Introduction
Accounting theory is aiming to provide a coherent set of conceptual principles which form the general frame of reference for the explanation and development of facts of the accounting practices. There is no universally accepted single theory of accounting since there are so many different perspectives on the role of accounting theory. Also, a researcher’s own experience and value can effect which theory they support. This paper is mainly focus on the positive accounting theory and normative accounting theory. Positive accounting theory is introduced by accountants, which seeks to explain and make good predictions of real world phenomena then translate them to accounting practice, rather than prescribing such practice. For example, which particular accounting policies are likely to be adopted by a firm; or how a firm will react to the recently introduced accounting standards. This theory is based on the proposition that individuals (e.g. managers, shareholders and regulators) are rational and that they are motivated to maximize their own benefits, so they organize themselves efficiently. However, the limitation is people tend to lose the notions of morality and ethics. Positive accounting theory is also help to explain the relationships between individuals and the role accounting play in such relationships, like agency relationship. The agency relationship describes the relationship between the principals (e.g. shareholders) and agents (e.g. managers). Rely on the assumptions of self-interest and wealth maximization; the agents are motivated to behalf their own best interests rather than those of the principals. In addition, managers have access to information not always available to principals which causes the information asymmetry. The costs of divergent behavior are defined as agency costs. In order to minimize the agency costs, principals tie the