Positive accounting theory (PAT) tries to explain corporations’ choices of accounting standards. Empirical research in this field has been focused on the choices made by large, listed corporations. We challenge this grounding through extending the empirical domain by testing PAT on Swedish municipal corporations. In order to be able to explain the choice of accounting standards in municipal corporations, PAT has to be complemented by institutional factors that can consider the forces of coercive, mimetic and normative pressures presented by the environment. The sample of municipal corporations showed that the choice of standards was significantly explained by both PAT factors and institutional factors. The conclusion is that municipal corporations tend to be subject to institutional influence by accepting the practice of their auditing firm and by using specific standards order to legitimise themselves when they have reached a certain size. Additionally, they tend to act according to PAT predictions by using those standards that are able to reduce the profit to levels that society deems acceptable for municipal corporations. Accordingly, through extending the empirical domain to municipal corporations, this paper’s contribution is to show that PAT needs the complementary institutional factors in order to be capable of explaining choice of accounting standards in firms.