Seek to provide guidance in selecting accounting procedures that are most appropriate

Prescribe what should be done

These theories addressed issues associated with changing prices Developed in 1950s and 1960s during a period of high inflation
Current-cost accounting

3 main ISSUES

Exit-price accounting

Deprival-value accounting

 Aim is to provide a calculation of income that, after adjusting for changing prices, can be withdrawn from the entity and still leave the physical capital (operating capacity) of the entity intact referred to as true measure of income True income theories propose a single measurement basis for assets and a resultant single measure of income (profit)

 Continuously Contemporary Accounting Uses exit or selling prices to value the entitys assets and liabilities referred to as current cash equivalents
Assumptions: firms exist to increase the wealth of their owners the ability to adapt to changing circumstances capacity to adapt best reflected by current selling prices

Normative theorists usually attempt to derive either the "true income" or adopt the "decision - usefulness" approach whereby accounting reports are an input into users decisions (e.g. to buy or sell shares, management decisions on the financial wealth of firms etc). As a consequence many normative theorists are measurement theorists who attempt to incorporate the effects of inflation into accounting reports. In this sense they take a semantic viewpoint - relating the figures in the accounting reports to actual objects (assets, liabilities) or events (changes in inflation).

There five important works on normative accounting theory MacNeal (1939), Paton and Littleton (1940), Litteton (1953), Chambers(1966), and Ijiri(1975) with emphasis on recognition and measurement issues in accounting. It shows that there is a lack of agreement among these theorists on basic assumptions and hypothesized information needs of the users. Even where there is agreement on an assumption, different implications have been drawn there from by the concerned theorist. These differences lead to different recognition and measurement proposals.

criticised for Lack of empirical observation Does not explain and predict accounting practice

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CRITICISED FOR LACK OF EMPIRICAL OBSERVATION

Normative theories have been criticised for lack of empirical observation based on personal opinion about what should happen positive theorists argue that they would prefer to provide information about expected implications of actions and let others decide themselves what they should do positive theorists also make value judgements

Does not explain and predict accounting practice normative theory focus more on accounting process rather than accounting practice the existing accounting standard is ignored do not exercise the current accounting practice

Normative theories of accounting prescribe how accounting should be practised argue typically that a central role of accounting theory is to provide prescriptioninform about optimal accounting approaches and why a particular approach is considered optimal examples: Conceptual Framework Project, current-cost accounting, exitprice accounting and deprival-value accounting