Solution Manual for Financial Accounting Theory, 7th Edition by William R. Scott and Patricia O'Brien – Chapters 1–13, Complete, [Your Institution], [Academic Year]

Solution Manual For Financial Accounting Theory
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7th Edition by William R. Scott, Patricia O'Brien
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Chapters 1 - 13, Complete
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, Contents


Chapter 1 Introduction.................................................................................................. 1
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Chapter 2 Accounting Under Ideal Conditions ........................................................ 7
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Chapter 3 The Decision Usefulness Approach to Financial Reporting .................. 68
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Chapter 4 Efficient Securities Markets .....................................................................129
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Chapter 5 The Value Relevance of Accounting Information..................................153
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Chapter 6 The Measurement Approach to Decision Usefulness............................. 194
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Chapter 7 Measurement Applications .......................................................................237
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Chapter 8 The Efficient Contracting Approach to Decision Usefulness ................285
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Chapter 9 An Analysis of Conflict ........................................................................ 321
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Chapter 10 Executive Compensation ..................................................................... 371
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Chapter 11 Earnings Management ......................................................................... 425
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Chapter 12 Standard Setting: Economic Issues..................................................... 487
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Chapter 13 Standard Setting: Political Issues ....................................................... 527
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Pearson pgCanada pgInc.
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,Scott, Financial Accounting Theory
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1
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CHAPTER 1 pg




pg INTRODUCTIO

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1.1 The Objective of This Book
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1.2 Some Historical Perspective
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1.3 The 2007-2008 Market Meltdowns
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1.4 Efficient Contracting
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1.5 A Note on Ethical Behaviour
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1.6 Rules-Based v. Principles-Based Accounting Standards
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1.7 The Complexity of Information in Financial Accounting and Reporting
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1.8 The Role of Accounting Research
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1.9 The Importance of Information Asymmetry
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1.10 The Fundamental Problem of Financial Accounting Theory
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1.11 Regulation as a Reaction to the Fundamental Problem
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1.12 The Organization of This Book
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1.12.1 Ideal Conditions pg




1.12.2 Adverse Selection pg




1.12.3 Moral Hazard pg




1.12.4 Standard Setting pg




1.12.5 The Process of Standard Setting
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1.13 Relevance of Financial Accounting Theory to Accounting Practice
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, Scott, Financial Accounting Theory
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1
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LEARNING OBJECTIVES pgAND pgSUGGESTED pgTEACHING pgAPPROACHES
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1. The Broad Outline of the Book
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I use Figure 1.1 as a template to describe the broad outline of the book.
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pg Since the students typically have not had a chance to read Chapter 1 in
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pg the first coursesession, I stick fairly closely to the chapter material.
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The major points I discuss are:
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• Accounting in an ideal setting. Here, present-value-based
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pg accounting is natural. I go over the ideal conditions needed for
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pg sucha basis of accounting to be feasible, but do not go into
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pg much detail because this topic is covered in greater depth in
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pg Chapter 2. pg




• An introduction to the concept of information asymmetry and
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pg resulting problems of adverse selection and moral hazard.
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pg These problems are basic to the book and I feel it is desirable
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pg for the students to have a “first go” at them at this point. I
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pg concentrate on the intuition underlying the two problems. For
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pg example, adverse selection can be illustrated by asking who
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pg would be first in line to purchase life insurance if there was no
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pg medical examination, or what quality of used cars are likely to
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pg be brought to market. For moral hazard I try to pin them down
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pg on how hard they would work inthis course if there were no
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pg exams.

• The environment in which financial accounting and reporting
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pg operates. My main goal at this point is that the students do
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pg not takethis environment for granted. I discuss the procedures
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pg of standard setting briefly and point out that this is really a
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pg process of regulation. In the past, there have been well-known
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pg cases of deregulation, such as airlines, trucking, financial
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