Reference no: EM133014365

Question - Normative accounting, most commonly found in a company's business or marketing plan, takes a subjective approach. Based on abstract principles, it endeavours to characterise what the financial future of a firm should look like. Subsequently, by making normative accounting a value judgement, it allows for the use of subjective morality within accountancy practice. For example, if a corporation has previously boosted investor dividend payments, and is now looking to reinvest funds into the firm to ensure its future viability through corporate sustainability measures, then normative accounting would point to issuing new shares as a source of funding. Normative accounting also goes further to signify how much money should be taken from this fund to be invested in such measures.

(a) Explain how normative accounting theory can enhance our understanding of accounting practices.

(b) Formulate in depth explanation on normative accounting theory with regards to accounting disclosure practice.