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Accounting Theory

Course Code: ACCT 4850
Faculty: Commerce & Business Administration
Department: Accounting
Credits: 3.0
Semester: 15 Weeks X 4 Hours per week = 60 Hours
Learning Format: Lecture, Online, Hybrid
Typically Offered: Fall, Summer, Winter
course overview

This course will provide students with a critical examination of problem areas of current interest in financial accounting theory. Practical and theoretical problems of the present value model, historical costs, decision usefulness, portfolio risk, efficient securities markets, fair-value-oriented standards with application to traditional accounting, positive accounting theory, game and agency theory, executive compensation and earnings management will be examined. Economic and political issues and criteria related to standard setting, in Canada, the U.S., and internationally, will also be discussed, as well as the contribution of economics, finance and other disciplines to accounting theory.

Course Content

  1. Accounting under ideal conditions:  present value model, reserve recognition accounting, historical cost accounting.
  2. Decision usefulness approach to financial reporting: single person decision theory, rational, risk averse investor, portfolio diversification, optimal investment decisions, portfolio risk.
  3. Efficient securities markets and their implications for financial reporting: informativeness of price, capital asset pricing model, information asymmetry.
  4. Information perspective on decision usefulness: market response, earnings response coefficients, unusual, non-recurring and extraordinary items.
  5. Measurement perspective on decision usefulness: theories relating to the efficiency of securities markets.
  6. Measurement perspective applications: traditional reporting, fair-value-oriented standards, financial instruments, accounting for intangibles, reporting on risk.
  7. Economic consequences: employee stock options, government assistance, successful-efforts accounting, positive accounting theory (PAT).
  8. Analysis of conflict: game theory (non-cooperative and cooperative), agency theory.
  9. Executive compensation: theory, incentives, compensation plans, role of risk, politics.
  10. Earnings management: motivations, patterns, “good” and “bad” side of earnings management.
  11. Standard setting – economic issues: private incentives for information production, sources of market failure, regulation of economic activity and decentralization regulation.
  12. Standard setting – political issues: public interest and interest group theories; standard setting in Canada and the U.S., International Accounting Standards Boards (IASB), conflict and compromise, criteria for standard setting.

Methods of Instruction

In-class lectures and/or on-line.

Means of Assessment


Assignments/projects/cases/tests  30%
Midterm examination  35%
Final examination  35%


To pass this course, students must obtain a minimum of 50% on invigilated assessments, with the 50% calculated on a weighted average basis.

Invigilated assessments include, in-class quizzes, in-class tests, midterm exam(s) and the final exam.

Learning Outcomes

At the end of the course, the successful student should be able to:

  1. describe various theories that underlie financial accounting and reporting
  2. explan the impact of accounting policies on financial accounting and reporting
  3. explain the impact of financial accounting and reporting on securities markets
  4. explain game and agency theory and their implications for accounting
  5. explain the criteria, and the economic and political issues involved in the standard setting process
  6. demonstrate awareness of ethical and professional standards and responsibilities of financial management professionals

course prerequisites

(ACCT 3310 with C or better OR ACCT 3410 with C or better) AND (FINC 2340 with C or better)

OR Instructor's Approval


Courses listed here must be completed either prior to or simultaneously with this course:

  • No corequisite courses


Courses listed here are equivalent to this course and cannot be taken for further credit:

  • No equivalency courses

curriculum guidelines

Course Guidelines for previous years are viewable by selecting the version desired. If you took this course and do not see a listing for the starting semester/year of the course, consider the previous version as the applicable version.

course schedule and availability
course transferability

Below shows how this course and its credits transfer within the BC transfer system. 

A course is considered university-transferable (UT) if it transfers to at least one of the five research universities in British Columbia: University of British Columbia; University of British Columbia-Okanagan; Simon Fraser University; University of Victoria; and the University of Northern British Columbia.

For more information on transfer visit the BC Transfer Guide and BCCAT websites.


If your course prerequisites indicate that you need an assessment, please see our Assessment page for more information.