Theories of Financial Accounting: Positive, Behavioral, and Institutional Perspectives.

Abstract

This paper evaluated leading theoretical perspectives in auditing and international accounting. Specifically, we examined the Positive Accounting Theory (PAT), Behavioral Accounting Theory (BAT), and the Institutional Theory of Accounting. We assessed the individual and collective contributions of positive, behavioral, and institutional theories to the development of financial accounting theory. Notably, we traced the evolution of positive accounting from its earliest mention by Ball and Brown in the 1960s to the extensive research conducted by Watts and Zimmerman. Moreover, this paper assessed the intricate relationship between normative and positive accounting in both theory and professional practice. In summary, the development of positive, behavioral, and institutional approaches to accounting helped broaden the scope of financial accounting research and practice.