Voluntary Disclosures and Accounting Theories - Essay Example

Accounting principles are based upon some principles and one of the important principles of accounting is full disclosure principle. As per the full disclosure principles the companies must disclose all the relevant information about the company like the financial statements, accounting policies followed, additional information etc. Apart from the various mandatory disclosures many companies discloses many voluntary information like sustainability report, cost of training employees etc. All these activities add value to the organisation and thus are important for the stakeholders to take an informed investment decision.

Voluntary disclosures and accounting theories The concept of voluntary disclosers originates from a variety of accounting theories. Therefore the relevant accounting theories have been studied in order to understand the need of voluntary disclosure of information. The need of voluntary disclosure originated from the two basic theories namely normative theory and positive theory. Normative theories: The basic premise behind the normative accounting theories is the subjective opinion which tells one what is good and what should be done.

This is an opinion based theory which is based on the standards. This theory is aimed at helping the accountants to decide on the things which should be done and the making them aware on the various aspects which can be used to compensating and rectifying any error which is not suitable as per their judgement (Banerjee, 2010, p.1223). The two disclosures which are normally done as per this theory are the disclosure of the intangibles and the disclosers regarding the corporate social responsibilities.

As it has been discussed that the normative theory states that accountants should judge between the acts which should be done therefore the disclosers regarding the corporate social responsibilities is a way of informing the stakeholders that the matters which are opinion based have been taken care off. The normative theories are based on certain assumptions which set up standard for doing an activity and it is assumed that the organisation will perform that activity is that way only. As per the concept of normative theory the organisation should have some unique way of recording and treating a transaction or performing any activity and that activity should be done as per the laid down standard.

The accounting policies are based on these theories but to some extent all the assumption and every aspect of the normative theory is not followed by the organisation like the organisation do not follow a unique and single set of policy to records its assets for indefinite point of time. Like IAS 38 prescribes the rules and methods which have to be followed while recognising and measuring the intangibles assets (Deloitte, 2011). Positive theories: The positive theories are very different from that of the normative theory.

Some of the important positive theories are positive accounting theory, legitimacy theory, stakeholder theory and institutional theory. The basic premise of the positive accounting theory is explaining and predicting the accounting practices which can be actually followed by the accountants. Thus the nature of positive accounting theory is descriptive rather than subjective. The normative view of accounting is opinion based which tell what the accountants should do rather than predicting what actually can be done.