Solution Manual for Financial Accounting Theory 7th Edition by William R. Scott () - Complete Chapters 1-13 | ISBN 9780132984669

Solution Manual For Financial Accounting Theory 7t
i i i i i i




h Edition by William R. Scott, Patricia O'Brien Chapte
i i i i i i i i




rs 1 - 13, Complete
i i i i

, Contents


Chapteri1 Introduction.................................................................................................. 1

Chapteri2 AccountingiUnderiIdealiConditions ........................................................... 7

Chapteri3 TheiDecisioniUsefulnessiApproachitoiFinancialiReporting ....................... 68

Chapteri4 EfficientiSecuritiesiMarkets .......................................................................129

Chapteri5 TheiValueiRelevanceiofiAccountingiInformation ......................................153

Chapteri6 TheiMeasurementiApproachitoiDecisioniUsefulness .................................194

Chapteri7 MeasurementiApplications ........................................................................237

Chapteri8 TheiEfficientiContractingiApproachitoiDecisioniUsefulness ..................... 285

Chapteri9 AniAnalysisiofiConflict ........................................................................... 321

Chapteri10iiExecutiveiCompensation ......................................................................... 371

Chapteri11iiEarningsiManagement ............................................................................. 425

Chapteri12iiStandardiSetting:iEconomiciIssues .......................................................... 487

Chapteri13iiStandardiSetting:iPoliticaliIssues ............................................................. 527




iPearsoniCanadaiInc.

,Scott,iFinancialiAccountingiTheory Instructor’siSolutionsiManualiChapteri1



CHAPTERi1iI

NTRODUCTION

1.1 TheiObjectiveiofiThisiBook

1.2 SomeiHistoricaliPerspective

1.3 Thei2007-2008iMarketiMeltdowns

1.4 EfficientiContracting

1.5 AiNoteioniEthicaliBehaviour

1.6 Rules-Basediv.iPrinciples-BasediAccountingiStandards

1.7 TheiComplexityiofiInformationiiniFinancialiAccountingiandiReporting

1.8 TheiRoleiofiAccountingiResearch

1.9 TheiImportanceiofiInformationiAsymmetry

1.10 TheiFundamentaliProblemiofiFinancialiAccountingiTheory

1.11 RegulationiasiaiReactionitoitheiFundamentaliProblem

1.12 TheiOrganizationiofiThisiBook

1.12.1 IdealiConditions

1.12.2 AdverseiSelection

1.12.3 MoraliHazard

1.12.4 StandardiSetting

1.12.5 TheiProcessiofiStandardiSetting

1.13 RelevanceiofiFinancialiAccountingiTheoryitoiAccountingiPractice

, Scott,iFinancialiAccountingiTheory Instructor’siSolutionsiManualiChapteri1


LEARNINGiOBJECTIVESiANDiSUGGESTEDiTEACHINGiAPPROACHES

1. TheiBroadiOutlineiofitheiBook

IiuseiFigurei1.1iasiaitemplateitoidescribeitheibroadioutlineiofitheibook.iSinceitheistu
dentsitypicallyihaveinotihadiaichanceitoireadiChapteri1iinitheifirsticourseisession,iIis
tickifairlyicloselyitoitheichapterimaterial.

TheimajoripointsiIidiscussiare:

• Accountingiinianiidealisetting.iHere,ipresent-value-
basediaccountingiisinatural.iIigoioveritheiidealiconditionsineedediforis
uchiaibasisiofiaccountingitoibeifeasible,ibutidoinotigoiintoimuchidetaili
becauseithisitopiciisicoverediinigreateridepthiiniChapteri2.

• Aniintroductionitoitheiconceptiofiinformationiasymmetryiandiresultingi
problemsiofiadverseiselectioniandimoralihazard.iTheseiproblemsiarei
basicitoitheibookiandiIifeeliitiisidesirableiforitheistudentsitoihaveiai“firsti
go”iatithemiatithisipoint.iIiconcentrateionitheiintuitioniunderlyingitheitw
oiproblems.iForiexample,iadverseiselectionicanibeiillustratedibyiaskin
giwhoiwouldibeifirstiinilineitoipurchaseilifeiinsuranceiifithereiwasinoime
dicaliexamination,ioriwhatiqualityiofiusedicarsiareilikelyitoibeibroughtit
oimarket.iForimoralihazardiIitryitoipinithemidownionihowiharditheyiwou
ldiworkiinithisicourseiifithereiwereinoiexams.

• Theienvironmentiiniwhichifinancialiaccountingiandireportingioperate
s.iMyimainigoaliatithisipointiisithatitheistudentsidoinotitakeithisienviron
mentiforigranted.iIidiscussitheiproceduresiofistandardisettingibrieflyia
ndipointioutithatithisiisireallyiaiprocessiofiregulation.iInitheipast,itherei
haveibeeniwell-
knownicasesiofideregulation,isuchiasiairlines,itrucking,ifinancialiinstit
utions,ipowerigeneration.iHowever,iweiareienteringiwhatiisilikelyitoibe
iaiperiodiofiincreasingiregulation,iatileastiforifinancialiinstitutions.iInstr

uctors