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Positive Accounting Theory (PAT)
Costa, P. T., & McCrae, R. R. (1980). Influence of extraversion and neuroticism on subjective well–being: Happy and unhappy people. , (4), 668–78. doi:10.1037/0022–3522.214.171.1248 Three studies are reported that examine the relations between personality and happiness or subjective well–being. It is argued that (a) one set of traits influences positive affect or satisfaction, whereas a different set of traits influences negative affect or dissatisfaction; (b) the former set of traits can be reviewed as components of extraversion, and the latter as components of neuroticism; and (c) personality differences antedate and predict differences in happiness over a period of 10 years, thus ruling out the rival hypothesis that temporary moods or states account for the observed relations. A model of individual differences in happiness is presented, and the separate and complementary roles of trait and adaptation–level theories in explaining happiness are discussed.
A first series of hypotheses explores, in a ceteris paribus context, the effect of (P-P), the monitoring cost. It is clear that the larger this difference turns out to be, the lower p(P>P*) will be, and consequently the lower the probability that the monitoring system will be effective, and therefore implemented. It is fair to assume that the monitoring cost is (strongly) positively correlated with the cost of the AA system. Remember that we deal with an AA system that is additional to the one possibly already in place for reasons of internal efficiency. Theoretically, the latter may generate enough information to an effective board to make managerial behaviour perfectly observable, a case dealt with in the previous section. As the fixed cost of devising and implementing an AA system is considerable, the relative cost of this is smaller in larger NPOs, leading to the hypothesis that in larger NPO, ceteris paribus, more AA systems will be found as monitoring devices (hypothesis 2).
Positive Theories try to explain and predict
Increasing complexity and diversity of activities increases the cost of an AA system apropopriate for monitoring purposes, resulting in a lower probability, again ceteris paribus, of occurrence (hypothesis 3). This effect is opposite to the one postulated in hypothesis 1, where efficiency reasons are put forward to explain the existence of AA. One could argue that the efficiency argument is dominant: not running a large hospital, for example, with a performing accounting system (probably including a sophisticated cost accounting system) would make the transformation curve shrink in such a way that the ensuing utility level for the manager-agent would be even lower than U.
An underlying assumption when speculating on the NPO’s choice between cash accounting and accrual accounting is that accrual accounting can be applied in NPO. Sunder (1997, 194) is sceptical, at least for public goods: How can the accrual method be used in absence of direct exchange transactions when such transactions form the very basis of the accrual method? His fear is, in my opinion, excessive. In a large number of NPOs, transactions can be observed: this is evident in the so called commercial NPOs and mutual NPOs, which frequently are comparable to insurance companies, but also in more service-like NPOs such as hospitals or schools. This leaves us essentially with some public goods and advocacy organizations: political parties, unions, environmental organizations, religious organizations,… Here, the problem is not the absence of any visible activity, which frequently takes the form of making available (alleged) information, but the difficulty of measuring or even unambigously defining this ‘transaction’. Therefore, recognition of costs and (financial) revenues poses no conceptual problem, and consequently the choice between cash accounting and accrual accounting is a genuine choice to be made in the case of NPOs. It goes without saying that P>P, as for comparable organizations the cost of implementing an accrual accounting system is higher than for a cash accounting system (Jones, Pendlebury (1996, 143)). The question is to know whether the higher cost will have an impact as to result in U far enough to the left to result in a higher value for P than under cash accounting. Such a shift can be expected only when the board consists of persons with enough accounting knowledge, as otherwise accounting information produced cannot be correctly interpreted, let alone be of any help in monitoring. This leads us to hypothesis 4: the more accounting professionals (by education and/or experience) in the NPO board, the more an accrual accounting system will be preferred compared to a cash accounting system (see also hypothesis 7). This is completely in line with Sunder’s statement pertaining to all kinds of organizations (Sunder (1997, 29)): Each organization develops accounting suitable to its own unique characteristics so that it may serve as an effective instrument of control.
Positive accounting theory – Accounting Papers
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