterprises, AICPA, 1962.
9 A Statement of Basic Accounting Theory, 1966; Ray Ball and Philip
Brown, “An Empirical Evaluation of Accounting Income
Numbers,” Journal of Accounting Research, Autumn 1968,
pp. 159-178.
10 AAA Financial Accounting Standards Committee, “Fair Value
Measurements,” Accounting Horizons. September 2005, pp. 187-
196.
11 Paul Frishkoff, “Some Radical Thoughts on Accounting Theo-
ry,” Journal of Accounting Research, Spring 1976, pp. 178-180.
12 Ross L. Watts and Jerrold L. Zimmerman, “Towards a Positive
Theory of the Determination of Accounting Standards,” The
Accounting Review, January 1978, pp. 121-133; Watts and Zim-
merman, “The Demand for and Supply of Accounting Theo-
ries: The Market for Excuses,” The Accounting Review, April
1979, pp. 273-301; Watts and Zimmerman, “Positive Account-
ing Theory: A Ten Year Perspective,” The Accounting Review,
January 1990, pp. 131-153.

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