Accounting Theory Development Essay Example

mystifies social relationships. Accounting is also viewed as a symbol and ritual that enables social agents to interact within a symbolic order. Additionally, accounting is seen as an instrument of economic rationality and a tool of capitalism.

Accounting is also considered a language of business, consisting of symbols (such as numerals and words) and grammatical rules (referring to the set procedures used).

As a historical record, accounting provides a history of managers' stewardship of owners' resources. The concept of stewardship has evolved over time into the periods of pure custodial period, traditional custodial period, asset-utilization period, and open-ended period.

Finally, in reflecting current economic reality, both balance sheets and income statements should be based on economic reality rather than historical costs.

The main objective of accounting is to determine true income, and it serves as an information system. Accounting involves an information resource or transmitter (typically the accountant), a channel of communication, and a set of receivers (external users). This view of accounting assumes that the accounting system is the only formal measurement system in the organization, making it possible to design an optimal accounting system that provides useful information. Additionally, accounting exists as a commodity due to the demand for specialized information that accountants are willing and capable of producing. There is a market for accounting information with its derived demand and supply. Accounting has evolved from an oral tradition of stewardship responsible for estate supervision and recognized as the ruler's proxy over-load, where record keeping aimed at maintaining integrity and discovering misappropriation, and a party of auditors physically checked the records against the harvest

volumes at that time.

The records of the Sumerian civilization, mostly on clay tablets from BBC, depict an early stage in the history of accounting. These records show a rise in transactions, particularly concerning grain, and a significant focus on written record keeping. Each participant in a transaction would impress their seal into the clay tablet as a signature. These records served as reminders of the quantities of stores held and allowed owners to control their steward's activities. The records quantified physical volumes rather than currency value.

The earliest surviving double entry records come from a 1211 Florence bank ledger and books from Genoa between 1340-1466. Florence was a hub for a European banking network, while Genoa was an overseas trading center. The progress in accounting was a consequence of increased economic activity during the time. Double entry accounting was superior to single entry since it enabled more systematic and orderly recording of transactions. Through trial balance, it provided an arithmetical check on records and balanced the books.

During the stage of stagnation, few improvements in accounting techniques were made, with most societies still using single entry for record keeping.

Due to the small size of businesses and relatively few transactions involved, single entry accounting was commonly used for a prolonged period of time. Double entry accounting, which summarizes and reports the success or failure of a business for a specified period of time, was not highly valued during this era. The concept of profit was not regarded highly and would have been flawed without allowances for bad debts, depreciation, and distinctions between revenue and capital items, as well as private and business expenditures.

The industrial revolution in England brought about new problems for accounts as new enterprises, such as railway companies, emerged. Despite some company failures, successful enterprises grappled with new accounting problems of recognition and measurement. Many of the practices accountants use today were determined in this era as a result of business failure and loss of shareholder confidence. Economic and accounting development in Malaysia responds to the stages of economic development with a historical perspective on its development and the role of the state. (S. Assail Dew, Theory and Practice, a Malaysian Perspective.Pig 4-14.)Since gaining independence from British colonial rule, Malaysia has been actively pursuing economic development through a combination of consulting economic growth with structural, social, and economic changes. The country's economic growth has been discussed in relation to the stages of the Five Year Economic Plans, with a focus on the role of the state in each plan period and the interests that dominate. Economic planning in Malaysia is handled by the Economic Planning Unit of the Ministers Department, with the primary objectives of economic policies being incorporated in the Five Year Development plans. The different stages of the plans are discussed, starting with the First Five Year Plan (1956-1960), which was adopted in October 1956 and included the rubber replanting programme as a significant economic achievement. Structural changes in the manufacturing sector were also observed during this period as the traditional handicraft industries, such as rattan, tap, clothing, and jewelry, declined in importance relative to more capital-intensive factory types of industries.The private sector played a significant role in the rapid growth of industries including biscuits, soft drinks, cement, wood-working, and light engineering. However,

this had to change to accommodate the state's new spending needs and desire for more industrial development. The Malaysia Association of Certified Public Accountants (MASC) was established in 1958 under the Companies Ordinance 1940-1946 to advance the status and practice of accountancy for accountants. In 1961, the Second Five-Year Plan was adopted with rural development as the major objective, supporting public utilities and transport, rubber replanting and drainage, education, health, land development, and agricultural research and extension. During this period, MASC provided a system of training local students through article ship training for professional accountancy. (Source: S. Assail Dew, Chapter 5: Economic and Accounting Development in Malaysia, Accounting Theory and Practice, a Malaysian perspective. Pig 97-98.)In 1961, the MASC. examination received assistance from the Overseas Accountancy Examination Advisory Board (EBB) established by the Chartered Accountants Joint Standing Committee of the Institute of Chartered Accountant of Scotland and the Institute of Chartered Accountants in Ireland to ensure it met the same standard as more established accounting bodies. The local examiners' experience from UK counterparts resulted in the Boob's assistance being terminated in 1970. Since then, senior members of the profession and local institutions, including those under the II.Sit Malaysia Plan (1966-1970), have supported the MASC. examination. The First Malaysia Plan aimed to improve the welfare for all citizens and living conditions in rural areas, especially low-income individuals. The plan also established the Rural Health Service to increase access to medical facilities in rural areas.The Service upgraded district hospital facilities to handle referrals from clinics. Medical substances were also provided in urban areas, reducing the gap between rural and urban areas in terms of healthcare quality but

not fully eliminating it. However, East Malaysian medical facilities were less-equipped and staffed compared to West Malaysia. The First Malaysia Plan aimed to address unemployment, which had become a problem despite GDP growth. There was also ethnic specialization in certain professions, with Chinese in the marketplace, Malays in civil service and Indians in specialist professions. The Second Malay Five Year Plan did not entirely eliminate the income disparity between rural and urban areas. The government's plans to improve the standard of living in rural areas did not completely meet their objectives.Despite various land development schemes, limited investment in social capital has failed to stop rural-urban migration or improve incomes for rural families. In West Malaysia, 90% of households earning less than MS 100 a month are in rural areas, with most being Malay households (Henderson, Overland, Dana, Hunnish, Just, Mueller & Shin, p.147-149). The Malaysian government launched the New Economic Policy (NEP) in 1971 under Prime Minister Tuna Abdul Raze to eradicate poverty and restructure the economy to eliminate the link between ethnicity and economic function. The NEP aimed to increase Bumiputera ownership of enterprise from 2.4% to 30% of national wealth through wealth redistribution ("Snag in policy implementation", p.8-9, DCE. 31, 2006 in New Straits Times).The government of Malaysia implemented the Second Malaysia Plan to execute the Malaysian New Economic Policy (NAP) with the purpose of boosting economic development (Squid, Maid ; Yuan's, Mood. Fuzz (2001). Malaysian Studies, p.85.). However, some viewed the Second Malaysia Plan as overly zealous in its efforts towards increasing Malay participation in the economy, leading the government to lessen the emphasis on restructuring the economy at the end of

the plan. During the Second Malaysia Plan, various government agencies, such as the Malaysian Industrial Development Authority (MIDI) and Misaims Manama Rackety (MAR), expanded their involvement in the economy. Additionally, other organizations were established under the plan such as Bernadine National (PAPERS), State Economic Development Corporation and Urban Development Authority (DUD). PAPERS was created to acquire businesses and participate in joint ventures with private companies while nurturing emerging industries to be held in trust until sufficient Malay capital was attained to take them over. By the completion of the plan, PAPERS owned eight companies, including those engaged in insurance, trading, construction, properties, engineering, securities, and mining.

During the Second Malaysia Plan, the government developed joint ventures with private companies to support growth in the mining, centralization, tourism, and consulting industries (Henderson, et al., p.322.). The government recognized the importance of modernizing railroads for national development and converted all trains to use diesel fuel while increasing funding for maintenance and modernization of rail infrastructure, with a focus on upgrading rolling stock, roadbeds, and repair facilities (Henderson, et al., p.29). This resulted in a decline in poverty from 49% to 43% and a slight reduction in unemployment from 7.5% to 7.4%. Bumiputera participation in the private sector increased significantly in the manufacturing (from 29% to 33%) and commercial (from 24% to 34%) sectors, with Bumiputera equity ownership doubling from 3% to 7.8%. However, many still saw this progress as unsatisfactory, especially as much of it relied on government enterprises holding equity in trust (Henderson, et al., p.295-296.). In May 1960, with the help of the Central Bank, the Koala Lump Stock Exchange began as a nucleus of

four stockbrokers before expanding into a full-fledged exchange by 1974.The stock exchange in Malaysia underwent several name changes, starting with its name change to the Malay Stock Exchange in 1964 followed by the Stock Exchange of Malaysia and Singapore in 1965, and finally the Koala Lump Stock Exchange in 1973. The MASC took responsibility for expanding on the financial statement disclosure requirement of the Malaysian Companies Act. Statement No. 1 "Recommendation on the Presentation of Account" was issued in June 1972 and incorporated their recommendations. Professor Mitchell noted that this recommendation was only an initial step towards progress as it failed to address several accounting issues that had already been resolved in other countries. At the end of November 1973, foreign companies listed on KEELS made up about sixty percent of the total market value of listed companies. Furthermore, many non-listed companies operated as subsidiaries of multinational companies in Malaysia. Due to the international nature of business and finance in Malaysia, it was emphasized that adopting international accounting standards should be considered when recommending corporate reporting practices. In 1978, MASC adopted AS 1 to 4 for international accounting standards. (Adapted from S. Assail Dew, Chapter 5: Economic and Accounting Development in Malaysia, Accounting Theory and Practice, a Malaysian Perspective)In 1979, the AS 5 to 10 was established. The following year, MASC held a seminar where the Deputy Governor of Bank Engage stressed the importance of International Accounting Standards. He emphasized that those in positions of trust, such as directors of companies, banks, and finance houses, must understand and apply these standards to fulfill their duty of public accountability. In 1979, MASC formed an insurance committee

at the Director-General of Insurance's request to clarify technical problems related to audit and accounting standards in the insurance industry. After the Central Bank took over regulation of the insurance industry in 1980, the committee became active. At this time, MASC was seen as the sole representative of the accounting profession as evidenced by their organization of seminars and talks that were generally supported by top leaders. (S. USIA Dew, Chapter 5: Economic and Accounting Perspective.Pig 108-109.)In Malaysia, during the seventies, there was an increase in participation by Bumpier people in the professions and private sector, although they were still somewhat under-represented. From 1970 to 1990, the Bumpier share of accountants doubled from 7 to 14%, engineers from 7 to 35%, doctors from 4% to 28%, and architects from 4 to 24%. Additionally, the Bumpier portion of the share market increased from 2 to 20% over the same period as measured by academia. The Chinese share also rose from 37% to 46%, at the expense of foreign participation. Official Kuala Lump Stock Exchange figures from 1998 were even more positive, showing that Furniture share ownership stood at 28.6% in 1990 and had risen to 36.7% in 1996. Cooper and Sheerer (1984) have noted that a political economy of accounting can shed light on how the accounting process interacts with its social, economic, and political environments. They write (p.208):.

The main goals of accounting are a topic of debate due to the fact that any accounting system reflects a particular social and political context. Accounting policies are inherently political, as they are influenced by the broader societal political struggle. Furthermore, the implementation and outcome of accounting

policies also have political consequences, benefiting certain groups over others. In 1981, the MASC Educational Trust Fund was created to advance education and research in accountancy. Additionally, the Association issued five technical bulletins (TABS) between 1982-1984 in areas not under the jurisdiction of SASS. The organization also collaborated with the Registrar of Companies to advocate for additional disclosures in financial reporting by companies. In 1984, the Companies Act 1965 was amended to include a definition of 'account', namely balance sheets and profit and loss accounts, with attached statements or notes required by the Act to be read alongside them. (Alma Md.All, (4 to juicy 2004), In journal The Post-New Economic Policy (NAP) Era) V. The Malaysia Plan (1981-1985) MASC., 1983, P.20 in S. USIA Dew text book).

Malaysian Accounting Standard 1, which pertains to Earning per Share, was issued in 1984. The issuance of Malaysian Accounting Standards (MASS) addresses issues not covered by AS and those that require separate attention in Malaysia's context. To foster interest in corporate financial reporting, the Malaysian Institute of Management held the first Malaysian Annual Corporate Report Award competition in March 1985. In the Fifth Malaysia Plan (1986-1990), there was a noticeable acceleration of prevarication efforts and reduced participation of the public sector in activities that directly compete with the private sector. Additionally, small and medium-scale industries (Semi's) were actively developed to promote industrial deepening and inter-industry linkages as essential components of the national industrialization drive. The Economic Planning unit identified five main objectives concerning prevarication: to ease the financial and administrative burden of the Government, facilitate prevarication implementation, and encourage the Chinese business sector.In Chapter 5 of Accounting Theory and

Practice, A Malaysian Perspective by S. Assail Dew (pages 62-63), it is stated that the Registrar of Companies amended the Companies Act, 1965 in the Ninth Schedule in 1986. As part of this amendment, the Statement of Changes in Financial Position was introduced. In addition, the Malaysia Institute Accountant (AIM) was established in 1987 to promote and regulate the accounting profession in Malaysia. According to Sham Md All's article "Accounting In Malaysia In The Post-New Economic Policy (Nap) Era" (pages 5-6), AIM is a statutory body responsible for regulating the accountancy profession in Malaysia and has great influence over all accountants in the country. AIM also sets professional requirements for accountants, conducts research, and publishes materials on various topics related to accounting, auditing, attestation and assurance services, management consulting services, and taxes.