Financial Accounting Theory 7th Edition - Solution Manual by William R. Scott, Patricia C. O'Brien

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, Contents


Chapter ii1 Introduction ............................................................................................. 1
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Chapter ii2 Accounting iiUnder iiIdeal iiConditions ..................................................... 7

Chapter ii3 The iiDecision iiUsefulness iiApproach iito iiFinancial iiReporting ................ 68
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Chapter ii4 Efficient iiSecurities iiMarkets .................................................................. 129

Chapter ii5 The iiValue iiRelevance iiof iiAccounting iiInformation ............................... 153

Chapter ii6 The iiMeasurement iiApproach iito iiDecision iiUsefulness .......................... 194
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Chapter ii7 Measurement iiApplications .................................................................... 237

Chapter ii8 The iiEfficient iiContracting iiApproach iito iiDecision iiUsefulness .............. 285
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Chapter ii9 An iiAnalysis iiof iiConflict ..................................................................... 321

Chapter ii10 ii iiExecutive iiCompensation ................................................................... 371
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Chapter ii11 ii iiEarnings iiManagement ....................................................................... 425

Chapter ii12 ii iiStandard iiSetting: iiEconomic iiIssues................................................... 487

Chapter ii13 ii iiStandard iiSetting: iiPolitical iiIssues ..................................................... 527
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Pearson iiCanada iiInc.
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, Scott, iiFinancial iiAccounting iiTheory Instructor’s iiSolutions iiManual iiChapter
ii1




CHAPTER ii1

ii INTRODUCTIO

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1.1 The iiObjective iiof iiThis iiBook

1.2 Some iiHistorical iiPerspective
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1.3 The ii2007-2008 iiMarket iiMeltdowns

1.4 Efficient iiContracting
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1.5 A iiNote iion iiEthical iiBehaviour

1.6 Rules-Based iiv. iiPrinciples-Based iiAccounting iiStandards
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1.7 The iiComplexity iiof iiInformation iiin iiFinancial iiAccounting iiand iiReporting

1.8 The iiRole iiof iiAccounting iiResearch
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1.9 The iiImportance iiof iiInformation iiAsymmetry

1.10 The iiFundamental iiProblem iiof iiFinancial iiAccounting iiTheory
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1.11 Regulation iias iia iiReaction iito iithe iiFundamental iiProblem

1.12 The iiOrganization iiof iiThis iiBook

1.12.1 Ideal iiConditions
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1.12.2 Adverse iiSelection

1.12.3 Moral iiHazard
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1.12.4 Standard iiSetting
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1.12.5 The iiProcess iiof iiStandard iiSetting

1.13 Relevance iiof iiFinancial iiAccounting iiTheory iito iiAccounting iiPractice

, Scott, iiFinancial iiAccounting iiTheory Instructor’s iiSolutions iiManual iiChapter
ii1



LEARNING iiOBJECTIVES iiAND iiSUGGESTED iiTEACHING iiAPPROACHES

1. The iiBroad iiOutline iiof iithe iiBook

I iiuse iiFigure ii1.1 iias iia iitemplate iito iidescribe iithe iibroad iioutline iiof iithe iibook.
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ii Since iithe iistudents iitypically iihave iinot iihad iia iichance iito iiread iiChapter ii1 iiin iithe
ii first iicourseisession, iiI iistick iifairly iiclosely iito iithe iichapter iimaterial.
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The iimajor iipoints iiI iidiscuss iiare:

• Accounting iiin iian iiideal iisetting. iiHere, iipresent-value-based
ii accounting iiis iinatural. iiI iigo iiover iithe iiideal iiconditions iineeded iifor
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ii suchia iibasis iiof iiaccounting iito iibe iifeasible, iibut iido iinot iigo iiinto
ii much iidetail iibecause iithis iitopic iiis iicovered iiin iigreater iidepth iiin
Chapter ii2.
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• An iiintroduction iito iithe iiconcept iiof iiinformation iiasymmetry iiand
ii resulting iiproblems iiof iiadverse iiselection iiand iimoral iihazard.
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ii These iiproblems iiare iibasic iito iithe iibook iiand iiI iifeel iiit iiis iidesirable
ii for iithe iistudents iito iihave iia ii“first iigo” iiat iithem iiat iithis iipoint. iiI
ii concentrate iion iithe iiintuition iiunderlying iithe iitwo iiproblems. iiFor
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ii example, iiadverse iiselection iican iibe iiillustrated iiby iiasking iiwho
ii would iibe iifirst iiin iiline iito iipurchase iilife iiinsurance iiif iithere iiwas iino
ii medical iiexamination, iior iiwhat iiquality iiof iiused iicars iiare iilikely iito
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ii be iibrought iito iimarket. iiFor iimoral iihazard iiI iitry iito iipin iithem iidown
ii on iihow iihard iithey iiwould iiwork iiinithis iicourse iiif iithere iiwere iino
ii exams.
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• The iienvironment iiin iiwhich iifinancial iiaccounting iiand iireporting
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ii operates. iiMy iimain iigoal iiat iithis iipoint iiis iithat iithe iistudents iido iinot
ii takeithis iienvironment iifor iigranted. iiI iidiscuss iithe iiprocedures iiof
ii standard iisetting iibriefly iiand iipoint iiout iithat iithis iiis iireally iia
ii process iiof iiregulation. iiIn iithe iipast, iithere iihave iibeen iiwell-known
ii cases iiof iideregulation, iisuch iias iiairlines, iitrucking, iifinancial