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

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


Chapter 1 cx Introduction.................................................................................................. 1

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




cx INTRODUCTIO

N

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 cx




1.5 A Note on Ethical Behaviour
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1.6 Rules-Based v. Principles-Based Accounting Standards cx cx cx cx




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 cx




1.12.2 Adverse Selection cx




1.12.3 Moral Hazard cx




1.12.4 Standard Setting cx




1.12.5 The Process of Standard Setting cx cx cx cx




1.13 Relevance of FinancialAccounting Theory to Accounting Practice
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, Scott, Financial Accounting Theory
cx cx cx Instructor’s Solutions Manual Chapter 1 cx cx cx cx




LEARNING OBJECTIVES AND SUGGESTEDTEACHING 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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cx students typically have not had a chance to read Chapter 1 in the first coursesession, I
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cx 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 accounting cx cx cx cx cx cx cx




cx is natural. I go over the ideal conditions needed for sucha basis of
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cx accounting to be feasible, but do not go into much detail because this cx cx cx cx cx cx cx cx cx cx cx cx




cx topic is covered in greater depth in Chapter 2.
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• An introduction to the concept of information asymmetry and resulting
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cx problems of adverse selection and moral hazard. These problems are cx cx cx cx cx cx cx cx cx




cx basic to the book and I feel it is desirable for the students to have a “first
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cx go” at them at this point. I concentrate on the intuition underlying the two
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cx problems. For example, adverse selection can be illustrated by asking cx cx cx cx cx cx cx cx cx




cx who would be first in line to purchase life insurance if there was no
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cx medical examination, or what quality of used cars are likely to be cx cx cx cx cx cx cx cx cx cx cx




cx brought to market. For moral hazard I try to pin them down on how hard cx cx cx cx cx cx cx cx cx cx cx cx cx cx




cx they would work inthis course if there were no exams.
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• The environment in which financial accounting and reporting operates.
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cx My main goal at this point is that the students do not takethis
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cx environment for granted. I discuss the procedures of standard setting cx cx cx cx cx cx cx cx cx




cx briefly and point out that this is really a process of regulation. In the
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cx past, there have been well-known cases of deregulation, such as
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cx airlines, trucking, financial institutions, powergeneration. However, cx cx cx cx cx cx




cx we are entering what is likely to be a period of increasing regulation, at
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leastfor financial institutions. Instructors
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