Things You Wont Like About Studying Abroad Ielts Essay Samples and Things You Will

Things You Won't Like About Studying Abroad Ielts Essay Samples and Things You Will First you need to read an essay. Even if you believe you're a bad writer today, you can learn to take your simple essay and transform it into something far more effective. In Speaking, don't attempt to provide a prepared speech, or chat about a different topic from the one you're requested to discuss. Try to earn a story of the essay in your thoughts. Looking at IELTS essay topics with answers is a significant method that will help you to get ready for the test. It is preferable to use an expert help of college admission essay writers to finish your work. For instance, here is among the perfect place to purchase essays on the internet you can go to. The admission essay should demonstrate that you are prepared to go abroad and live by yourself. Many people think that studying abroad is the very best way to guarantee a prosperous career. Whereas some men and women argue that studying abroad is a rather positive experience, others suggest there are plenty of problems associated for it. Therefore, studying abroad is much better than studying at their house country. Students and parents have an assortment of options in relation to the sort of education they commit to. Studying Abroad Ielts Essay Samples Options Luckily, there are a number of immigration agents readily available online and offline who can assist the people to immigrate abroad for travel, study or employment purposes. It is possible to also get a variety of discounts on our site which will help you to save some more money for future orders or anything you want to spend them on. After discovering our website, you will no longer will need to bother friends and family with these kinds of requests. You should definitely take this service into account if you're new to the internet writing businesses. The area of work today is international, and you might have to work with various nations, or in many nations. There'll be occasions when your friends annoy you, but you will probably annoy your friends more frequently. It's quite understandable that people from various backgrounds put various interpretations on the identical matter. As an example, students of different nationalities in France, Germany and Italy should learn their community dialect as a way to speak. Studying abroad has an important part in faster learning and self-develo pment. It is an incredible experience, which allows you to live in a new country, discover a different culture, and make a multitude of meetings more rewarding. It also can be seen as adventurous experiences as young people can see the world, meet people from different countries and learn different languages and culture. It does not only highlights the learning curve but also improves a self-sufficient attitude and also helps the student to develop an independent lifestyle. The Most Popular Studying Abroad Ielts Essay Samples Failing to have a job often contributes to a strenuous life. Studying abroad is still a really amazing prospect for students. Likewise it's also made for students who would like to do an internship abroad. There's so much I wish to say to each of these students. Both exams are extremely similar. Despite the fact that you pay for homework, we provide those options free of charge. Start from beginning of the exam, if you're not able to answer, don't w aste your time and continue on to next one. Lastly, the Speaking test, which happens before a true examiner, shows ways to interact with different individuals, in English. Your essay may be the deciding factor, particularly when you're a borderline case. It's possible to re-visit the question later, in case you have time. Last, you are going to be asked broader questions, in relation to the topic previously discussed. Continue reading this post to learn about the advantages and disadvantages of studying abroad. The Ideal Strategy to Studying Abroad Ielts Essay Samples IELTS isn't an asset for students. In many schools, it's necessary to have a great amount of English to graduate. If you're a student, there are different explanations for why you might need to pass the IELTS. If you're the person who is preparing for IELTS test, can choose to find these classes. Studying overseas has a lot of benefits. The professors know of all the most recent development in their field s. Now, along the rapid evolution of economy, some students believe study abroad brings many advantages, while some have the opinion that they ought to finish university education in their motherland. Besides, the majority of the companies want candidates that have a university degree from such nations. Certainly, money has an important role in our lives. Certainly, it is an important part in our lives. Hence, it's said, marry for money is right in some degree.

Hard Determinism Essay example - 801 Words

Hard Determinism There are several viewpoints which consider whether we are free when making decisions and taking courses of action. One of these perspectives is hard determinism. J. Mackie described hard determinism as: The view that all actions are explicable in terms of their causes and are therefore inevitable (J. Mackie) This outlines the basic idea that no action or decision is free. This is based upon the notion that for an action to happen there are a series of factors that ensure the occurrence of that action: à ¢Ã¢â€š ¬Ã‚ ¦all our choices, decisions, intentions, other mental events, and our actions are no more than effects of other necessitated events (T. Honderich)†¦show more content†¦Other, possibly trivial, aspects such as the weather or having a certain piece of clothing clean would determine the choice made. The philosopher Van Inwagen elaborated upon this initial idea of past events effecting current decisions: My action today is the consequence of a causal circumstance in the remote past before I was born (Van Inwagen) He believed that previous events even prior to birth could effect the decisions made in our life now. Sigmund Freud first suggested the notion of psychological conditioning that would, again, condition our decisions and actions. He separated the human psyche into three parts; the Id, Ego and Super-Ego. The Id is our child hood desires to seek pleasure and avoid pain and demands immediate gratification, the Super-Ego is the ideals we would like to create in society, whilst the Ego moderates the two due to being governed by the reality principle. It is then that our motives and desires emerge subconsciously from the psyche, usually as a result of suppressed feelings which emerge later in life. Carl Jung furthered Freuds theory stating that the choices that we are conscious of making (the individual consciousness) are affected by the individual, cultural and universal subconscious. The individual subconscious is a personal aspect that we areShow MoreRelatedDeterminism, Hard And Soft887 Words   |  4 Pages Determinism: According to Sappington (1990) there are two types of determinism, hard and soft. He states that those who hold hard determinism say that human behavior is completely determined by outside factors and that ideas such a free will or moral responsibility are meaningless. Many famous psychologists take this approach such as Freud who believed that people’s behavior is controlled by unconscious factors and any conscious reasons given are simply the brain rationalizing actions to the superegoRead MoreHard Determinism Vs. Negatives943 Words   |  4 PagesOne of these ideas, hard determinism, has presented alleged positives and alleged negatives. One alleged negative that stands out to me is that no single person is responsible for their actions, no matter how heinous that action may be. I argue, that throwing morality completely out of the equation, is a genuine negative of hard determinism. In order to explain my thoughts, we must first understand the full meaning of hard determinism. In Holbach’s essay on hard determinism, he says, â€Å"NeverthelessRead MoreSaving Morality: The Implications of Hard Determinism 1116 Words   |  5 PagesHard determinism, the acceptance of determinism and the rejection of libertarian free will, results in some serious consequences for moral responsibility. At its most extreme interpretation a form of moral nihilism arises. †Without God ... everything is permitted now.†[1] That is, if determinism holds true, then there is no free choice, and without free choice there can be no moral responsibility. By taking hard determinism to its logical conclusion, and evaluating the results of a steadfast adherenceRead MoreSupport and Contradictions of Hard Determinism and Libertarianism630 Words   |  2 Pagesfutures. The thesis of determinism seems to contradict ordinary experiences, whereas the theory of libertarianism disregards event-causation. Philosopher Walter T. Stace proposed an alternative compatibilist philosophy. In order to recognize the ways in which Stace effectively amalgamates the two thesis utilizing his campatibilist approach, an objective examination of the three ideas is compulsory. The following article will define the support and contradictions of hard determinism and libertarianismRead MoreDefending Hard Determinism Against the Strongest Objections Raised Against It1161 Words   |  5 PagesDefending Hard Determinism Against the Strongest Objections Raised Against It In this academic essay there will be a clear and defined description of both hard determinism and its eventual nemesis indeterminism. Based on these definitions there will be a personal attempt at denying hard determinism. This will be accomplished through the introduction of David Hume and his radical philosophy on causality and the relation this may have on hard determinism, as well as theRead MoreThe Scientific Arguments Which Contain Freedom And Soft And Hard Determinism3111 Words   |  13 Pagesextraordinarily complicated machine.† (Wegner, 2002) To answer the question, it requires we define free will and determinism. This question can be approached from numerous directions: From Libet and Wegner’s scientific data as well as metaphysical results and Dennett’s arguments to those results. This essay will study the scientific arguments which contain freedom and soft/hard determinism. The first section of the essay I will provide definitions of the terms and give data presented by Libet and WegnerRead MoreDefense of Hard Determinism1100 Words   |  5 PagesOF HARD DETERMINISM Hard Determinism argues that every event is causally determined. For an event ‘A’ to occur casually means that there are antecedent causes that ensure the occurrence of ‘A’ in accordance with impersonal, mechanical causal laws. To clarify hard determinism further, let me present hard determinism as an argument. Basically hard determinism argues that: (a) Determinism is true (b) Determinism is incompatible with free will (Holbach, 451). In defense of premise (a), the hard deterministRead MoreDeterminism And Its Effects On Society957 Words   |  4 PagesDeterminism claims that all events are inevitable to have certain results at the end, since conditions are met and nothing else would occur. And it could apply to everything in the universe with causal laws. With the discovering laws, we could make predictions. Over the years, there are more than one determinism been developed over time. Hard determinism claims all the actions of human beings or consequences of events are determined by external conditions, with such conditions satisfied there willRead MoreEssay on Freedom-Determinism debate1689 Words   |  7 PagesFreedom-Determinism Debate The controversy between freewill and determinism has been argued about for years. Freewill is defined as the belief that our behaviour is under our own control and do not act in response to any internal or external factors. Freewill has been found to have four different conditions and to have freewill at least two conditions must be obtained, these are; people have a choice on their actions, have not been coerced by anything or anyone, have full voluntary and deliberateRead MoreFree Will and Libertanianism View1101 Words   |  4 Pagesfree will and I do not accept determinism. Free will is defined as the ability to make decisions at your own discretion. Determinism is defined as the events of the past, in conjunction with the laws of nature, necessitate every event in the future. What determinism means is that past events and the laws of nature are the factors that dictate what decision will be chosen. The libertarianism view accepts incompatibilism. Incompatibilism states that fr ee will and determinism are incompatible and cannot

Economic Order Model †Three Jays Corporation Case Study - Sample

Question: Describe about the Economic Order Model for Three Jays Corporation Case Study. Answer: 1: The Economic Order Quantity (EOQ) and Reorder Point Quantity are arrived at by using the following formulas. Whereby; EOQ represent the annual Demand of the inventory by an entity S represents the setup costs incurred in bringing the inventory into saleable condition. D is Demand for the year C represents unit cos i stands for Carrying cost percentage. On the other side, ROP is obtained by using the formula illustrated below: ROP = 3 x D 52 Using the five SKUS 2012 annual demand data the Company EOQ and ROP will be as follows.. Total set up cost (S) Weekly Demand (D) Carrying cost (i) Unit Cost (C) EOQ (case) ROP (case) Strawberry Jam 63.70 74 9% 28.34 61 4 Raspberry Jelly 63.70 63.75 9% 30.52 54 4 Peach Jam 63.70 44.5 9% 26.86 48 3 Blueberry Jam 63.70 27.75 9% 29.01 37 2 Apple/Mint Jelly 63.70 16.5 9% 26.32 30 1 NOTE: The following figures in the EOQ and ROP column have been arrived at by using the above two formulas The weekly demand is arrived at by dividing the monthly demand by 4 to obtain the weekly demand in the last week of June 2012. When the data obtained from this calculation is compared with the one of 2011, it comes out clearly that the annual demand has been increasing. This because of the demand for the product in the market is increasing, and also the company is avoiding to create the shortage of its products in the market(Sukhia, Khan, Bano, 2014). 2: The costs associated with EOQ are based both on the variable costs and the fixed costs (Sulak, Ero?lu, Bayhan, Avci, 2015). Variable costs differ with the level of production, and thus the value of EOQ should be obtained by putting into consideration all the inputs which actively participated in the production. Therefore, in this case, the costs attributable to the three works should not be included in total costs. This leads to a reduction of the total costs incurred by the three workers from the total cost as follows. 63.70 (1.29 x 3) = 59.80. Using this new cost the EOQ and ROP of the year 2012 will be recalculated as; Total set up cost (S) Weekly Demand (D) Carrying cost (i) Unit Cost (C) EOQ (case) ROP (case) Strawberry Jam 59.80 74 9% 28.34 58 4 Raspberry Jelly 59.80 63.75 9% 30.52 53 4 Peach Jam 59.80 44.5 9% 26.86 47 3 Blueberry Jam 59.80 27.75 9% 29.01 36 2 Apple/Mint Jelly 59.80 16.5 9% 26.32 29 1 From the comparison of the two calculations, the cost of the two laid-off workers should not be included in the calculation. This is because their costs rise the quantity demanded. This is quite evident when the QOE figures are compared in the two table. Therefore, excluding their costs, it will lead to reducing the quantity ordered by the company. 3: When the two results are compared it clearly reflects that data obtained when including the costs of the idle workers leads to the increase of the quantity demanded production. For instance, for Strawberry Jam the quantity demanded using the data of exhibit 2 is 61. However, when the cost of the idle workers is excluded the quantity demanded the production of the same product will be 58. Upon evaluating the scheduling method suggested by Jake and Josh. This paper finds that this is not the right schedule to use for determining the annual demand for the quantity needed for the production. This because some of the components used in ascertaining the quantity demanded are appropriate for the purchase of inventory but not for the raw materials needed for production. Jake and Josh are not following the established system either because they are not aware of the fundamental aspects which should or that should not be included in the calculation of the EOQ. 4: When the Jake and Josh procedures are compared with that of exhibit 2, the Jake and Josh schedule seems to vary from the exhibit 2. The exhibit two procedure accommodates each critical aspect of the EOQ model in the calculation of both EOQ and ROP. Additionally, it focuses on scrutinizing each concept of the EOQ before combining them to obtain the EOQ or ROP. According to Kumar (2016), the EOQ model should aim at helping the company to obtain the required annual demand at the lowest cost possible. However, for exhibit procedure to be effective, it should only consider costs associated with the setup costs, unit cost and carrying costs. Milad, Farid, Mohammad (2014) noted that costs should be directly linked to the EOQ or ROP. 5: After checking out the Jake and Josh procedure as well as coming up with his schedule, Brodie stands a higher chance of having various recommendations to present to Jana Fremont. First, all the costs should be analyzed and evaluated to determine their inclusion in the calculation of either EOQ or ROP. This is because it may result in unrealistic annual demand. Again, the unit costs should be based on both the variable and fixed costs directly attributable to the production. Alternatively, both set ups costs and carrying costs should be limited to only components related to EOQ directly. Third, the company should adjust the weekly reorder point in order to reduce the costs of placing orders frequently. The less the frequencies of the reorder point the lower the costs the company will incur. Fourth, the EOQ demanded by the company should not be based on the previous month demand plus the safety stock but according to the market analysis and demand of each product in the market. Ther efore, the company should carry out market analysis to determine which months the sales are high and the ones the sales will be low. References Kumar, R. (2016). Economic Order Quantity (EOQ) Model. Global Journal of Finance and Economic Management, 5(1), 1-5. Milad, E., Farid, K., Mohammad, K. (2014). Economic Order Quantity Model. International Journal of Industrial Engineering Computations, 5(2), 211-222. Sukhia, K. N., Khan, A. A., Bano, M. (2014). Introducing Economic Order Quantity Model for Inventory Control in Web-based Point of Sale Applications and Comparative Analysis of Techniques for Demand Forecasting in Inventory Management. International Journal of Computer Application, 107(19), 0975 8887. Sulak, H., Ero?lu, A., Bayhan, M., Avci, M. A. (2015). An Economic Order Quantity Model for Defective Items under Permissible Delay in Payments and Shortage. International Journal of Academic Research in Business and Social Sciences, 5(1), 306-316.

Positive Accounting Theory Essay Example

Positive Accounting Theory Essay We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [emailprotected] org. American Accounting Association is collaborating with JSTOR to digitize, preserve and extend access to The Accounting Review. http://www. jstor. org THE ACCOUNTING REVIEW Vol. 65, No. 1 January 1990 pp. 131-156 Positive A Accounting Year Theory: Ten Perspective Ross L. Watts and Jerold L. Zimmerman University of Rochester ABSTRACT: This paper reviews and critiques the positive accounting literature following publication of Watts and Zimmerman (1978, 1979). The 1978 paper helped generate the positive accounting literature which offers an explanation of accounting practice, suggests the importance of contracting costs, and has led to the discovery of some previously unknown empirical regularities. The 1979 paper produced a methodological debate that has not been very productive. This paper attempts to remove some common misconceptions about methodology that surfaced in the debate. It also suggests ways to improve positive research in accounting choice. The most important of these improvements is tighter links between the theory and the empirical tests. A second suggested improvement is the development of models that recognize the endogeneity among the variables in the regressions. A third improvement is reduction in measurement errors in both the dependent and independent variables in the regressions. T is more than a decade since our two papers, Towards a Positive Theory of the Determination of Accounting Standards and The Demand for and Supply of Accounting Theories: The Market for Excuses were published in The Accounting Review. We will write a custom essay sample on Positive Accounting Theory specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Positive Accounting Theory specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Positive Accounting Theory specifically for you FOR ONLY $16.38 $13.9/page Hire Writer The intervening time allows us to look back on these papers and the ensuing literature with some perspective. The two papers were controversial ten years ago and remain so today. The papers (primarily Watts and Zimmerman 1978) contributed to a literature that has uncovered empirical regularities in accounting practice (Christie forthcom ing; Holthausen and Leftwich 1983; Leftwich forthcoming; Watts and Zimmer man 1986). The empirical regularities have been replicated in different settings I Financial support was provided by the John M. Olin Foundation and the Bradley Policy Research Center at the University of Rochester. The comments of Ray Ball, James Brickley, Andrew Christie, Linda DeAngelo, Robert Hagerman, S. P. Kothari, Richard Leftwich, Tom Lys, Clifford Smith, Jerold Warner, and Greg Whittred are gratefully acknowledged. We thank William Kinney for encouraging us to pursue this project. An earlier version of this paper was presented at the Accounting Association of Australia and New Zealand, July 4, 1989, Melbourne, Australia. Manuscript received May 1989. Revision received September 1989. Accepted September 1989. 131 132 The Accounting Review, January 1990 (Christie forthcoming) and it is clear there is a relation between firms accounting choice and other firm variables, such as leverage and size and the signs of the relations are mostly consistent across studies. Positive accounting research guided the search for the empirical regularities and provided explanations for them. To date, there are no systematic alternative sets of explanations for those regularities articulated and tested in the literature. Further, the literature has moved beyond the first simple exposition of the theory in the 1978 paper. The explanation for accounting choice is now richer and more sophisticated. Our first objective in this paper is to convey our perspective on the evolution and current state of positive accounting theory and to summarize the evidence on systematic empirical regularities in accounting (Section I). The second objective is to evaluate the research methods and the methodology used to document the empirical regularities. We discuss criticisms of the original papers and of the subsequent positive accounting literature in Section II. While the positive accounting literature has explained some accounting practice, much remains unexplained. Our third objective is to provide our views about future directions for positive accounting literature (Section III). I. Evolution and State of Positive Evolution Accounting Theory Modern positive accounting research began flourishing in the 1960s when Ball and Brown (1968), Beaver (1968), and others introduced empirical finance methods to financial accounting. The subsequent literature adopted the assumption that accounting numbers supply information for security market investment decisions and used this information perspective to investigate the relation between accounting numbers and stock prices. The information perspective has taught us much about the markets use of accounting numbers. But, except for the choice of inventory methods, the information perspective has not provided hypotheses to predict and explain accounting choices. The information perspective has not provided hypotheses to explain why entire industries switch from accelerated to straight-line depreciation without changing their tax depreciation methods. An important reason that the information perspective failed to generate hypotheses explaining and predicting accounting choice is that in the finance theory underlying the empirical studies, accounting choice per se could not affect firm value. Information is costless and there are no transaction costs in the Modigliani and Miller (1958) and capital asset pricing model frameworks. Hence, The information perspective views accounting data (usually earnings, dividends, and cash flows) as providing information on inputs to valuation models (e. g. , discounted cash flows) and tests for associations between accounting disclosures and stock prices or returns. In the contracting approach adopted in the literature and discussed in this paper, accounting methods are primarily determined by the use of accounting numbers in contracts between parties to the firm. Under this approach accounting disclosures directly affect parties (including stockholders) contractual claims and, hence, the values of those claims (including stock prices). To the extent accounting disclosures are correlated with attributes investors use in valuing securities, these disclosures contain information and affect stock prices. Thus, under both an information perspective and a contracting perspective, accounting disclosures have the potential to alter securities prices (Holthausen forthcoming). Watts and Zimmerman-Positive Accounting Theory 33 if accounting methods do not affect taxes they do not affect firm value. In that situation there is no basis for predicting and explaining accounting choice. Accounting is irrelevant. To predict and explain accounting choice accounting researchers had to introduce information and/or transactions costs. The initial empirical studies in conaccounting choice used positive agency costs of debt and compensation tracts and positive info rmation and lobbying costs in the political process to generate value effects for and, hence, hypotheses about accounting choice. Finance researchers had introduced costs of debt that increase with the debt/equity ratio (Jensen and Meckling 1976) to explain (in combination with differential taxes) how optimal capital structures could vary across industries. The debt costs first introduced were bankruptcy and agency costs. The agency costs were of particular interest to accountants because accounting appeared to play a role in minimizing them. Debt contracts apparently aimed at reducing dysfunctional behavior use accounting numbers (Smith and Warner 1979; Leftwich 1983). Accounting researchers recognized the implications for accounting choice and began using the accounting numbers in debt contracts to generate hypotheses about accounting choice (Watts 1977). 2 contracts Accounting numbers also are used in managers compensation and it is hypothesized that such use again minimizes agency costs (Smith and Watts 1982). This use of accounting numbers in bonus plans suggested the possibility that accounting choice could affect wealth and so accounting researchers began employing that use to explain accounting choice. Watts and Zimmerman (1978) is an early example of this approach. Borrowing from the industrial organization literature in economics (Stigler 1971; Peltzman 1976) which assumes positive information costs and lobbying costs, accounting researchers postulated that the political process generated costs for firms. These political costs are a function of reported profits. Thus, incentives are created to manage reported accounting numbers. Information and lobbying costs are part of the costs of contracting in the political process. The extent and form of the wealth transfers created by the political process (such as the tax code) are affected by these contracting costs. While the early literature concentrated on using debt and compensation contracts and the political process to explain and predict accounting choice, the theory underlying the empirical work was more general and had its foundation in an economic literature on the theory of the firm. Since the 1970s, economists have strived to develop a theory of the firm by attempting to explain the organizational structure of the firm (e. g. , choice of corporate form, structure of The centralization-decentralization). ompensation, contracts, management underlying notion (Alchian 1950) is that competition among different forms of institutions leads to the survival of those forms most cost-effective in supplying goods and services. Productive activity can occur via the marketplace or by the inclusion of several activities within a firm (Coase 1937; Alchian and Demsetz 1972). In the marketplace, direction of productive activity and cooperation is by 2 Prior to that time other studies investigate accoun ting choice without explicit recognition of contracting effects (e. g. , Gordon 1964; Gordon et al. 1966; Sorter et al. 1966; Gagnon 1967). 34 The AccountingReview,January 1990 market prices; within the firm alternative mechanisms such as standard costs are used (Ball 1989). Which productive activities are carried out by markets and which by firms depends on which arrangement is cost effective. 3 In competition among firms, those that organize themselves to minimize contracting costs are more likely to survive (Fama and Jensen 1983a, 1983b). It was a short step to suggest that accounting methods affect the firms organizational costs and so the accounting methods that survive are the result of a similar economic equilibrium (Watts 1974, 1977). Accounting researchers have recently returned to using that notion of an efficient set of accounting methods to explain accounting choice (Zimmer 1986). As noted above, the agency costs associated with debt and management contracts and the agen cy, information, and other contracting compensation costs associated with the political process provided the hypotheses tested in the early empirical accounting choice studies (bonus plan, debt/equity, and political cost hypotheses). However, the more general approach suggested agency and other costs associated with other contracts (e. g. , sales contracts) could lso affect accounting choice. 5 This potential for many contracts to play a role in explaining organizational choice (including accounting choice) and the fact that agency costs used to explain the contracts often arise in contractual scenarios that differ from those of the standard agency problem led researchers to start to use the term contracting costs instead of agency costs (Klein 1983; Smith 1980). The concept of contracting costs and the notion of accounting methods as part of efficient organizational technology play key roles in contemporaneous positive accounting theory. Contemporaneous Positive Accounting Theory Contracting costs arise in (1) market transactions (e. g. , selling new debt or equity requires legal fees and underwriting costs), (2) transactions internal to the firm (e. g. , a cost-based transfer price scheme is costly to maintain and can produce dysfunctional decisions), and (3) transactions in the political process (e. g. , securing government contracts or avoiding government regulation requires lobbying costs). Contracting costs consist of transaction costs (e. g. , brokerage I Coase (1937) suggests that economies of scale in long-term contracting are what cause activity to be organized in firms. Alchian and Demsetz (1972) point out that those economies are not sufficient since market arrangements could achieve the same economies (e. g. , contracting consultants). What is necessary is some unique advantage of firm organization over market arrangements. Alchian and Demsetz suggest it is the advantage firms have in metering inputs to team production that generates firms. Monitors meter individual inputs and the monitors incentive problem is solved by giving them the residual claim to the firm (hence, the firm structure). Klein et al. (1978) suggest firms emerge to solve post contractual opportunism associated with specialized assets. Meckling and Jensen (1986) suggest that firms have an advantage in generating information by aggregating data and using that information. Difficulties in capturing the informations benefits in the market result in the firm being the optimal form of organization. 4Watts adopted such a view in Accounting Objectives which he presented to the Annual Congress of the N. S. W. branch of the Institute of Chartered Accountants in Australia in 1974. The paper was later substantially revised given Jensen and Meckling (1 976) andjoint work with Zimmerman and published in Watts (1977). The influence of sales contracts on accounting choice is considered by Watts and Zimmerman (1986, 207) and by Zimmer (1986) and joint venture contracts by Zimmer (1986). Further, Ball (1989) suggests intrafirm transactions affect internal accounting choice (e. g. , the basis for transfer prices). Watts and Zimmerman-Positive Accounting Theory 135 fees), agency costs (e. g. , monitoring costs, bonding costs, and the residual loss from dysfunctional decisions), information costs (e. g. , the costs of becoming informed), renegotiation costs (e. g. the costs of rewriting existing contracts because the extant contract is made obsolete by some unforeseen event), and bankruptcy costs (e. g. , the legal costs of bankruptcy and the costs of dysfunctional decisions). Throughout this paper, we use the term contracting costs to incorporate this wide variety of costs. The term contracting parties is meant to include all parties to the firm including internal employees and managers and external parties, such as suppliers, claim holders, and customers. 6 The existence of contracting costs is crucial to models of both the organization of the firm and accounting choice. Meckling and Jensen (1986) suggest that within the firm the lack of a market price is replaced by systems for allocating decisions among managers, and measuring, rewarding, and punishing managerial performance. Accounting plays a role in these systems and so appears to be part of the firms efficient contracting technology. Trying to predict and explain the organization of the firm with zero contracting costs is pointless (Coase 1937; Ball 1989). How the firm is organized, its financial policy, and its accounting methods, are as much a part of the technology used to produce the firms product as are its production methods. Hence, modelling accounting choice while assuming zero contracting costs is not productive. The extent to which accounting choice affects the contracting parties wealth depends on the relative magnitudes of the contracting costs. For example, assume accounting-based debt agreements have higher renegotiation costs than bonus plans. Then, mandatory changes in accounting proceaccounting-based dures by the FASB impose greater relative costs on firms with debt agreements than on firms with bonus plans, ceteris paribus. And, firms with debt agreements will conduct more lobbying and undertake more (costly) accounting, financing, and production changes to undo the effects of the mandatory change than firms with only bonus plans. Thus, developing a positive theory of accounting choice requires an understanding of the relative magnitudes of the various types of contracting costs. Contracts that use accounting numbers are not effective in aligning managers and contracting parties interests if managers have complete discretion over the reported accounting numbers. If managers know (or can determine) which accounting methods best motivate subordinates, then the contracting parties want managers to have some discretion over the accounting numbers. Hence, we expect some restrictions on managers discretion over accounting numbers, but some discretion will remain. When managers exercise this discretion it can be because (1) the exercised discretion increases the wealth of all contracting parties, or (2) the exercised discretion makes the manager better off at the expense of some other contracting party or parties. If managers elect to exercise discretion to their advantage ex post, and the discretion has wealth redistributive effects among the contracting parties, then we say the managers acted opportunistically. 6 See Watts (1974) for an earlier and Ball (1989) for a later discussion than capital suppliers and managers. of contracting parties other 136 The Accounting Review, January 1990 Ex ante, the set of accounting choices restricted by the contracting parties is determined by efficiency reasons (to maximize firm value). One cost of allowing managers more rather than less discretion is the ncreased likelihood of some ex post managerial opportunism (i. e. , wealth transfers to managers) via accounting procedures. However, ex ante the contracting parties expect some redistributive effects and reduce the price they pay for their claims. Ex post, wealth is redistributed by managerial opportunism, but ex ante some redistribution was expected and the parties price protected themselves. Price pr otection does not eliminate the incentive to act opportunistically nor does price protection eliminate the dead weight costs of managers taking opportunistic actions. The extent to which contracts can be written ex ante to preclude such ex post behavior that causes dead weight costs increases the chance the firm will survive in a competitive environment (Klein 1983, fn. 2). The set of accounting procedures within which managers have discretion is called the accepted set. It is voluntarily determined by the contracting parties. Managerial discretion over accounting method choice (i. e. , the accepted set ) is predicted to vary across firms with the variation in the costs and benefits of restrictions. These restrictions produce the best or accepted accounting principles even without mandated accounting standards by government. The restrictions are enforced by external auditors. Reacting to the incentive of managers to the accepted set includes discretion opportunistically, exercise accounting conservative (e. g. , lower of cost or market) and objective (e. g. , verifiable) accounting procedures (Watts and Zimmerman 1986, 205-206). Figure 1 represents the concept of the accepted set of accounting methods as a Venn diagram. A l denotes the accepted set of methods for firm 1. Ex ante, the accepted set is determined jointly by the contracting parties to maximize the value of the firm (e. g. , set A 1 vs. A 2 in Fig. 1). Managers have discretion to choose any method within the accepted set (e. g. , Xl). Also, managers in firm 2 are constrained ex ante to the set A2 and choose X2 ex post. For example, within the accepted set of procedures used for bonus plans managers might select the method that maximizes their utility, even if it comes at another contracting partys expense. Managers ex post choice can either increase the wealth of all contracting parties or redistribute wealth among the parties. Empirically, it is difficult to separate ex ante from ex post. Contracts are continually being written. , rewritten, and revised. Variations across sets of accepted accounting procedures (e. g. , Al and A2 in Fig. 1) explain some cross-sectional variation in accounting choice (e. g. , managers in firm 2 cannot choose method Xl). For example, Zimmer (1986) argues Australian real estate development firms are restricted by accepted practice from capitalizing interest except for cost plus contracts that allow interest as a cost. His evidence is consistent with that hypothesis. choice studies assume managers choose accounting Most accounting methods to transfer wealth to themselves at the expense of another party to the firm because they can take the firms observed contracts as given and then determine managers incentives for accounting choice. Some research studies assume accounting methods are chosen for efficiency reasons (i. e. , they increase the pie available being shared among all parties to the firm (Watts 1974, 1977; Leftwich Watts and Zimmerman-Positive Accounting Theory 137 Figure 1 Relation Between the Accepted Set of Accounting Methods and the Choice of Method from within the Accepted Set All Feasible Accounting Methods Al X2~~~~ Al A2 X1 X2 denotes denotes denotes denotes the the the the set of accepted methods for firm l set of accepted methods for firm 2 choice of method from within the accepted set by firm 1 choice of method from within the accepted set by firm 2 et al. 1981; Zimmer 1986; Whittred 1987; Ball 1989; Malmquist forthcoming; Mian and Smith forthcoming). However, no study to date has explained both the ex ante choice of the accepted set and the ex post choice of accounting method from within the accepted set. Most studies that assume opportunistic choice of accounting methods do not control for the fact that managers in different firms likely are choosing accounting methods from different constrained accepted sets. The accepted set of accounting methods is one part of the firms implicit and explicit contracts including the firms capital structure, compensation plans, and ownership structure. All the contracting provisions (including the accounting policies) are endogenous. Capital structure choice is related to compensation policy and to accounting policy. But, the relation is not necessarily causal. Capital structure changes do not cause changes in the accepted set of accounting methods. Rather, some exogenous event, such as a new invention or government deregulation occurs and this causes changes in the contracting variables including accounting methods (Ball 1972; Smith and Watts 1986). 138 Evidence on the Theory The AccountingReview,January 1990 Two types of tests of the theory have been conducted: stock price tests and accounting choice tests. The stock price tests have been reviewed extensively elsewhere (Foster 1980; Ricks 1982; Holthausen and Leftwich 1983; Lev and Ohlson 1982; Watts and Zimmerman 1986; Bernard 1989). Stock price tests of the theory reveal some price reactions to mandatory accounting changes, especially involving oil and gas accounting (Lys 1984). 7 Stock price studies are probably relatively weak tests of the theory (Watts and Zimmerman 1986). The more promising ones are accounting choice studies. Most accounting choice studies attempt to explain the choice of a single accounting method (e. g. the choice of depreciation) instead of the choice of combinations of accounting methods. Focusing on a single accounting method reduces the power of the tests since managers are concerned with how the combination of methods affects earnings instead of the effect on just one particular accounting method (Zmijewski and Hagerman 1981). Some studies seek to explain accounting accruals (the difference between operatin g cash flows and earnings). Accounting accruals aggregate into a single measure the net effect of all accounting choices (Healy 1985; DeAngelo 1986, 1988a; Liberty and Zimmerman 1986). But use of accruals as a summary measure of accounting choice suffers from a lack of control of what accruals would be without managerial accounting discretion. Most accounting choice studies use combinations of three sets of variables: variables representing the managers incentives to choose accounting methods under bonus plans, debt contracts, and the political process. Bonus plan and debt contract variables are used because theyre observable. The three particular hypotheses most frequently tested are the bonus plan hypothesis, the debt/ equity hypothesis, and the political cost hypothesis. The literature has tended to The state each of these hypotheses as managers behaving opportunistically. are more likely bonus plan hypothesis is that managers of firms with bonus plans to use accounting methods that increase current period reported income. Such selection will presumably increase the present value of bonuses if the compensation committee of the board of directors does not adjust for the method chosen. The choice studies to date find results generally consistent with the bonus plan hypothesis (Watts and Zimmerman 1986, chap. 11; Christie forthcoming). Using Lys own calculations, Frost and Bernard (1989, 20) and Bernard (1989, 14) conclude Lys evidence is inconsistent with a link between stock price reactions to mandated oil and gas accounting and the violation of debt covenants. However, that conclusion is unwarranted. Lys estimates the average cost of violations as 2. 5 percent of the stock value, the same order of magnitude as the stock price reactions observed. Fros t and Bernard argue that given an average cost of violation of 2. 5 percent, the average stock price reaction should be much less since according to Foster (1980) very few firms have a debt covenant violation as result of the mandated accounting change. There are at least three problems with the Frost and Bernard argument. First, the Lys point estimates are likely to have large standard errors. Second, to obtain an estimate of the stock price reaction, the estimated cost of a violation has to be weighted not by the relative frequency of violation but by the change in the likelihood of violation. While few firms violated covenants, many firms probability of violation likely increased substantially. Third, Malmquist (forthcoming) suggests Fosters description of oil and gas firms covenants is incorrect. Frost and Bernard (1989) also use their own empirical studys results to argue that there is no link between the stock price reaction and debt covenants. Because of selection biases, however, their study provides little evidence on the issue (Begley forthcoming). Watts and Zimmerman-Positive Accounting Theory 139 The early tests of the bonus hypothesis are not very powerful tests of the theory because they rely on simplifications of the theory that are not appropriate in many cases. For example, a bonus plan does not always give managers incentives to increase earnings. If, in the absence of accounting changes, earnings are below the minimum level required for payment of a bonus, managers have incentive to reduce earnings this year because no bonuses are likely paid. Taking such an earnings bath increases expected profits and bonuses in future years. By using bonus plan details to identify situations where managers are expected to reduce earnings, Healys (1985) tests encompass more kinds of manipulation. His results are consistent with managers manipulating net accruals to affect their bonuses. The debt/equity hypothesis predicts the higher the firms debt/equity ratio, the more likely managers use accounting methods that increase income. The higher the debt/equity ratio, the closer (i. e. , tighter) the firm is to the constraints in the debt covenants (Kalay 1982). The tighter the covenant constraint, the greater the probability of a covenant violation and of incurring costs from technical default. Managers exercising discretion by choosing income increasing accounting methods relax debt constraints and reduce the costs of technical default. The evidence is generally consistent with the debt/equity hypothesis. The higher firms debt/equity ratios, the more likely managers choose income increasing methods. Press and Weintrop (forthcoming) and Duke and Hunt (forthcoming) find that debt/equity ratios are correlated with closeness to bond covenants as assumed in the debt/equity hypothesis. 9 Some studies, however, have avoided using the debt/equity ratio as a proxy variable for closeness to the covenant constraint by using more direct tests. For example, Bowen et al. (1981) examine whether accounting choice varies with tightness of the dividend constraint as specified in the debt covenant and measured by unrestricted retained earnings. The association between leverage and accounting method choice is an empirical regularity unknown prior to the positive accounting studies. The political cost hypothesis predicts that large firms rather than small firms are more likely to use accounting choices that reduce reported profits. Size is a proxy variable for political attention. Underlying this hypothesis is the assumption that it is costly for individuals to become informed about whether accounting profits really represent monopoly profits and to contract with others in the political process to enact laws and regulations that enhance their welfare. Thus, rational individuals are less than fully informed. The political process is no different from the market process in that respect. Given the cost of information and monitoring, managers have incentive to exercise discretion over accounting profits and the parties in the political process settle for a rational amount of ex post opportunism. of no association between 8 Holthausen (1981) and Healy (1985) fail to reject the null hypothesis leverage and accounting method choice (see Christie forthcoming, table 1). etween how close the firm is to a given covenant con9 Researchers are beginning to distinguish straint versus the existence of the covenant. For example, Press and Weintrop (forthcoming) find the existence of a covenant has additional explanatory power in a model predicting accounting choice after including a leverage variable. 140 The Accounting Review, January 1990 The evidence is consistent with the political cost hypothesis. However, the result only appears to hold for the largest firms (Zmijewski and Hagerman 1981) and is driven by the oil and gas industry (Zimmerman 1983). Difficulties with using firm size to proxy for political costs, including the likelihood that it can proxy for many other effects, such as industry membership, are discussed in Ball and Foster (1982). The interesting finding is the consistency of the sign of the relation between size and accounting choice across a variety of studies. The largest firms tend to use income decreasing accounting methods. Presently, there is no alternative theory for the empirical regularity between firm size and accounting choice other than the political cost hypothesis. Bonus plan, debt contract, and political process variables other than bonus plan existence, leverage, and size have also been found to be associated with accounting choice. Christie (forthcoming) aggregates test statistics across the various studies and concludes . . . six variables common to more than one study have explanatory power. These variables are managerial compensation, leverage, size, risk, and interest coverage and dividend constraints. Another conclusion is that the posterior probability that the theory taken as a whole has explanatory power is close to one. While bonus, debt, and political process variables tend to be statistically significant (p-values smaller than . 10), in many studies the explanatory power (RI ) of the models is low. In Zmijewski and Hagerman (1981), the model of crosssectional choice of accounting methods is not significantly better than picking although Press and Weintrop (forthcoming) the most common combination, achieve slightly improved explana tory power. The alternative predictive model is that each firm uses the most common combination of accounting methods, a model with little explanatory appeal. The alternative model begs the question of what determines the majority accounting choice. Many accounting teachers would be uncomfortable with the explanation that managers choose their accounting procedures based on what most other firms are doing. The real issue is the lack of an alternative model with grea