Solution Manual For Financial Accounting Theory
f f f f f
7th Edition by William R. Scott, Patricia O'Brien
f f f f f f f f
f Chapters 1 - 13, Complete
f f f f
, Contents
Chapter 1 f Introduction.................................................................................................. 1
Chapter 2 f Accounting Under Ideal Conditions ........................................................... 7
f f f
Chapter 3 f The Decision Usefulness Approach to Financial Reporting ....................... 68
f f f f f f
Chapter 4 f Efficient Securities Markets .......................................................................129
f f
Chapter 5 f The Value Relevance of Accounting Information ......................................153
f f f f f
Chapter 6 f The Measurement Approach to Decision Usefulness .................................194
f f f f f
Chapter 7 f Measurement Applications ........................................................................237
f
Chapter 8 f The Efficient Contracting Approach to Decision Usefulness ..................... 285
f f f f f f
Chapter 9 f An Analysis of Conflict ........................................................................... 321
f f f
Chapter 10 Executive Compensation ......................................................................... 371
f ff f
Chapter 11 Earnings Management ............................................................................. 425
f ff f
Chapter 12 Standard Setting: Economic Issues .......................................................... 487
f ff f f f
Chapter 13 Standard Setting: Political Issues ............................................................. 527
f ff f f f
f Pearson fCanada fInc.
,Scott, Financial Accounting Theory
f f f Instructor’s Solutions Manual Chapter 1
f f f f
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 Theory
f f f Instructor’s Solutions Manual Chapter 1 f f f f
LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
f 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. Since the
f f f f f f f f f f f f f f f f
f students typically have not had a chance to read Chapter 1 in the first
f f f f f f f f f f f f f
f coursesession, I stick fairly closely to the chapter material.
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 accounting f f f f f f f
f is natural. I go over the ideal conditions needed for sucha basis of
f f f f f f f f f f f f f
f accounting to be feasible, but do not go into much detail because this f f f f f f f f f f f f
f topic is covered in greater depth in Chapter 2.
f f f f f f f f
• An introduction to the concept of information asymmetry and resulting
f f f f f f f f f
f problems of adverse selection and moral hazard. These problems f f f f f f f f
f are basic to the book and I feel it is desirable for the students to have
f f f f f f f f f f f f f f f
f a ―first go‖ at them at this point. I concentrate on the intuition
f f f f f f f f f f f f
f underlying the two problems. For example, adverse selection can be f f f f f f f f f
f illustrated by asking who would be first in line to purchase life f f f f f f f f f f f
f insurance if there was no medical examination, or what quality of f f f f f f f f f f
f used cars are likely to be brought to market. For moral hazard I try to
f f f f f f f f f f f f f f
pin them down on how hard they would work inthis course if there
f f f 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 not f f f f f f f f f f f f
f 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 process of
f f f f f f f f f f f f
f regulation. In the past, there have been well-known cases of f f f f f f f f f
f deregulation, such as airlines, trucking, financial institutions, f f f f f f
f powergeneration. However, we are entering what is likely to be a
f f f f f f f f f f f
f period of increasing regulation, at least for financial institutions.
f f f f f f f f
f f f f f
7th Edition by William R. Scott, Patricia O'Brien
f f f f f f f f
f Chapters 1 - 13, Complete
f f f f
, Contents
Chapter 1 f Introduction.................................................................................................. 1
Chapter 2 f Accounting Under Ideal Conditions ........................................................... 7
f f f
Chapter 3 f The Decision Usefulness Approach to Financial Reporting ....................... 68
f f f f f f
Chapter 4 f Efficient Securities Markets .......................................................................129
f f
Chapter 5 f The Value Relevance of Accounting Information ......................................153
f f f f f
Chapter 6 f The Measurement Approach to Decision Usefulness .................................194
f f f f f
Chapter 7 f Measurement Applications ........................................................................237
f
Chapter 8 f The Efficient Contracting Approach to Decision Usefulness ..................... 285
f f f f f f
Chapter 9 f An Analysis of Conflict ........................................................................... 321
f f f
Chapter 10 Executive Compensation ......................................................................... 371
f ff f
Chapter 11 Earnings Management ............................................................................. 425
f ff f
Chapter 12 Standard Setting: Economic Issues .......................................................... 487
f ff f f f
Chapter 13 Standard Setting: Political Issues ............................................................. 527
f ff f f f
f Pearson fCanada fInc.
,Scott, Financial Accounting Theory
f f f Instructor’s Solutions Manual Chapter 1
f f f f
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 Theory
f f f Instructor’s Solutions Manual Chapter 1 f f f f
LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
f 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. Since the
f f f f f f f f f f f f f f f f
f students typically have not had a chance to read Chapter 1 in the first
f f f f f f f f f f f f f
f coursesession, I stick fairly closely to the chapter material.
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 accounting f f f f f f f
f is natural. I go over the ideal conditions needed for sucha basis of
f f f f f f f f f f f f f
f accounting to be feasible, but do not go into much detail because this f f f f f f f f f f f f
f topic is covered in greater depth in Chapter 2.
f f f f f f f f
• An introduction to the concept of information asymmetry and resulting
f f f f f f f f f
f problems of adverse selection and moral hazard. These problems f f f f f f f f
f are basic to the book and I feel it is desirable for the students to have
f f f f f f f f f f f f f f f
f a ―first go‖ at them at this point. I concentrate on the intuition
f f f f f f f f f f f f
f underlying the two problems. For example, adverse selection can be f f f f f f f f f
f illustrated by asking who would be first in line to purchase life f f f f f f f f f f f
f insurance if there was no medical examination, or what quality of f f f f f f f f f f
f used cars are likely to be brought to market. For moral hazard I try to
f f f f f f f f f f f f f f
pin them down on how hard they would work inthis course if there
f f f 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 not f f f f f f f f f f f f
f 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 process of
f f f f f f f f f f f f
f regulation. In the past, there have been well-known cases of f f f f f f f f f
f deregulation, such as airlines, trucking, financial institutions, f f f f f f
f powergeneration. However, we are entering what is likely to be a
f f f f f f f f f f f
f period of increasing regulation, at least for financial institutions.
f f f f f f f f
