Accounting Theory Essay Example | Topics and Well Written Essays - 1750 words

Accounting Theory - Essay Example The branch of accounting that involves systematic statement of principles and methodology, as distinct from practice is known as accounting theory (Porwal, 2001 7). The purpose of this is to provide a set of principles and relationships which explain practices that are observed in the real world and predict practices that are unobserved (Schroeder et al., 2010 1). If one wishes to experience firsthand the level of confusion it can create, they should observe how Chinese companies issue three different categories of shares – ‘A’, ‘B’ and ‘H’ which are traded in three different markets by three distinct categories of shareholders. Category ‘A’ type shares are meant only for domestic investors and are transacted Shanghai and Shenzhen stock markets. Category ‘B’ shares are traded in the same stock exchange but only by foreign investors and category ‘H’ shares are traded in Hong Kong stock exchange. So, while issuing ‘A’ category shares a Chinese company has to adhere to Chinese Accounting Standard (CAS), and while issuing ‘B’ category shares it has to follow International Accounting Standard (IAS) and while issuing ‘H’ category shares it has to format its accounts as required by Hong Kong Accounting Standard (HKAS). So, a mu ltiplicity of accounting standards, quite obviously, generates financial information of disparate levels of transparency and detailing. Hence it is becoming increasingly difficult for stakeholders to unquestioningly rely on information provided in the financial statements (Chen and Wei 2008 1). Such a lack of convergence among various accounting standards surely lead up to an extremely confusing scenario especially in an era of globalization when capital is freely flowing across continents and frontiers. Though one cannot disregard the local expediencies there must still be sufficient disclosures so