Contrast ‘normative’ Theories With ‘positive Accounting’

Contrast ‘normative’ theories with ‘positive accounting’ theory. Have we moved to a new paradigm and if so what is it

Watts and Zimmerman’s ‘The Demand and Supply of Accounting Theories: The Market for Excuses’ critique the normative approach in accounting, arguing that there are no objective standards to judge accounting practices as fundamentally good or bad; instead, such judgments are often mere excuses serving particular social or economic interests. They suggest that normative theories are more about justifying existing practices than about discovering objective truths. Tony Tinker expands on this critique by proposing that positive accounting theory, which seeks to explain and predict actual accounting behavior without normative judgment, is being supplanted by a new paradigm emphasizing usefulness, vocational training, and practical application. This evolution reflects shifts in the role of accounting from a focus on theoretical ideals to pragmatic, utility-driven approaches.

Normative accounting theories prescribe how accounting should be practiced, often based on principles such as fairness, objectivity, and comparability. These theories aim to establish ideals and standards to guide practitioners towards ethical and consistent practices. Conversely, positive accounting theory (PAT), developed primarily by Watts and Zimmerman, seeks to explain and predict actual accounting practices by focusing on firms' incentives and economic behaviors. PAT is empirically grounded, emphasizing real-world behavior over normative ideals. It assumes actors are driven by self-interest and seeks to understand deviations from normative prescriptions without passing moral judgment.

The debate between these paradigms encapsulates fundamental philosophical differences. Normative theories are rooted in an ethical stance, emphasizing what ought to be done for the sake of fairness or justice. They often serve as guidelines for regulation and policy. Positive theories, however, are descriptive and predictive, emphasizing the understanding of how accounting practices develop in response to incentives such as managerial objectives, market pressures, or regulatory environments. This dichotomy has historical roots in the broader scientific debate between normative and positive sciences, with accounting shifting from a normative, value-laden discipline towards a more scientific, empirically based one.

In recent years, as Tony Tinker highlights, the field appears to be transitioning towards a paradigm that prioritizes empirical usefulness and practical relevance. This shift can be discerned in the rise of legibility and standardization efforts that facilitate decision-making and external scrutiny. The new paradigm emphasizes practical applications, vocational training, and the role of accounting in supporting managerial decisions, investor relations, and regulatory compliance rather than adherence to abstract normative ideals.

Despite this shift, debates continue regarding whether the new focus on usefulness dilutes the normative aspirations of the discipline or whether it enhances the discipline’s relevance in a complex, dynamic economic environment. Some scholars argue that this pragmatic focus risks commodifying accounting, transforming it into a tool subordinate to market forces and managerial interests, thus potentially undermining its normative aims. Others see it as an essential evolution that aligns accounting more closely with economic realities and stakeholder needs, fostering transparency and accountability through empirically grounded practices.

To summarize, the transition from normative to positive theories reflects a broader shift from prescriptive ideals towards descriptive, pragmatic approaches. The proposed new paradigm emphasizes usefulness, practical application, and vocational training, effectively redefining the role of accounting from an ethical, normative discipline to a functional tool tailored to economic and managerial realities. While this evolution brings greater relevance and empirical rigor, it also raises concerns about the potential erosion of normative principles of fairness, objectivity, and transparency which continue to influence regulatory frameworks and ethical debates within the field.

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