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

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


Chapter 1 ct Introduction.................................................................................................. 1

Chapter 2 ct Accounting Under Ideal Conditions ............................................................ 7
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Chapter 3 ct The Decision Usefulness Approach to Financial Reporting .......................... 68
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Chapter 4 ct Efficient Securities Markets ........................................................................ 129
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Chapter 5 ct The Value Relevance of Accounting Information ........................................ 153
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Chapter 6 ct The Measurement Approach to Decision Usefulness ................................... 194
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Chapter 7 ct Measurement Applications ......................................................................... 237
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Chapter 8 ct The Efficient ContractingApproach to Decision Usefulness ........................ 285
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Chapter 9 ct 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
ct ct ct Instructor’s Solutions ManualChapter 1
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CHAPTER 1 ct




ct INTRODUCTION

1.1 The Objective of This Book
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1.2 SomeHistorical Perspective
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1.3 The 2007-2008 Market Meltdowns
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1.4 Efficient Contracting ct




1.5 A Noteon Ethical Behaviour
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1.6 Rules-Based v. Principles-BasedAccountingStandards ct ct ct ct




1.7 The Complexity of Information in FinancialAccounting and Reporting
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1.8 The Role of Accounting Research
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1.9 TheImportance of Information Asymmetry
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1.10 TheFundamentalProblem of Financial Accounting Theory
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1.11 Regulation as a Reaction to the FundamentalProblem
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1.12 The Organization of This Book
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1.12.1 Ideal Conditions ct




1.12.2 Adverse Selection ct




1.12.3 Moral Hazard ct




1.12.4 Standard Setting ct




1.12.5 The Process of Standard Setting ct ct ct ct




1.13 Relevance of FinancialAccountingTheory toAccounting Practice
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, Scott, Financial Accounting Theory
ct ct ct Instructor’s Solutions ManualChapter 1 ct ct ct ct




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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students typically have not had a chance to read Chapter 1 in the first coursesession, I
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stick fairly closely to the chapter material.
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Themajor points I discuss are:
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• Accounting in an ideal setting. Here, present-value-based accounting ct ct ct ct ct ct ct




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




ct 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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ct problems of adverse selection and moral hazard. These problems are ct ct ct ct ct ct ct ct ct




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




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




ct brought to market. For moralhazard I try to pin them down on howhard ct ct ct ct ct ct ct ct ct ct ct ct ct ct




ct 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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ct My main goal at this point is that the students do not takethis
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ct environment for granted. I discuss the procedures of standard setting ct ct ct ct ct ct ct ct ct




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




ct entering what is likely to be a period of increasingregulation, at leastfor ct ct ct ct ct ct ct ct ct ct ct ct ct




financial institutions. Instructors
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