March 1, 2015
Module #2 Assignment

Case 4-3: 1. The deductive approach to the development of accounting theory starts with the establishment of certain objectives. After identifying the objectives, key definitions and assumptions are stated. Later on, researchers develop a structure for accomplishing the objectives from the information of the definitions and assumptions. An example of deductive theory is political economy theory. The theory emphasizes the objective of accounting to not allow it to benefit one group over another. It also recommends viewing market and socio-economic forces in the development of accounting theory. Agency theory is also a normative theory, which attempts to explain behavior.

2. The inductive approach to the development of accounting theory makes observations and draws conclusions from the observations made, which goes from specific to the general view. This approach allows the researcher to make a general point of the universe based upon a number of observations of specific situations. An example is APB Statement No. 4. The inductive research describes GAAP on the basis of current practice observations.

3. The pragmatic approach to theory development is utility or usefulness concept. After a problem is identified, the researcher attempts to find a utilitarian solution. An example to the approach is the Statement of Accounting Theory by Sanders, Hatfield and Moore. The study made through the approach was used by some accountants as an authoritative source to define current practice.

Case 5-6:
The five categories of information provided by a full set of financial statements include the following:

1. The statement of financial position is expected to provide information about an entity's assets, liabilities, and equity and its relationship to one another at a moment in time. It should also list the