The key theory that underpins Positive Accounting Theory is:

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Positive Accounting Theory is based on agency theory, which suggests that managers may have different objectives than shareholders, leading to agency problems. Positive Accounting Theory aims to understand and explain the behavior of managers by analyzing the incentives and contracts that influence their decisions. The Efficient Markets Hypothesis and Normative Ethical Theory are not central to Positive Accounting Theory.

The Key Theory That Underpins Positive Accounting Theory Is