Solution Manual for Financial Accounting Theory 8th Edition by William Scott, Patricia O'Brien

, Contents


Chapter r 1 Introduction ............................................................................................................ 1

Chapter r 2 Accounting r Under r Ideal r Conditions ................................................................... 7

Chapter r 3 The rDecision r Usefulness r Approach r to r Financial r Reporting...............................68

Chapter r 4 Efficient r Securities r Markets ................................................................................ 129

Chapter r 5 The rValue r Relevance r of r Accounting r Information .............................................. 153

Chapter r 6 The rMeasurement r Approach rto r Decision r Usefulness ......................................... 194

Chapter r 7 Measurement r Applications................................................................................... 237

Chapter r 8 The rEfficient r Contracting rApproach rto r Decision r Usefulness ............................. 285

Chapter r 9 An r Analysis r of rConflict .................................................................................... 321

Chapter r 10 r Executive r Compensation .................................................................................. 371

Chapter r 11 r Earnings rManagement ...................................................................................... 425

Chapter r 12 r Standard r Setting: r Economic r Issues.................................................................. 487

Chapter r 13 r Standard r Setting: r Political r Issues .................................................................... 527

,Scott, Financial Accounting Theory, 8th Edition Instructor’s Solutions Manual Chapter



CHAPTER r1

INTRODUCTIO
r




N

1.1 The r Objective r of r This rBook

1.2 Some rHistorical rPerspective

1.3 The r2007-2008 rMarket rMeltdowns

1.4 Efficient rContracting

1.5 A rNote ron rEthical rBehaviour

1.6 Rules-Based rv. rPrinciples-Based rAccounting rStandards

1.7 The rComplexity rof rInformation rin rFinancial rAccounting rand rReporting

1.8 The rRole rof r Accounting rResearch

1.9 The rImportance rof rInformation rAsymmetry

1.10 The rFundamental rProblem r of rFinancial rAccounting rTheory

1.11 Regulation ras ra rReaction rto rthe rFundamental rProblem

1.12 The rOrganization r of rThis rBook

1.12.1 Ideal rConditions

1.12.2 Adverse rSelection

1.12.3 Moral rHazard

1.12.4 Standard rSetting

1.12.5 The rProcess rof rStandard rSetting

1.13 Relevance rof r Financial rAccounting rTheory rto rAccounting rPractice

, Scott, Financial Accounting Theory, 8th Edition Instructor’s Solutions Manual Chapter


LEARNING r OBJECTIVES r AND rSUGGESTED rTEACHING r APPROACHES

1. The rBroad rOutline rof rthe rBook

I r use r Figure r 1.1 r as r a r template r to r describe r the r broad r outline r of r the r book. r Since r the
r students r typically r have r not r had r a r chance rto r read r Chapter r 1 r in r the r first
r coursesession,rI r stick rfairly r closely rto r the r chapter rmaterial.

The rmajor rpoints rI r discuss r are:

• Accounting r in ran r ideal r setting. r Here, r present-value-based r accounting
r isrnatural. r I r go r over r the r ideal r conditions r needed r for r sucha r basis rof
r accounting rto r be r feasible, r but r do r not r go r into rmuch r detail r because
r this rtopic r is r covered rin r greater rdepth r in r Chapter r2.

• An r introduction r to r the r concept r of r information r asymmetry r and r resulting
r problems r of r adverse r selection r and r moral r hazard. r These r problems r are
r basic r to rthe r book r and r I r feel r it r is r desirable r for r the r students r to r have r a
r “first r go” r at r them r at r this rpoint. r I r concentrate r on r the r intuition r underlying
r the r two r problems. r For r example, r adverse r selection r can r be r illustrated
r by rasking r who r would r be r first r in r line r to r purchase rlife r insurance r if r there
r was rno r medical r examination, r or r what r quality r of r used r cars r are r likely rto
r be rbrought r to rmarket. r For r moral rhazard r I r try rto rpin r them rdown r on rhow
r hardrthey rwould r work r inthis r course r if r there r were rno r exams.

• The r environment r in r which r financial r accounting r and r reporting
r operates.rMy r main r goal rat r this r point r is rthat r the rstudents r do r not
r takethis renvironment r for r granted. r I r discuss r the r procedures r of
r standard r setting rbriefly r and r point r out r that r this r is r really r a r process r of
r regulation. r In r the rpast, r there r have r been r well-known r cases r of
r deregulation, r such r as rairlines, r trucking, r financial rinstitutions,
r powergeneration. r However, r we rare r entering r what r is r likely r to r be r a
r period r of r increasing rregulation, rat rleast rfor rfinancial rinstitutions.
r Instructors