Positive Accounting Theory Research Paper Example | Topics and Well Written Essays - 1250 words

Positive Accounting Theory - Research Paper Example The predictions of real world situations help small businesses in choosing the appropriate accounting policies that would help them in advancing. The predictions of positive accounting theory with regards to the real world situation go a long way in assisting firms to react positively to new standards of accounting introduced by the legal bodies. Moreover, the overall objective of the positive accounting theory is to enable firms to predict and understand their accounting policies choices. The theory also puts into consideration, the economic consequences of the policies on the firms and the economy in general. Positive Accounting Theory Small businesses organize their operations in an efficient manner using the positive accounting theory, which helps firms in maximizing economic opportunities for growth and survival in the business world. Due to the need for business operations efficiency, firms will need to minimize contract related costs. Ordinarily, contract related costs include negotiation costs, monitoring and renegotiation costs with regards to accounting variables in terms of financial ratios and net income accounting information. Minimization of contract related costs fully relies on the mandate of a firm in choosing the most appropriate accounting policies with regards to its operations. ... environment, appropriate accounting policies and contract related costs minimization may be comprised by the opportunistic interests of the company’s management. Political cost hypothesis The political environment is proved to interfere in business operations in many cases, thus affecting managerial decisions with regards to accounting policies. The more a company faces political costs, the greater the chances that managers of a particular firm will choose accounting policies that alter current reported earnings to future expected earnings. This is mainly because current reported earnings that depict high levels of profits will certainly lead to political interferences that may influence incorporation of new government regulations and tax charges. These interferences are relevant to both small and large businesses though growth and stability of small businesses may be greatly hampered as compared to large entities that are stable. Small Businesses Positive accounting theory ap plications help managers in spearheading growth and development of small businesses, which play an important role of creating employment and growth of Gross Domestic Product. Governments such as the United Kingdom federal government have enacted policies and programs that assist small businesses to develop. Strategies have been outlined by governments of developing countries and trade organizations to facilitate growth of small businesses. Banks have also played a big role in growth and development of enterprises through loans and involvement in policy formulation and innovations. Moreover, best accounting policies that have been practically efficient in spearheading corporate development have been implemented. The existing variations in different economies directly impact on the differences