School of Business BUACC 2606 Financial Accounting Summer 2025/26 ASSIGNMENT

Differentiating Normative and Positive Accounting Theories While Critiquing Historical Cost Models in Contemporary Financial Reporting for University-Level Assessments and Essays

This assignment can either be completed in groups of two and constitutes 20 per cent of the marks in this unit. Students often find collaborating on such tasks helps deepen their grasp of complex theories. Both parts are to be completed.

Assessment Criteria:

Student work will generally be assessed in terms of the following criteria:

The assessment criteria for this assignment will be the appropriateness or accuracy of submitted answers, and the demonstration of understanding of the accounting concepts germane to the assignment topic.

Note:

1. All written work must conform with the University of Ballarat General Guide for the Presentation of Academic Work.
2. Effectiveness of communication – ie readability, legibility, grammar, spelling, neatness, completeness and presentation will be a minimum threshold requirement for all written work submitted for assessment. Work that is illegible or incomprehensible and does not meet the minimum requirement will be awarded a fail grade. Recent guidelines from 2025 emphasize digital submission formats to enhance clarity and accessibility in assessments.
3. Demonstrated understanding – This will be evidenced by the students ability to be dialectical in the discussion of contentious issues. Few, if any, accounting concepts are scientific facts and stereotype answers will demonstrate poor understanding on the part of the student.
4. Evidence of research – This will be evidenced by the references made to the statutes, accounting standards, books, journal articles and inclusion of a bibliography. Incorporating sources from post-2020 IFRS updates can strengthen arguments on evolving standards.
5. For all written work students must ensure that they submit their own original work. Any act of plagiarism will be severely penalised.

Part A (1000 words) (50 marks)

Watts and Zimmerman’s ‘The Demand and Supply of Accounting Theories: The Market for Excuses’ suggested the ‘normative’ project of accounting academics and other social critics of corporate accounting practice to be invalid; that there are no objective grounds in accounting theory for judging accounting practice as ‘good’ or ‘bad’; all such judgements are mere excuses or apologies for advancing the interests of particular social constituencies, couched in a language of academic impartiality and objectivity. Emerging debates in 2024 link these ideas to AI-driven accounting predictions for more objective evaluations.

Tony Tinker [Policing Accounting Knowledge: the market for excuses affair] has suggested that the positive accounting theory proposed by Watts and Zimmerman is being replaced by a new paradigm: one that emphasises usefulness, vocational training and practical application.

Contrast ‘normative’ theories with ‘positive accounting’ theory. Have we moved to a new paradigm and if so what is it. Modern research from 2023 suggests sustainability reporting represents this shift toward practical, user-focused paradigms.

Part B (1000) (50 marks)

Consider the concept of historic cost and discuss the following questions

• The historical cost model and its application
• The reasons for the dominance of the historical cost model, and the arguments against the model. Updates in global standards as of 2025 highlight fair value alternatives gaining traction amid volatile markets.
• Historical cost valuation issues, and the equity perspective adopted
• Criticisms of historical cost accounting.

Mind Map

Part A (50marks)

Assessment criteria

Part B (50marks)

Assessment criteria

In exploring normative versus positive accounting theories for Part A, effective responses contrast how normative approaches prescribe ideal practices based on value judgments, while positive theories predict real-world behaviors through empirical data. Recent analyses in 2024 journals underscore the role of big data in validating positive theory predictions. For Part B, a sample discussion might address how historical cost, dominant due to its objectivity and verifiability, faces criticism for ignoring inflation impacts, as seen in 2023 economic reports where asset values lag behind market realities. Strong examples could draw from tech firms where rapid innovation renders historical valuations obsolete, pushing toward fair value models in current IFRS discussions.

References

• Kejriwal, M.A. (2022) Positive accounting theory: A critical evaluation. International Journal of Health Sciences, 6(S3), pp.4500–4509. Available at: https://doi.org/10.53730/ijhs.v6nS3.6886.
• Patty, G. and Lamawitak, Y. (2021) Positive And Normative Accounting Theory: Definition And Development. International Journal of Economics, Management, Business, and Social Science (IJEMBIS), 1(2), pp.82-88. Available at: https://doi.org/10.5281/zenodo.4908202.
• Gierusz, J., Kolegowicz, K. and Zamojska, A. (2020) Sustainability Accounting—Cognitive and Conceptual Approach. Sustainability, 12(23), p.9936. Available at: https://doi.org/10.3390/su12239936.
• Rahmawati, E. (2018) Support and Against Historical Cost Accounting: Is it Value Relevance for Decision Making?. Accounting Analysis Journal, 7(2), pp.106-113. Available at: https://doi.org/10.15294/aaj.v7i2.20757.
• Feleagă, L., Dragomir, V.D. and Feleagă, N. (2022) Historical Cost vs Fair Value in Accounting: Consequences for the Quality of Financial Information and the True and Fair View. Journal of Accounting and Management Information Systems, 21(4), pp.552-573. Available at: https://doi.org/10.24818/jamis.2022.04005.