TEST BANK j
j For Financial Accounting Theory 7th Edition by William R. Scott, Patricia O'B
j j j j j j j j j j j
rien Chapters 1 - 13, Complete
j j j j j
, Contents
Chapterj1 Introduction...................................................................................................... 1
Chapterj2 AccountingjUnderjIdealjConditions ..............................................................7
Chapterj3 ThejDecisionjUsefulnessjApproachjtojFinancialjReporting ..........................68
Chapterj4 EfficientjSecuritiesjMarkets ...........................................................................129
Chapterj5 ThejValuejRelevancejofjAccountingjInformation .........................................153
Chapterj6 ThejMeasurementjApproachjtojDecisionjUsefulness ....................................194
Chapterj7 MeasurementjApplications ............................................................................237
Chapterj8 ThejEfficientjContractingjApproachjtojDecisionjUsefulness ........................285
Chapterj9 AnjAnalysisjofjConflict ............................................................................... 321
Chapterj10jjExecutivejCompensation ............................................................................. 371
Chapterj11jjEarningsjManagement.................................................................................. 425
Chapterj12jjStandardjSetting:jEconomicjIssues .............................................................. 487
Chapterj13jjStandardjSetting:jPoliticaljIssues ................................................................. 527
Pearson Canada Inc.
,Scott, Financial Accounting Theory Instructor’s Solutions Manual Chapter 1
CHAPTERj1jI
NTRODUCTION
1.1 ThejObjectivejofjThis jBook
1.2 SomejHistoricaljPerspective
1.3 Thej2007-2008jMarketjMeltdowns
1.4 EfficientjContracting
1.5 AjNotejonjEthicaljBehaviour
1.6 Rules-Basedjv.jPrinciples-BasedjAccountingjStandards
1.7 ThejComplexityjofjInformationjinjFinancialjAccountingjandjReporting
1.8 ThejRolejofjAccountingjResearch
1.9 ThejImportancejofjInformationjAsymmetry
1.10 ThejFundamentaljProblemjofjFinancialjAccountingjTheory
1.11 RegulationjasjajReactionjtojthejFundamental jProblem
1.12 ThejOrganizationjofjThisjBook
1.12.1 IdealjConditions
1.12.2 AdversejSelection
1.12.3 MoraljHazard
1.12.4 StandardjSetting
1.12.5 ThejProcessjofjStandardjSetting
1.13 RelevancejofjFinancialjAccountingjTheoryjtojAccountingjPractice
, Scott, Financial Accounting Theory Instructor’s Solutions Manual Chapter 1
LEARNINGjOBJECTIVESjANDjSUGGESTEDjTEACHINGjAPPROACHES
1. ThejBroadjOutlinej ofjthejBook
IjusejFigurej1.1jasjajtemplatejtojdescribejthejbroadjoutlinejofjthejbook.jSincejthejstude
ntsjtypicallyjhavejnotjhadjajchancejtojreadjChapterj1jinjthejfirstjcoursejsession,jIjstickjf
airlyjcloselyjtojthejchapterjmaterial.
ThejmajorjpointsjIjdiscussjare:
• Accountingjinjanjidealjsetting.jHere,jpresent-value-
basedjaccountingjisjnatural.jIjgojoverjthejidealjconditionsjneededjforjsu
chjajbasisjofjaccountingjtojbejfeasible,jbutjdojnotjgojintojmuchjdetailjbec
ausejthisjtopicjisjcoveredjinjgreaterjdepthjinjChapter j2.
• Anjintroductionjtojthejconceptjofjinformationjasymmetryjandjresultingjp
roblemsjofjadversejselectionjandjmoraljhazard.jThesejproblemsjarejba
sicjtojthejbookjandjIjfeeljitjisjdesirablejfor jthejstudentsjtojhavejaj“firstjgo”j
atjthemjatjthisjpoint. jIjconcentratejonjthejintuitionjunderlyingjthejtwojpro
blems.jForjexample,jadversejselectionjcanjbejillustratedjbyjaskingjwhoj
wouldjbejfirstjinjlinejtojpurchasejlifejinsurancejifjtherejwasjnojmedicaljex
amination,jor jwhatjqualityjofjusedjcarsjarejlikelyjtojbejbroughtjtojmarket. j
ForjmoraljhazardjIjtry jtojpinjthemjdownjonjhowjhardjthey jwouldjworkjinjthi
sjcoursejifjtherejwerejnojexams.
• Thejenvironmentjinjwhichjfinancialjaccountingjandjreportingjoperates.j
Myjmainjgoaljatjthisjpointjisjthatjthejstudentsjdojnotjtakejthisjenvironme
ntjforjgranted.jIjdiscussjthejproceduresjofjstandardjsettingjbrieflyjandjp
ointjoutjthatjthisjisjreallyjajprocessjofjregulation.jInjthejpast,jtherejhavejb
eenjwell-
knownjcasesjofjderegulation,jsuchjasjairlines,jtrucking,jfinancialjinstitu
tions,jpowerjgeneration.jHowever,jwejarejenteringjwhatjisjlikelyjtojbejaj
periodjofjincreasingjregulation,jatjleastjforjfinancialjinstitutions.jInstruct
ors
j For Financial Accounting Theory 7th Edition by William R. Scott, Patricia O'B
j j j j j j j j j j j
rien Chapters 1 - 13, Complete
j j j j j
, Contents
Chapterj1 Introduction...................................................................................................... 1
Chapterj2 AccountingjUnderjIdealjConditions ..............................................................7
Chapterj3 ThejDecisionjUsefulnessjApproachjtojFinancialjReporting ..........................68
Chapterj4 EfficientjSecuritiesjMarkets ...........................................................................129
Chapterj5 ThejValuejRelevancejofjAccountingjInformation .........................................153
Chapterj6 ThejMeasurementjApproachjtojDecisionjUsefulness ....................................194
Chapterj7 MeasurementjApplications ............................................................................237
Chapterj8 ThejEfficientjContractingjApproachjtojDecisionjUsefulness ........................285
Chapterj9 AnjAnalysisjofjConflict ............................................................................... 321
Chapterj10jjExecutivejCompensation ............................................................................. 371
Chapterj11jjEarningsjManagement.................................................................................. 425
Chapterj12jjStandardjSetting:jEconomicjIssues .............................................................. 487
Chapterj13jjStandardjSetting:jPoliticaljIssues ................................................................. 527
Pearson Canada Inc.
,Scott, Financial Accounting Theory Instructor’s Solutions Manual Chapter 1
CHAPTERj1jI
NTRODUCTION
1.1 ThejObjectivejofjThis jBook
1.2 SomejHistoricaljPerspective
1.3 Thej2007-2008jMarketjMeltdowns
1.4 EfficientjContracting
1.5 AjNotejonjEthicaljBehaviour
1.6 Rules-Basedjv.jPrinciples-BasedjAccountingjStandards
1.7 ThejComplexityjofjInformationjinjFinancialjAccountingjandjReporting
1.8 ThejRolejofjAccountingjResearch
1.9 ThejImportancejofjInformationjAsymmetry
1.10 ThejFundamentaljProblemjofjFinancialjAccountingjTheory
1.11 RegulationjasjajReactionjtojthejFundamental jProblem
1.12 ThejOrganizationjofjThisjBook
1.12.1 IdealjConditions
1.12.2 AdversejSelection
1.12.3 MoraljHazard
1.12.4 StandardjSetting
1.12.5 ThejProcessjofjStandardjSetting
1.13 RelevancejofjFinancialjAccountingjTheoryjtojAccountingjPractice
, Scott, Financial Accounting Theory Instructor’s Solutions Manual Chapter 1
LEARNINGjOBJECTIVESjANDjSUGGESTEDjTEACHINGjAPPROACHES
1. ThejBroadjOutlinej ofjthejBook
IjusejFigurej1.1jasjajtemplatejtojdescribejthejbroadjoutlinejofjthejbook.jSincejthejstude
ntsjtypicallyjhavejnotjhadjajchancejtojreadjChapterj1jinjthejfirstjcoursejsession,jIjstickjf
airlyjcloselyjtojthejchapterjmaterial.
ThejmajorjpointsjIjdiscussjare:
• Accountingjinjanjidealjsetting.jHere,jpresent-value-
basedjaccountingjisjnatural.jIjgojoverjthejidealjconditionsjneededjforjsu
chjajbasisjofjaccountingjtojbejfeasible,jbutjdojnotjgojintojmuchjdetailjbec
ausejthisjtopicjisjcoveredjinjgreaterjdepthjinjChapter j2.
• Anjintroductionjtojthejconceptjofjinformationjasymmetryjandjresultingjp
roblemsjofjadversejselectionjandjmoraljhazard.jThesejproblemsjarejba
sicjtojthejbookjandjIjfeeljitjisjdesirablejfor jthejstudentsjtojhavejaj“firstjgo”j
atjthemjatjthisjpoint. jIjconcentratejonjthejintuitionjunderlyingjthejtwojpro
blems.jForjexample,jadversejselectionjcanjbejillustratedjbyjaskingjwhoj
wouldjbejfirstjinjlinejtojpurchasejlifejinsurancejifjtherejwasjnojmedicaljex
amination,jor jwhatjqualityjofjusedjcarsjarejlikelyjtojbejbroughtjtojmarket. j
ForjmoraljhazardjIjtry jtojpinjthemjdownjonjhowjhardjthey jwouldjworkjinjthi
sjcoursejifjtherejwerejnojexams.
• Thejenvironmentjinjwhichjfinancialjaccountingjandjreportingjoperates.j
Myjmainjgoaljatjthisjpointjisjthatjthejstudentsjdojnotjtakejthisjenvironme
ntjforjgranted.jIjdiscussjthejproceduresjofjstandardjsettingjbrieflyjandjp
ointjoutjthatjthisjisjreallyjajprocessjofjregulation.jInjthejpast,jtherejhavejb
eenjwell-
knownjcasesjofjderegulation,jsuchjasjairlines,jtrucking,jfinancialjinstitu
tions,jpowerjgeneration.jHowever,jwejarejenteringjwhatjisjlikelyjtojbejaj
periodjofjincreasingjregulation,jatjleastjforjfinancialjinstitutions.jInstruct
ors