Positive accounting theory

Accounting is broadly defined as a measurement and communication technique for providing relevant economic information to the users. The unprecedented development in quantitative methods, behavioral science, and an unbelievable spurt in information technology and intermediaries in the financial domain stimulates the researchers to apply quantitative models and empirical analysis to have an in-depth understanding of the accounting phenomenon and how the accounting information is provided to the users. These developments have played a key role in redefining the nature of accounting and expanding its scope. One most important conclusion of this research direction has been the explanatory model, i.e., the 'Positive Accounting Theory. The positive research in accounting was predominant during the mid-1960s and contributed to a dramatic shift in financial accounting research. The positive accounting theory attempts to describe and better predict accounting practices. This theory is highly dependent on the task undertaken in economics, and it mainly borrows the principles from the efficient market hypothesis, capital assets pricing model, and agency theory.