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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t Edition by William R. Scott, Patricia O'Brien Chapters
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t 1 - 13, Complete
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, Contents


Chapter 1 t Introduction.................................................................................................. 1

Chapter 2 t Accounting Under Ideal Conditions ............................................................ 7
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Chapter 3 t The Decision Usefulness Approach to Financial Reporting.......................... 68
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Chapter 4 t Efficient Securities Markets ........................................................................129
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Chapter 5 t The Value Relevance of Accounting Information ........................................153
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Chapter 6 t The Measurement Approach to Decision Usefulness ...................................194
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Chapter 7 t Measurement Applications .........................................................................237
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Chapter 8 t The Efficient Contracting Approach to Decision Usefulness ........................ 285
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Chapter 9 t 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
t t t Instructor’s Solutions Manual Chapter 1
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CHAPTER 1 t




t INTRODUCTION

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 Contractingt




1.5 A Note on Ethical Behaviour
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1.6 Rules-Based v. Principles-Based AccountingStandards t t t t




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 t




1.12.2 Adverse Selection t




1.12.3 Moral Hazard t




1.12.4 Standard Setting t




1.12.5 The Process of Standard Setting
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1.13 Relevance of Financial AccountingTheory to Accounting Practice
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, Scott, Financial Accounting Theory
t t t Instructor’s Solutions Manual Chapter 1 t t t t




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 coursesession, I
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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 t t t t t t t




is natural. I go over the ideal conditions needed for sucha basis of
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accounting to be feasible, but do not go into much detail because this
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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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problems of adverse selection and moral hazard. These problems are
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basic to the book and I feel it is desirable for the students to have a “first
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go” at them at this point. I concentrate on the intuition underlying the two
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problems. For example, adverse selection can be illustrated by asking
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t who would be first in line to purchase life insurance if there was no
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medical examination, or what quality of used cars are likely to be
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brought to market. For moral hazard I try to pin them down on how hard
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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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My main goal at this point is that the students do not takethis
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environment for granted. I discuss the procedures of standard setting
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briefly and point out that this is really a process of regulation. In the past,
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there have been well-known cases of deregulation, such as airlines,
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trucking, financial institutions, powergeneration. However, we are
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entering what is likely to be a period of increasing regulation, at least for
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financial institutions. Instructors
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