This chapter describes the political economy of accounting (PEA) theory, which is tested in this book. Section 3.2 outlines the objectives of a political economy (PE) theory. Section 3.3 discusses traditional accounting in the context of PEA theory by examining the effect of globalisation on financial capital and the social character of capital. Section 3.4 describes the role of the state in PEA and describes the state as a form of capitalist social relations. Section 3.5 describes the role of capital in PEA and describes capital as an institutional system, capital accumulation based on regimes of capital, and accumulation of global and social capital. Section 3.6 extends the discussion to corporatism in an attempt to understand the reciprocal relationships between interest groups and the state and the central importance of PE theory in promoting the process of adjustment through the political capacity of the government. Section 3.7 describes factors contributing to the selection of PEA theory in this book. Section 3.8 provides a summary for the chapter.