The descriptive pragmatic approach is primarily centered on observing the behavior of accountants to create a theory based on their actions without assessing the quality or ethics of those actions . It focuses on replicating existing practices rather than analyzing theoretical semantics or challenging established techniques . In contrast, syntactic theories, as observed in historical cost accounting, focus on manipulating transactional data through specific accounting principles to generate financial statements . These theories concentrate on the processes and rules of accounting data transformation, rather than behaviors or external feedback .

In the 1970s, accounting theory experienced a shift towards positive methodology, which emphasized empirical testing and linking accounting theories to real-world experiences and facts . This period marked a return to describing and explaining current accounting practices rather than prescribing ideal practices as normative theories had done . The focus of positive accounting research became explaining the reasons for existing practices and predicting accounting's role in economic decisions, using empirical methods such as surveys to gauge attitudes towards different accounting techniques .

The descriptive pragmatic approach in accounting theory focuses on observing and copying the behavior of accountants to build a theory, known as the 'anthropological approach' . It primarily focuses on the actions of accountants without critically analyzing their quality and doesn't allow for innovative changes in accounting methods . On the other hand, the psychological pragmatic approach observes the users' responses to accountants' outputs, such as financial reports, as evidence of the utility and relevance of these financial statements . However, it faces challenges due to potentially illogical or preconditioned user reactions, countered by testing decision theories on large samples .

The concept of realism in accounting theory complements the decision-usefulness approach by emphasizing not only the predictive capacity of accounting information but also its ability to describe the underlying reality of accounting phenomena . While decision-usefulness aims to provide relevant data for decision-making, realism ensures that this data accurately represents actual economic situations, thereby affirming its utility beyond prediction. Realism stresses explanatory roles, reinforcing the feedback function of accounting in both forecasting and reflecting actual conditions and events .

Normative accounting theories are prescriptive, focusing on how accountants should behave to achieve outcomes deemed as right, moral, just, or 'good' . They arose prominently during the 1950s and 1960s, concentrating on making recommendations and defining what should be done . Conversely, positive theories are descriptive and explanatory, avoiding value-laden prescriptions. They describe actual behavior, explain reasons for such behavior, and predict accounting's role in economic decisions, based on empirical methodology initiated in the 1970s .

The historical cost approach is limited in contributing to scientific progress because it generates non-falsifiable hypotheses that do not extend beyond verifying accounting entries . This approach lacks independent empirical operations to validate outcomes such as profit or total assets beyond being mere calculative outputs of account balances . It does not provide instrumental or innovative knowledge that can lead to advancements in accounting theory or practical applications, thus failing to contribute meaningfully to the development of accounting science .

Critics argue that historical cost accounting largely functions as a syntactic theory with semantic content based solely on its inputs, lacking independent empirical verification of its outputs like 'profit' or 'total assets' . The theory is considered uninformative for financial decision-making beyond verifying accounting entries, as it adopts cautious hypotheses that aren't falsifiable, hence not contributing to scientific progress . Additionally, this approach has been criticized for not effectively measuring current values, anticipating the shift towards fair value accounting .

The decision-usefulness approach in accounting theory is centered on aiding decision-making processes by providing relevant accounting data to certain users, such as investors, to inform decisions about buying, holding, or selling shares . It aligns with financial instrumentalism, which suggests assessing accounting systems based on their predictive abilities, and finds origins in logical positivism . Although instrumentalism views theories as tools for prediction, realism in accounting stresses the explanatory power of a theory, requiring it to describe the reality underlying accounting phenomena, thus emphasizing the feedback role of accounting .

The primary challenges of the psychological pragmatic approach include illogical or preconditioned responses from some users of financial statements, along with a lack of reactions when expected . These issues arise from the reliance on user reactions as the main evidence of the usefulness of financial statements, which may not fully capture their actual utility. The approach attempts to overcome these shortcomings by focusing on decision theories tested on large population samples rather than individual responses, aiming to provide a more robust assessment of financial statement relevance .

The criticisms of historical cost accounting as lacking semantic content or empirical validation for figures like 'profit' or 'total assets' spurred a shift towards fair value accounting . Historical cost accounting systems were viewed as providing uninformative data for financial decision-making and scientific progress, as they relied on cautious, unfalsifiable hypotheses . This approach's inability to effectively reflect current market values prompted the move to International Financial Reporting Standards, which emphasize 'fair value' accounting, addressing the need for more relevant and contemporary representations of financial data .