Positive Accounting Theory and the PA Cult

Abstract

Positive accounting theory is claimed to be explanatory of accounting practice; a scientific, empirical, economics‐based theory. These claims are examined severally, and in significant respects are found to be untenable. Vast tracts of accounting practice remain unexplained, even unnoticed. That scientific enterprise is directed to the development of technical norms or prescriptions is set aside. The association between the ideas of economics and accounting extends, at the hands of the theory's exponents, not to the corpus of well‐established economic notions, but only to tangential elements of economics. While purporting to shun prescription, the exponents of the theory, both actively and by implication, endorse conventional accounting which is heavily dependent on normative propositions. The‘theory’is marred by oversights, inconsistencies and paradoxes. The implicit hope that the methodology followed‘will provide a useful positive accounting theory’(Watts and Zimmerman, 1986, p. 362) entails that its proponents have offered no such theory.