July 25, 1999
Chapter 2: Normative Accounting Theory

The purpose of this chapter is to identify those characteristics of accounting information that are thought to make one system of accounting better than another. Since the material is based on eighty years of accounting research, by countless researchers, it is clearly neither possible nor desirable to review all the arguments, or even the main arguments, used by advocates of all the different competing accounting systems. For instance, it would be difficult to improve on Henderson and Peirson's [1983] 268-page thorough, balanced, well-documented portrayal of the evolutionary development of accounting thought from the "pre-theory period" (1494-1800), through the "general scientific theory period" (1800-1955), and the "general normative theory period" (1956-1970), to the "scientific theory period" (post-1970). The approach adopted for this chapter is therefore to aim for a concise summary of the products of normative accounting theory. The objective is to search for common ground wherever possible, without ignoring important differences. What is reported is intended to cover most of what is said to be "good", "useful", or "desirable" about accounting information.

The four-step structure of this chapter is depicted in Figure 2.1 (next page). To begin with, a search of the literature identifies three main Objectives of Accounting. This list of objectives, which is presented and discussed in Section 2.1, is intended to be simple yet reasonably complete. These objectives define the domain of discourse for this thesis. In Step 2, Section 2.2, the information needed to meet these objectives is discussed. In Step 3, Section 2.3, the data needed to provide that information are considered. It turns out that the data needed for most recommended systems of accounting are far more homogeneous than might, at