AYB311 Lecture Notes - Lecture 4: Internal Control, Net Present Value, Information Asymmetry
Document Summary
Theory is a set of interrelated constructs (concepts), definitions and propositions that represent a systematic view of phenomena by specifying relations among variables with the purpose of explaining and predicting the phenomena". Theories are nets cast to catch what we call the world", to rationalise, to explain, and to master it". Types of theories: two main types of theories used in accounting, 1. Normative theories: not necessarily based on what is happening, but instead recommend what should happen, prescribe action required to attain a specific goal, e. g. Positive theories: describe, explain, or predict activities based on real world observations, help us understand why decisions have been made, lead to more informed decision making, for example: contracting theory and agency theory. Agency costs: monitoring costs: incurred in measuring, observing and controlling the agent"s behaviour and include, auditing of financial reports, setting up operating rules, establishing a management compensation plan.
