Theoretical Perspectives of Financial Accounting

Based on findings in research, this course provides a theoretical perspective on financial accounting. The theoretical motivation for the existence and design of financial accounting regulation is considered, with a special focus on accounting quality. This involves looking closer at the determinants and consequences of accounting policy choices and, ultimately, of accounting quality. Preparer incentives, the institutional environment, the standards themselves, and capital markets, are key factors in this context. In relation to the above, conceptual issues related to various financial statement items are raised and empirical evidence of the role and quality of financial accounting is highlighted.

The course includes three modules:

1. Fundamentals of financial accounting, the role of capital markets, standard-setting and conceptual framework.

2. Measures and operationalizations in financial accounting research.

3. Determinants of accounting quality, including accounting standards, incentives and the institutional Environment.

Module 1 provides an introduction to key theoretical ideas on accounting. Key concepts such as theory, usefulness of accounting, information asymmetry and the valuation and stewardship roles of accounting are discussed. Further, aspects of accounting quality from a standard-setting perspective, including an overview of the conceptual framework, are covered.

Module 2 deals with the way researchers have discussed and evaluated accounting quality in relation to the objectives set out by standard-setters. Earnings quality and disclosure quality are examples of components of accounting quality that are explained and operationalized.

Module 3 focuses on individual accounting standards and their role in affecting financial statement outcomes and thus the quality of those statements. Also, this part includes determinants of accounting quality other than standards. These include firm-specific (including managerial) incentives, the institutional environment, enforcement and corporate governance mechanisms.