POSITIVE ACCOUNTING THEORY: A THEORETICAL PERSPECTIVE

Abstract

The study concludes through a thorough conceptual and theoretical analysis of the existing literature that the evolution of Positive Accounting Theory over the past several decades may be described as normal science, a term used by Kuhn (1996). Although scholars in PAT have been critical of one another's work, they have remained dedicated to the central paradigm for explaining accounting decisions (i.e., management incentives explain accounting decisions). According to PAT, empirical evidence should not be treated as conclusive. The relationship between theory and evidence is far more nuanced than that. As a result, contrary or unexpected data does not always mean a hypothesis should be abandoned. The importance of intangible assets and how they should be accounted for and reported has been emphasized in recent talks on fair value, mostly due to PAT's effect. Only when a new hypothesis appears that provides more explanation should the old one be discarded. Therefore, it is reasonable to switch between theories, and accounting expertise builds on itself over time.