Solution Manual For Financial Accounting Theory 7th Edition by William R. Scott, Patricia O'Brien All Chapters 1 to 13 complete Verified

INSTRUCTOR’S SOLUTIONS MANUAL K K




for



FinancialAccounting k




Theory k




Seventh Edition k




William R. Scott k k




University of Waterloo k k




Toronto

Copyright © 2015 Pearson Canada Inc., Toronto, Ontario. All rights reserved. This work is protected by Canadian
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copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning.
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Dissemination or sale of any part of this work (including on the Internet) will destroy the integrity of the work and is not
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permitted. The copyright holder grants permission to instructors who have adopted Financial Accounting Theory, Seventh
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Edition, by William R. Scott to post this material online only if the use of the website is restricted by access codes to
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students in the instructor’s class that is using the textbook and provided the reproduced material bears this copyright
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notice. k

, Contents


Chapter 1 k Introduction .................................................................................................. 1

Chapter 2 k Accounting Under Ideal Conditions ........................................................... 7
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Chapter 3 k The Decision Usefulness Approach to Financial Reporting ........................ 68
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Chapter 4 k Efficient Securities Markets ....................................................................... 129
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Chapter 5 k The Value Relevance of Accounting Information....................................... 153
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Chapter 6 k The Measurement Approach to Decision Usefulness.................................. 194
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Chapter 7 k Measurement Applications ......................................................................... 237
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Chapter 8 k The Efficient Contracting Approach to Decision Usefulness ...................... 285
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Chapter 9 k 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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Copyright © 2015 Pearson Canada Inc.
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,Scott, Financial Accounting Theory, 7th Edition
k k k k k Instructor’s Solutions Manual Chapter 1
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CHAPTER 1 K




INTRODUCTION
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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 k




1.12.2 Adverse Selection k




1.12.3 Moral Hazard k




1.12.4 Standard Setting k




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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1
Copyright © 2015 Pearson Canada Inc.k k k k k

, Scott, Financial Accounting Theory, 7th Edition
k k k k k Instructor’s Solutions Manual Chapter 1 k k k k




LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
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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. Since the
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students typically have not had a chance to read Chapter 1 in the first course
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k session, 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 k k k k k k




k accounting is natural. I go over the ideal conditions needed for such a k k k k k k k k k k k k




k basis of accounting to be feasible, but do not go into much detail
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k because this topic is covered in greater depth in Chapter 2.
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• An introduction to the concept of information asymmetry and
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k resulting problems of adverse selection and moral hazard. These
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k problems are basic to the book and I feel it is desirable for thek k k k k k k k k k k k k




k students to have a ―first go‖ at them at this point. I concentrate on the
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k intuition underlying the two problems. For example, adverse
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k selection can be illustrated by asking who would be first in line to
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k purchase life insurance if there was no medical examination, or what
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k quality of used cars are likely to be brought to market. For moral
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hazard I try to pin them down on how hard they would work in this
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k course if there were no exams. k k k k k




• The environment in which financial accounting and reporting
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k operates. My main goal at this point is that the students do not take
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k this environment for granted. I discuss the procedures of standard
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k setting briefly and point out that this is really a process of regulation.
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k In the past, there have been well-known cases of deregulation, such
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k as airlines, trucking, financial institutions, power generation.
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k However, we are entering what is likely to be a period of increasing
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regulation, at least for financial institutions. Instructors
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2
Copyright © 2015 Pearson Canada Inc. k k k k k