Accounting Standard & Theory

[Name of the Institute]Synopsis

The following paper will reviews about the positive accounting literature following publication of Watts and Zimmerman (1978-79). This paper will help in generating positive accounting literature which will offer an explanation of the practices of accounting. The following paper will also suggest about the importance of the cost contraction. Along with this the article has also produced a methodological discussion which was not much productive. So this paper also helps in removing some misconception about the methodology that has surfaced in the discussion. This article has helped for bringing improvements in positive research in accounting choice. The following paper will also discuss about the improvement in the models as proposed by the author in the article.

Accounting Theory & Standard

Introduction

The following paper has five parts. In the first part of the paper, there is a brief summary of the article is discussed. In part, the overall findings, theoretical arguments and contribution are covered. The second part of the paper is Research Question which identified the research question of the article which identifies its value and also explains the literature review. In the third part of the paper, the discussion about theoretical framework is discussed. The fourth part of the paper covers the importance and the limitations of the article using the literature. It covers the limitations of the theory and the use of the methodology. It will also cover the importance of the article and the limitation that makes to the discipline specifically against the finding of the research method. In the end, the conclusion which summarized the main points discussed in the paper.

Discussion

Summary

Before the research of Watts and Zimmerman the Gordon had formulated the smoothing theories, which has contributed a lot in the research of Watts and Zimmerman. It was based on the assumption that the satisfaction of the shareholder is exclusively purpose of the accounting income; while of the share price will increase there will be an increase in the accounting income. Although several serious doubts are transmitted on this assumption and thus, in order to avoid the consequences that were existing in the theory of the Gordon, in 1978 Watts and Zimmerman had assumed that the instead of the accounting income the share price is dependent on the cash flow (1990).

The article is actually aimed to provide the support the political cost hypothesis. The article basically has three main portions, in the first portion, assumption were based on the theories of the contracting cost and agency theories, the author of the article had also determined the features and many other factors due to which they could identify the effects on the attitude of manager, the taxes, political cost, information cost and also the compensation and regulation for the management plan. All these factors and the features were combined into the model and created the theory, i.e. the accounting standards are favored by the managers usually, which will result in the reduction in the income and also reduction for making the ...