In this research paper we are going to fulfill the following tasks: describe three theories of regulation, examine the positive accounting theory and its role in the development of the accounting practices, discuss the perspective of accounting history and analyze an article on accounting. Let us start with the theories of regulation.
In all the economic systems, without exception, the state regulates the economy. In the modern market economy, such regulation is carried out on a smaller scale than, for example, in the administrative-command system, but the economic role of the state is still great.
The state regulation of economy is a system of typical legislative, executive and supervisory mechanisms carried out by the relevant competent government agencies and public organizations in order to stabilize and adapt the existing socio-economic system to changing conditions. As we know, the attitude towards the state intervention in the economy was different at different stages of the economy. Let us quote a few key theories of such interference: classical theory, Keynesian theory and neoclassical theory.
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At first we are going to talk about the classical theory. The founder of the classical theory was Adam Smith with the work "The study on the Nature and Causes of the Wealth of Nations", in which he argued that the free play of the market forces create a harmonious unit.
In accordance with the classical approach the state has to ensure the safety of a human life and property, to resolve disputes, in short, to do what the individual is or is not able to do himself, or does it inefficiently. In his description of the system of market economy, Adam Smith argued that it is the desire of entrepreneurs for the promotion of their private interests is a major driving force of the economic development, increasing the ultimate prosperity of both himself and society as a whole. The main thing was that, for all the business entities the basic economic freedoms should be guaranteed, namely the freedom of choice of the field of activity, the freedom of competition and the free trade.
Now let us examine the Keynesian theory of regulation. In the 30th year of the last century, after the deepest recession of the economy of the United States of America, John Maynard Keynes put forward his theory, in which he denied the views of the classics on the role of the state. Keynes's theory can be called the "crisis" one because, in fact, he viewed the economy in a state of depression. According to his theory, the state should actively intervene in the economy due to the lack of free market mechanisms, which would truly ensure the economic recovery from the crisis. Keynes believed that the state should influence the market in order to increase the demand as the cause of the capitalist crises was the overproduction of goods.
He offered several tools. It was a flexible monetary policy, a stable fiscal policy, etc. The flexible monetary policy could step over one of the greatest barriers the rigidities in wages. This might be accomplished, considered Keynes, by changing the amount of money which were in circulation. With the increase of the amount of money the real wages would decrease, which would stimulate the investment demand and the employment growth. With fiscal policy, Keynes recommended the state to increase the tax rates and the expense of these funds would finance the unprofitable enterprises. This would not only reduce the unemployment in the country but would also relieve the social tensions.
The main features of the Keynesian model of regulation are: the share of national income is high and is redistributed through the state budget; a vast area of the public enterprise was created on the basis of education of public and mixed enterprises; the budget and fiscal, and credit and financial regulators were used to stabilize the economic situation, the smoothing of cyclical fluctuations, the maintaining high growth and high employment.
This model allowed to weaken the cyclical fluctuations in the economy for more than two postwar decades. However, later its weakness revealed. Since about the early seventies of the twentieth century the imbalance between the capacities of the government regulation and the objective economic conditions became to manifest. The Keynesian model could be sustained only under the conditions of high growth. High rates of growth of the national income created the possibility of the redistribution of the accumulation of capital without compromising.
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The third theory we are going to discuss is the neoclassical theory. The theoretical basis of the neoclassical model has become the concept of the classic economic thought. The transformation of the model of the state regulation was in the refusal of the impact on the reproduction of the demand, but instead of it the use of the indirect measures for the impact on the proposal. Many proponents of the economy of proposal felt the need to recreate the classic mechanism of accumulation and to restore the freedom of the private enterprise. The economic growth is seen as a function of the capital accumulation, which takes place from two sources: their own funds, i.e. the capitalization of profits and through the loans. Therefore, in accordance with this theory, the state should provide conditions for the process of capital accumulation and rising the productivity of production.
The main difficulties in this way are the high taxes and inflation. The high taxes limit the growth of investment, and inflation increases the cost of the credit and thus it difficult the using of the borrowed funds for accumulation. That is why the neoclassics suggested the implementation of the anti-inflationary measures on the basis of recommendations of the monetarists and providing the tax incentives to the entrepreneurs. Reducing the tax rates reduces also the state budget income, and increases its deficit, which complicates the fight against the inflation. Consequently, the next step to be is to reduce the government spending, refuse to use the budget to maintain the demand and the implementation of the large-scale social programs. The policy and privatization of the state property may be included here.
The next set of measures to be taken is the implementation of the policy of deregulation. This means the liquidation of the rules on price and wage, the liberalization (mitigation) of the antitrust legislation, the deregulation of the labor market, etc.
From all the said above we can conclude that in the neoclassical model the government can only indirectly influence the economy. But the chief role in the realization of the economic development of the country is given to the market forces.
The positive theory of accounting is one of the branches of the scientific study of accounting, which tries to explain and predict the current practice of accounting. It is opposed to the normative theory of accounting, which seeks to withdraw and to establish the "best" rules of the accounting. The positive accounting can be associated with the contractual view of the nature of the firm. The company in this case is regarded as a chain of contracts, and accounting is regarded as a tool for the improvement of the detention and the action of treaties. According to this point of view, the mechanisms of accounting seek to reduce costs associated with contracts, through the establishment of the expected agreement among the diverse parties. For example, the positive accounting argues that conservatism in accounting which is in this sense traditionally defined as required as weaker (more strict) rules of recognizing the evidence of the loss (profit) - has its roots in the contract markets, including the contracts of the management compensation and the debt to the lenders. As an example of the lack of conservatism it is possible to cite the agreement on the management compensation, which may reward the managers basing on the current reports, which will be unfounded by following evidence.
The treaty look at the positive theory of accounting is in conflict with the studies of the importance of cost accounting: the last cast doubt that the main purpose of accounting is to assess the company and therefore such things as conservatism, are quasi-optimal. The school of the importance of the value emphasizes the usefulness of the accounting information for the investors in the capital as opposed to the usefulness of the conventional applications.
The positive accounting theory emerged from the empirical research, which flourished in accounting in the late 1960's. It was built as a scientific school of thought in this scientific field by the work of Ross Vaughts and Dzherold Zimmerman (1978 and 1986) at the school of business management of William E. Simon of the University of Rochester, and by the foundation of the Journal of Accounting and Economics in 1979. When they were released, these innovative articles met a considerable criticism.
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Now let us pass to the second section of our research. The positive theory is a part of the economic theory, which studies and explains the observable economic facts, events, processes, establishes a link between them in contrast to the normative economic theory, which prescribes, recommends how to implement economic policies to manage the economy.
The positive theory examines the real state of the economy and how this condition may be changed as a result of certain events. The positive theory is based on the study of the cause-effect relationships and argues for the principle of "if - then". For example, if the price of the milk is increased, people will buy it less, if the firm makes a larger profit, it can expand production and so on. Even so the positive theory does not assess all of these events in the terms of "good" or "bad" and is suitable to them impartially.
The positive analysis examines the relationships between the economic phenomena as they are, for example, the growth of prices for goods reduces the demand for them (at other conditions being equal). In this assertion there are no any normative, i.e. value judgments, but simply a statement of fact. No arguments, if it is fair or not, good or bad. Such approach to the positive analysis of the economic theory does not differ from the method of research in physics or chemistry.
The role of the positive theory in the development of accounting practices is considerable. The positive theory, without offering any valueable judgments, focuses on the processes as a result of which people get answers to four basic questions of accounting. This theory examines the effect of the accounting, the impact of certain institutions and political actions on the system of accounting. The positive science traces the connections between the facts, looking for the measurable regularities in the processes that occur.
Let us examine the "socially constructed" perspective of accounting history. The New Accounting Historians give to accounting the roles which are much wider than just purely functional, that accounting acts in society and organizations. In connection with this question we should turn to the opinion of Burchell (1980) which was supported by the researches who work within New Accounting History: "The consequences that accounting systems have cannot be considered to be simple reflections of the interests which might have given rise to their creationâ€¦ For once in operation, accounting systems are organizational phenomena. Indeed, having their own modus operandi they themselves can impose constraints on organizational functioning, often contributing in the process to the effective definition of interests rather than simply expressing those which are pregivenâ€¦ (Accounting systems) become mechanisms around which interests are negotiated, counter claims articulated and political processes explicated".
Burchell (1980) means that accounting is a politically and socially constructed criteria but not neutral and objective ones. Accounting data should also be used for political and social reasons and not only as an answer to the economical demands.
From the alternative perspective the term "accounting" is replaced by the term "calculation". This method is used for getting more possibilities to learn the history of accounting and to broaden the opportunities for tracing its development from past to nowadays. Miller (1991), one of the representatives of the alternative perspectives of accounting history, considers that this is a try to evade an "a priori limiting of the field of study of accounting as it currently exists, or to a particular accounting technique such a double - entry book-keeping". He also thinks that it helps to support peculiar relations of influence and power.
Two other researches representing the alternative perspective of accounting history Ezzamel and Hoskin (1998) argue that accounting is first of all the habit to enter a written record of activities and items in a visible form. For them accounting is also a type of signs which name and count the activities and items that are recorded. They consider that accounting is a technology of valuing and quantification. For Ezzamel accounting is a "constructor of value".
As for the origin of the accounting the alternative researches pay more attention on the outcomes, results of the past. They also study the micro and macro levels of the economy and society. It is also should be noticed that the representatives of the alternative perspective of accounting history are not obsessed with the origin of accounting but they focus on the social and political settings of that time. The New Account Historians refuse the model "demand-response" for two reasons. The first reason is that the role of accounting practices in modern organizations and society can not be reduced just to the absolutely economical and rational. The second reason is that such reduction is becoming much more problematic when it considers the earlier periods of history. It happens because of the reason that the modes of thinking and acting were different at those early periods and they confirmed the functioning of accounting at that time.
In our research paper we are going to examine and analyze the article under the title "Accounting for needs? Formula funding in the UK schools sector". The article was written by the author Gloria Agyemang working at School of Management, Royal Holloway, University of London, Egham, UK. The article was published in the journal under the title Accounting, Auditing & Accountability Journal, 2010.
In this article the author examines the problem of funding of the school sector. She is trying to find the answer on the question: Whose needs are more important in the development of the needs-based funding formula- the funders' needs or the service providers' needs? To give the information in the article and to answer the question the author Gloria Agyemang analyzes the information get from the results of the monitoring of interview data and documents gathered by the United Kingdom local education authority about the development of the "needs-based" formula for dividing resources among the schools.
The author also uses the data of the researches of LevacË‡ic. and Ross. These researchers suggest five criteria which are character for different stages of the development of formula. These criteria are the following: efficiency, effectiveness, integrity, equity and accountability. LevacË‡ic. and Ross state that these criteria are connected and can not be separated. In this article Gloria Agyemang affirms that it goes without saying that the formula funding is a more objective method of the allocation of resources. However, the needs of the service providers are also included in this method as in other methods of allocation of resources among the funders and the service providers. In this article there is a little disadvantage. Here only the funding of schools is considered. Consequently, a great amount of work is in prospect for investigating the formula funding in other public services. On the assumption of the material worked and analyzed it is possible to affirm that the discussions that sometimes take place between the funders and the service providers must be encouraged by the representatives of policy. This is needed to provide the allocations of resources that would be acceptable for the service providers.
This article gives us a very important analysis of the funding formula of allocation of resources in schools and examines to what extends the needs of the funders and of the service providers are included into it. The processes of allocation depend on the processes of funding that are based on the power relationships between the funders and the users. In general, the funding formula does not have differences from other methods of allocation of resources. It should be noted that the formula itself is being in discussion and its benefits are to be found. It should be remained that the resources are not endless and that is why the problem of their allocation will always be competitive and will stay in the field of politics.
As we can see from the written above the article of Gloria Agyemang is interlaced with the aspects studied before. It is closely connected with the questions examined in the previous sections. We absolutely agree with the opinion of the author and recognize that her analysis is very important for accounting.
So, in this research paper such issues as the description of three theories of regulation, examination of the positive accounting theory and its role in the development of the accounting practices, discussion of the perspective of accounting history and analyze of an article on accounting have been uncovered.