Theories of Accounting: Evolution & Developments, IncomeDetermination
and Diversities in Use
Angus O. Unegbu
Department of Business and Management Sciences,University of Kurdistan Hewler.
Email:unegbu4@yahoo.com
The research is financed by University of Kurdistan Hewler but I hereby acknowledge the preliminary
contributions of Late Dr L. A.Onojah.
Abstract
Accounting frameworks follow stipulations of existing Accounting Theories. This exploratory research sets out
to trace the evolution of accounting theories of Charge and Discharge Syndrome and the Corollary of Double
Entry. Furthermore, it dives into the theories of Income Determination, garnishing it with areas of diversities in
the use of Accounting Information while review of theories of recent growths and developments in Accounting
are not left out. The method of research adopted is exploratory review of existing accounting literature. It is
observed that the emergence of these theories exist to minimize fraud, errors, misappropriations and pilfering of
Corporate assets. It is recommended that implementation prescriptions of these theories by International
Financial Reporting Standard Committee and Practicing Accountants should be adhered to and simplified so as
to avoid confusing and scandalous reporting of financial statements.
Keywords: Review of Accounting Theories, Financial Reporting, Corporate Reports, Financial Statements,
Developments in Accounting.
1. INTRODUCTION
The International Accounting Standards Board (IASB) was formed in 2001 as a successor to the former
International Accounting Standards Committee (IASC), which was established to formulate and publish, in the
public interest, International Accounting Standards (IAS) to be observed in the presentation of published
financial statements and to promote their worldwide acceptance and observance (International Financial
Reporting Standards - IFRS, 2007). International Accounting Standards Board (IASB) is responsible for
establishing, monitoring and giving acceptable interpretations of the provisions of International Financial
Reporting Standards (IFRSs). IFRS since inception has introduced numerous new useful, complex, confusing
and/or expanding existing accounting frameworks. Frameworks of Accounting are raised from existing
Accounting Theories.
Accounting theory is a material field in Accounting. Historically, accounting predates monetary economy. This
was precisely, in the era of barter economy (i.e. exchange of goods for goods) when transactions were not only
pre-determined by measurement but also by exchange values. The precept in which goods were exchanged at
arms-length through concerted efforts of gathering, determining and measuring values are both pre and postante
accounting. The Trade by barter period was characterized by measurement inequality, cumbersome in
terms of production variety and coupled with the problem of coincidence of wants, were all-inherent in barter
economy. However, the development of accounting theory was to ameliorate the inherent problems encountered
in barter economy, unlike monetary economy. It is pertinent to understand the meaning, scope and application
of a theory in humanities and management sciences in order to appreciate the work of accounting theory.
A theory according to American Institute of Certified Public Accountants (AICPA), (1970) is a structure that
unifies the underlying logic or system of reasoning. Such theoretical structure, though abstracts from the
complexities of the real world is designed to achieve a level of simplicity necessary for analysis. However,
theory is useful in explaining, evaluating and predicting the phenomena associated with a given field of thought
like in the case of accountancy. Osuala (2005), like Okoye (2003) views theory as an attempt at synthesizing,
interacting and integrating empirical data for maximum clarification and unification. He added that every
individual has a number of personal theories based on postulates and assumptions of varying degrees of
adequacy and truth from which he makes deductions of various degrees of crucially and of course of accuracy.
It will be useful to state that the word 'theory' is used at different levels even in the history of accounting.
Accounting theory may mean purely speculative interpretations or empirical explanations of events for
economic decisions. Accounting theory is defined as a cohesive set of conceptual, hypothetical and pragmatic
proposition explaining and guiding the accountant's actions in identifying, measuring and communicating
economic information to users of financial statement, (American Accounting Association (A.A.A). 1966). Wolk,
Dodd and Rozycki (2008) opine that accounting theory consist of the basic assumptions, definitions, principles