The key theory that underpins Positive Accounting Theory is:
A) The Efficient Markets Hypothesis
B) Agency theory
C) Normative ethical theory
D) None of the given options are correct.

Question

Quizplus · Accepted Answer

Positive Accounting Theory is based on the principles of agency theory, which suggests that managers and shareholders have conflicting interests and that accounting practices are shaped by the desire to minimize agency costs. The theory assumes that individuals act rationally, and that accounting policies are designed to maximize their wealth. Therefore, B is the correct answer because it reflects the central theme of Positive Accounting Theory. A, C, and D are incorrect as they do not accurately represent the key theory of Positive Accounting Theory.

The Key Theory That Underpins Positive Accounting Theory Is