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Classification of Accounting Systems - Essay Example
Law and Owe (2006), define an accounting system as the system designed to record the accounting transactions and events of a business and account for them in a way that complies with its policies and procedures. The basic elements of the accounting system are concerned with collecting, recording, evaluating, and reporting transactions and events…
(Shalin and Alan, 1999). The main differences between the two systems is in terms of reasoning and degree of complexity. The deductive approach considers a priori theory based on knowledge or beliefs of the classifier while the inductive approach infers the general from the particular. It is data driven, considers large number of countries and rules and generates categories by making use of statistcs.
Muller's classification system as cited by Gray(1998) states that the deductive approach is based on four distinct approaches to accounting development in western nations with market oriented economic systems including:
This system was extended by Nobes who adopted a structural approach to the identification of accounting practices and assessed major features including the use of conservative accounting, the importance of tax rules, the strictness of application of historical costs, the making of replacement cost adjustments, the use of consolidation techniques the generous use of provisions, and uniformity between companies in application of rules. (Shalin and Alan, 1999).
Although the deductive approach is very broad, it fails to take into consideration the effects of culture in the classification. ...