Watts & Zimmerman's Positive Accounting Theory

yvonne.y.tang
Mind Map by yvonne.y.tang, updated more than 1 year ago
yvonne.y.tang
Created by yvonne.y.tang about 5 years ago
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6 Accounting Mind Map on Watts & Zimmerman's Positive Accounting Theory, created by yvonne.y.tang on 10/31/2015.
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Watts & Zimmerman's Positive Accounting Theory
1 attempts to Describe and Predict: How people behave
1.1 So claims to be a Scientific Approach
1.1.1 So emphasises Empirical Testing
2 views an organization as a Nexus of Contracts
2.1 between Senior Managers (directors who approve FS) and
2.1.1 Shareholders
2.1.1.1 (Agency Theory) relationship governed by
2.1.1.1.1 Contract, including profit based bonus scheme
2.1.1.1.1.1 leading to Hypothesis 1: Bonus Plan (Healy Study, 1985)
2.1.2 Debtholders
2.1.2.1 relationship governed by
2.1.2.1.1 Debt Covenant
2.1.2.1.1.1 leading to Hypothesis 2: Debt Covenant (Sweeny Study, 1994)
2.1.3 Politicans, Media, etc.
2.1.3.1 relationship influenced by
2.1.3.1.1 Informal Contract
2.1.3.1.1.1 leading to Hypothesis 3: Political Costs (Jones Study)
2.1.4 who can behave Opportunistically
2.1.5 who determine Financial Statement Variables (e.g. Profit Figure)
2.1.5.1 by using Generally Accepted Accounting Principles, which provide a Restricted Choice
3 makes no attempt to Guide (which is Normative Theory)
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