Bonus plan hypothesis

Bonus Plan Hypothesis -

Positive accounting emerged with empirical studies that proliferated in accounting in the late 1960s.

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• In relation to PAT, because there is a need to be efficient, the firm will want to minimize costs associated with contracts.

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Positive Accounting Theory PAT

6 Positive Accounting Theory Assumptions: The accountants (and, in fact, all individuals) are primarily motivated by self­interest (tied to wealth maximisation), and that the particular accounting method selected (where alternative are available).

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While normative theories tend to recommend what should be done, Positive Theories try to explain and predict o Actions such as which accounting policies firms will choose o How firms will react to newly proposed accounting standards • Its overall intention is to understand and predict the choice of accounting policies across differing firms. • Under PAT, firms want to maximize their prospects for survival, so they organize themselves efficiently.


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