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Accounting Theory (in English)

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About Course

Acc. 254001: Accounting Theory (in English)
Course Objectives: This course is designed to:
(i) get students familiar with concepts of theory development and theories of accounting
policy choice, measurement of economic income and the value relevance of accounting
information and with the process of development of accounting and reporting regulations;
(ii) help students of accounting to critically examine the connection between accounting
theories and the regulatory framework of financial accounting;
(iii) equip students with the ability to critically evaluates conceptual frameworks for the
preparation and presentation of financial statements of both the International Accounting
Standard Board (IASB) and the Financial Accounting Standard Board (FASB); and
(iv) delve into financial disclosure regulations and practices in Bangladesh. The issue of both
disclosure adequacy and quality in the corporate annual reports will be highlighted.

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Course Content

Chapte-1 Introduction to Accounting Theory
Definition of Theory; Importance for Accounting Students to Study Accounting Theory; An Overview of Theories of Accounting: Pragmatic Theories, Normative Theories, Positive Theories; The Fundamental Problem of Financial Accounting Theory; Regulations as a Reaction to the Fundamental Problem.

Chapter-2 The Theories of Regulation Relevant to Accounting
Theory of Efficient Markets, Agency Theory, Theories of Regulation: Public Interest Theory, Regulatory Captures Theory, Private Interest Theory; How Theories of Regulation Apply to Accounting Practice; Regulatory Framework for Financial Reporting.

Chapter-3 Conceptual Framework for the Preparation and Presentation of Financial Statements
a) Conceptual Framework of Accounting and its Importance; Brief Overview of the History of the Development of Conceptual Frameworks. b) Building Blocks of IASB’s Conceptual Framework. c) Conceptual Framework to Legitimize Standard-Setting Bodies; Normative vs. Positive Approaches and the Development of Conceptual Framework.

Chapter-4 Theory and Concepts of Measurements in Accounting
a) Concepts of Measurement; Importance of Measurement; Reliability and Accuracy in Measurement; Issue of Measurements in Accounting; Rationale Behind Double-Entry Accounting; Measurement of Accounting and Economic Income; Accounting Policy and Changes; Earnings Smoothing, Earning Management, Big Bath Accounting vs. Creative Accounting; Fraud in Accounting. b) Capital Maintenance Concepts and Earnings Measurement; Historical Cost Accounting (HCA) vs. Fair Value Accounting (FVA); Information conveyed by HCA and FVA; Meaning of Price-To-Book Ratio and Price-Earnings Multiple under HCA and FVA; and Fair Valuation and Market Capitalization. 53 c) Approaches to Fair Value Measurement (Statement of Financial Accounting Standard (SFAS) 157 and IAS 39; Arguments for and against FVA, Pro-Cyclicality and FVA. d) The Present System of Accounting Recognition and Measurement (A Mixed System Involving both HCA and FVA); Measurement of Assets, Liabilities and Owner’s Equity; Revenues and Gains: Definition, Recognition, and Measurement; Expenses and Losses: Definition, Recognition and Measurement; Fair Valuation of Non-Current Assets and Intangibles; Problems and Prospects.

Chapter-5 Accounting and Capital Markets:
a) Efficient Market Hypothesis and Tests of Market Efficiency with respect to Accounting Information; Effects of Earnings Announcements on the Level and Variability of Stock Prices; Association between Accounting Performance Measures and Stock Returns. b) Earnings Response Coefficients and Value Relevance of Accounting Information; A Brief Review of Models of Equity Valuation; Relationship between Fundamental Value and Earnings and/or Free Cash Flows; Financial Statement Analysis and Prediction of Earnings and Growth in Earnings and hence the Fundamental Value of Equities; Review of Research on Earnings Response Coefficients and on the Value Relevance of Accounting Information. c) Positive Accounting Theory; Agency Problem between a Firm’s Shareholders (Principal) and its Management (Agent); Managerial Incentives and Accounting Numbers; Role of Accounting in Contracts and in the Political Process; Capital Market Effects of Accounting Method Changes and Stock Market Reactions to New Accounting Standards.

Chapter-7 Accounting Standards
Structure for Setting Accounting Standards; Role of the IASB to Harmonize Accounting and Reporting Practices across Countries. b) International Financial Reporting Standards (IFRS) Issued by IASB; First-Time Adoption of International Financial Reporting Standards (IFRS-1). 8. Accounting Standards Adopted in Bangladesh; BASs adopted IASs and renamed by ICAB.

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