ii ii ii ii ii
ii ii ii ii ii ii ii ii
ii ii ii ii ii
, Contents
Chapter 1 Introduction .................................................................................................. 1
f
Chapter 2 f f f Accounting Under Ideal Conditions ..................................................... 7
f f f
Chapter 3 The Decision Usefulness Approach to Financial Reporting.............. 68
f f f f f f f f f
Chapter 4 f f f Efficient Securities Markets ................................................................... 129
f f
Chapter 5 f f f The Value Relevance of Accounting Information .............................. 153
f f f f f
Chapter 6 The Measurement Approach to Decision Usefulness ......................... 194
f f f f f f f f
Chapter 7 Measurement Applications ...................................................................... 237
f f f f
Chapter 8 f f f The Efficient Contracting Approach to Decision Usefulness ............ 285
f f f f f f
Chapter 9 f f f An Analysis of Conflict ...................................................................... 321
f f f
Chapter 10 Executive Compensation ...................................................................... 371
f f
Chapter 11 Earnings Management .......................................................................... 425
f f
Chapter 12 Standard Setting: Economic Issues .................................................... 487
f f f f
Chapter 13 Standard Setting: Political Issues ....................................................... 527
f f f f
Pearson f Canada f Inc.
,Scott, Financial Accounting
f f Instructor’s Solutions Manual
f f
Theory Chapter
CHAPTER 1 f
f INTRODUCTIO
N
1.1 The Objective of This Book
f f f f
1.2 Some Historical Perspective
f f
1.3 The 2007-2008 Market Meltdowns
f f f
1.4 Efficient Contracting
f
1.5 A Note on Ethical Behaviour
f f f f
1.6 Rules-Based v. Principles-Based Accounting Standards
f f f f
1.7 The Complexity of Information in Financial Accounting and Reporting
f f f f f f f f
1.8 The Role of Accounting Research
f f f f
1.9 The Importance of Information Asymmetry
f f f f
1.10 The Fundamental Problem of Financial Accounting Theory
f f f f f f
1.11 Regulation as a Reaction to the Fundamental Problem
f f f f f f f
1.12 The Organization of This Book
f f f f
1.12.1 Ideal Conditions f
1.12.2 Adverse Selection f
1.12.3 Moral Hazard f
1.12.4 Standard Setting f
1.12.5 The Process of Standard Setting
f f f f
1.13 Relevance of Financial Accounting Theory to Accounting Practice
f f f f f f f
, Scott, Financial Accounting
f f Instructor’s Solutions Manual f f
Theory Chapter
LEARNING F OBJECTIVES AND SUGGESTED TEACHING APPROACHES F F F F
1. The Broad Outline of the Book
f f f f f
I use Figure 1.1 as a template to describe the broad outline of the book.
f f f f f f f f f f f f f f
f Since the students typically have not had a chance to read Chapter 1 in
f f f f f f f f f f f f f
f the first courseiisession, I stick fairly closely to the chapter material.
f f f f f f f f f f
The major points I discuss are:
f f f f f
• Accounting in an ideal setting. Here, present-value-based f f f f f f
f accounting is natural. I go over the ideal conditions needed for f f f f f f f f f f
f suchiia basis of accounting to be feasible, but do not go into much
f f f f f f f f f f f f
f detail because this topic is covered in greater depth in Chapter 2.
f f f f f f f f f f f
• An introduction to the concept of information asymmetry and
f f f f f f f f
f resulting problems of adverse selection and moral hazard.
f f f f f f f
f These problems are basic to the book and I feel it is
f f f f f f f f f f f
f desirable for the students to have a ―first go‖ at them at this
f f f f f f f f f f f f
f point. I concentrate on the intuition underlying the two problems.
f f f f f f f f f
f For example, adverse selection can be illustrated by asking who
f f f f f f f f f
f would be first in line to purchase life insurance if there was
f f f f f f f f f f f
f no medical examination, or what quality of used cars are
f f f f f f f f f
f likely to be brought to market. For moral hazard I try to pin
f f f f f f f f f f f f
f them down on how hard they would work inthis course if there
f f f f f f f f f f f
f were no exams. f f
• The environment in which financial accounting and reporting
f f f f f f f
f operates. My main goal at this point is that the students do f f f f f f f f f f f
f not takethis environment for granted. I discuss the procedures of
f f f f f f f f f
f standard setting briefly and point out that this is really a
f f f f f f f f f f
f process of regulation. In the past, there have been well-known
f f f f f f f f f
f cases of deregulation, such as airlines, trucking, financial
f f f f f f f
ii ii ii ii ii ii ii ii
ii ii ii ii ii
, Contents
Chapter 1 Introduction .................................................................................................. 1
f
Chapter 2 f f f Accounting Under Ideal Conditions ..................................................... 7
f f f
Chapter 3 The Decision Usefulness Approach to Financial Reporting.............. 68
f f f f f f f f f
Chapter 4 f f f Efficient Securities Markets ................................................................... 129
f f
Chapter 5 f f f The Value Relevance of Accounting Information .............................. 153
f f f f f
Chapter 6 The Measurement Approach to Decision Usefulness ......................... 194
f f f f f f f f
Chapter 7 Measurement Applications ...................................................................... 237
f f f f
Chapter 8 f f f The Efficient Contracting Approach to Decision Usefulness ............ 285
f f f f f f
Chapter 9 f f f An Analysis of Conflict ...................................................................... 321
f f f
Chapter 10 Executive Compensation ...................................................................... 371
f f
Chapter 11 Earnings Management .......................................................................... 425
f f
Chapter 12 Standard Setting: Economic Issues .................................................... 487
f f f f
Chapter 13 Standard Setting: Political Issues ....................................................... 527
f f f f
Pearson f Canada f Inc.
,Scott, Financial Accounting
f f Instructor’s Solutions Manual
f f
Theory Chapter
CHAPTER 1 f
f INTRODUCTIO
N
1.1 The Objective of This Book
f f f f
1.2 Some Historical Perspective
f f
1.3 The 2007-2008 Market Meltdowns
f f f
1.4 Efficient Contracting
f
1.5 A Note on Ethical Behaviour
f f f f
1.6 Rules-Based v. Principles-Based Accounting Standards
f f f f
1.7 The Complexity of Information in Financial Accounting and Reporting
f f f f f f f f
1.8 The Role of Accounting Research
f f f f
1.9 The Importance of Information Asymmetry
f f f f
1.10 The Fundamental Problem of Financial Accounting Theory
f f f f f f
1.11 Regulation as a Reaction to the Fundamental Problem
f f f f f f f
1.12 The Organization of This Book
f f f f
1.12.1 Ideal Conditions f
1.12.2 Adverse Selection f
1.12.3 Moral Hazard f
1.12.4 Standard Setting f
1.12.5 The Process of Standard Setting
f f f f
1.13 Relevance of Financial Accounting Theory to Accounting Practice
f f f f f f f
, Scott, Financial Accounting
f f Instructor’s Solutions Manual f f
Theory Chapter
LEARNING F OBJECTIVES AND SUGGESTED TEACHING APPROACHES F F F F
1. The Broad Outline of the Book
f f f f f
I use Figure 1.1 as a template to describe the broad outline of the book.
f f f f f f f f f f f f f f
f Since the students typically have not had a chance to read Chapter 1 in
f f f f f f f f f f f f f
f the first courseiisession, I stick fairly closely to the chapter material.
f f f f f f f f f f
The major points I discuss are:
f f f f f
• Accounting in an ideal setting. Here, present-value-based f f f f f f
f accounting is natural. I go over the ideal conditions needed for f f f f f f f f f f
f suchiia basis of accounting to be feasible, but do not go into much
f f f f f f f f f f f f
f detail because this topic is covered in greater depth in Chapter 2.
f f f f f f f f f f f
• An introduction to the concept of information asymmetry and
f f f f f f f f
f resulting problems of adverse selection and moral hazard.
f f f f f f f
f These problems are basic to the book and I feel it is
f f f f f f f f f f f
f desirable for the students to have a ―first go‖ at them at this
f f f f f f f f f f f f
f point. I concentrate on the intuition underlying the two problems.
f f f f f f f f f
f For example, adverse selection can be illustrated by asking who
f f f f f f f f f
f would be first in line to purchase life insurance if there was
f f f f f f f f f f f
f no medical examination, or what quality of used cars are
f f f f f f f f f
f likely to be brought to market. For moral hazard I try to pin
f f f f f f f f f f f f
f them down on how hard they would work inthis course if there
f f f f f f f f f f f
f were no exams. f f
• The environment in which financial accounting and reporting
f f f f f f f
f operates. My main goal at this point is that the students do f f f f f f f f f f f
f not takethis environment for granted. I discuss the procedures of
f f f f f f f f f
f standard setting briefly and point out that this is really a
f f f f f f f f f f
f process of regulation. In the past, there have been well-known
f f f f f f f f f
f cases of deregulation, such as airlines, trucking, financial
f f f f f f f
