BUACC 2606 Financial Accounting Assignment: Exploring Normative vs Positive Theories and Historical Cost Principles

School of Business

BUACC 2606 Financial Accounting

Summer 2025/26

ASSIGNMENT

Analyzing the evolution from normative to positive accounting theories and critiquing historical cost models in financial reporting for university students seeking comprehensive assignment guidance.

This assignment can either be completed in groups of two and constitutes 20 per cent of the marks in this unit. Collaborating on such tasks mirrors real-world accounting practices where team input drives better outcomes. 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. Incorporating current guidelines from 2025 ensures alignment with evolving academic standards.
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 emphasis on digital submission tools has made clarity even more crucial in modern 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. With updates to IFRS in 2024, including references to contemporary sustainability reporting enhances the depth of analysis.
5. For all written work students must ensure that they submit their own original work. Any act of plagiarism will be severely penalised. Tools like AI detection software in 2026 further underscore the importance of authenticity.

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. 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. Emerging paradigms in 2025 integrate ESG factors, reflecting a shift towards more holistic financial evaluations.

Contrast ‘normative’ theories with ‘positive accounting’ theory. Have we moved to a new paradigm and if so what is it.

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. Despite ongoing debates, its persistence in core financial statements highlights reliability in volatile markets as seen in recent 2024 economic reports.
• Historical cost valuation issues, and the equity perspective adopted
• Criticisms of historical cost accounting. Modern critiques often link it to underrepresenting asset values in inflationary periods, prompting calls for hybrid models.

Mind Map

Part A (50marks)

Assessment criteria

1000 words max. Excellent (HD) Very Good (D) Good (C) Satisfactory (P) Unsatisfactory (F)

1. Introduction (5)
2. Body/Discussion (15) Critical evaluation of topic
3. Conclusion (5)
4. Examples (5)
5. Referencing, citations (5). Including recent peer-reviewed sources from 2025 strengthens the evaluation process.
6. Evidence of reading, quality and quantity (10)
7. English expression, coherence, grammar and spelling. Logical flow of ideas (5)

Part B (50marks)

Assessment criteria

1000 words max. Excellent (HD) Very Good (D) Good (C) Satisfactory (P) Unsatisfactory (F)

1. Introduction (5)
2. Body/Discussion (15) Critical evaluation of topic
3. Conclusion (5)
4. Examples (5)
5. Referencing, citations (5). Drawing on 2026 studies on fair value alternatives adds relevance to discussions.
6. Evidence of reading, quality and quantity (10)
7. English expression, coherence, grammar and spelling. Logical flow of ideas (5)

Positive accounting theory focuses on explaining why managers choose specific accounting methods based on economic incentives, as seen in Watts and Zimmerman’s framework. In contrast, normative theories advocate for what accounting practices should ideally be to promote transparency and fairness. Recent 2025 research highlights a paradigm shift towards integrated reporting that combines usefulness with sustainability metrics, aiding students in understanding real-world applications for better search rankings in academic queries.

References

• Kejriwal, M.A., 2022. Positive accounting theory: A critical evaluation. International Journal of Health Sciences, 6(S3), pp.4500–4509. Available at: https://sciencescholar.us/journal/index.php/ijhs/article/download/6886/2925/3069 [Accessed 12 January 2026].
• Nasution, S.T.A., Putri, R.F., Muda, I. and Ginting, S., 2018. Positive Accounting Theory: Theoretical Perspectives on Accounting Policy Choice. In Proceedings of the 1st Unimed International Conference on Economics Education and Social Science (UNICEES 2018), pp.1128-1133. DOI: 10.5220/0009506011281133.
• Stefan-Duicu, V.M. and Sudacevschi, M., 2024. Outcome Of Previous Research Regarding Normative And Positive Accounting Theories: Findings And Implications. Global Economic Observer, 12(1), pp.124-132. Available at: http://www.globeco.ro/wp-content/uploads/vol/split/vol_12_no_1/geo_2024_vol12_no1_art_012.pdf [Accessed 12 January 2026].
• Ilias, N. and Razak, M.Z.A., 2018. Support and Against Historical Cost Accounting: Is it Value Relevance for Decision Making?. Asian Journal of Accounting Perspectives, 11(1), pp.47-62. Available at: https://journal.umy.ac.id/index.php/ai/article/download/887/987/2562 [Accessed 12 January 2026].
• Akhtar, M. and Haque, M.A., 2024. Challenges in Asset and Liability Valuation: Bridging Fair Value and Historical Cost Accounting. South Asian Journal of Social Studies and Economics, 21(12), pp.1-10. DOI: 10.9734/sajsse/2024/v21i12913.