Financial accounting theory
This chapter outlines and reviews the history of financial accounting theory (FAT) in the English-speaking world. Its principal objectives are to identify significant contributions to the development of FAT and assess their success in changing accounting practice. The narrative is written in the context of financial accounting practice, public accountancy, and academic accounting research. The chapter begins with a statement on the meaning of FAT and its connection to financial accounting practice. The initial history of FAT extends from the late nineteenth century (with theories of double-entry bookkeeping) to the middle of the twentieth century (with individual theories on specific financial accounting practice issues). The continuing history, which extends from the mid-twentieth century to the present day, considers individual and institutional attempts to produce a general statement of FAT. The impact of conceptual framework projects is considered, as are theoretical contributions by academic researchers in the name of science. The chapter concludes with an assessment of the history of FAT and its impact on practice. The overall conclusion is that the long-running project to find a universal FAT has failed, despite individual theoretical contributions that, from time to time, have produced practice changes. More generally, the search for FAT appears to have served a political role for practitioners and academic researchers seeking professional legitimacy and reputation. The question for the future in these circumstances is whether there is merit in continuing to search for a universal FAT to rationalise, explain, and predict financial accounting practice.