Solution Manual for Financial Accounting Theory, 8th Edition by William R. Scott and Patricia O'Brien isbn-9780134166681 Complete Latest Verified Guide

Contents

,Chapter 1 Introduction .................................................................................................. 1
nn




Chapter 2 Accounting Under Ideal Conditions ......................................................... 7
nn nn nn nn




Chapter 3 The Decision Usefulness Approach to Financial Reporting .................. 68
nn nn nn nn nn nn nn




Chapter 4 Efficient Securities Markets ...................................................................... 129
nn nn nn




Chapter 5 The Value Relevance of Accounting Information .................................. 153
nn nn nn nn nn nn




Chapter 6 The Measurement Approach to Decision Usefulness ............................. 194
nn nn nn nn nn nn




Chapter 7 Measurement Applications ........................................................................ 237
nn nn




Chapter 8 The Efficient Contracting Approach to Decision Usefulness................. 285
nn nn nn nn nn nn nn




Chapter 9 An Analysis of Conflict.......................................................................... 321
nn nn nn nn




Chapter 10 nn n n Executive Compensation...................................................................... 371
nn




Chapter 11 nn n n Earnings Management.......................................................................... 425
nn




Chapter 12 nn n n Standard Setting: Economic Issues..................................................... 487
nn nn nn




Chapter 13 nn n n Standard Setting: Political Issues ....................................................... 527
nn nn nn




Pearson nnCanada nnInc.

,Scott, Financial Accounting
nn nn Instructor’s Solutions Manual Chapter
nn nn nn


Theory 1


CHAPTER 1 NN




INTRODUCTIO
NN




N

1.1 The Objective of This Book
nn nn nn nn




1.2 Some Historical Perspective
nn nn




1.3 The 2007-2008 Market Meltdowns
nn nn nn




1.4 Efficient Contracting nn




1.5 A Note on Ethical Behaviour
nn nn nn nn




1.6 Rules-Based v. Principles-Based Accounting Standards
nn nn nn nn




1.7 The Complexity of Information in Financial Accounting and Reporting
nn nn nn nn nn nn nn nn




1.8 The Role of Accounting Research
nn nn nn nn




1.9 The Importance of Information Asymmetry
nn nn nn nn




1.10 The Fundamental Problem of Financial Accounting Theory
nn nn nn nn nn nn




1.11 Regulation as a Reaction to the Fundamental Problem
nn nn nn nn nn nn nn




1.12 The Organization of This Book
nn nn nn nn




1.12.1 Ideal Conditions nn




1.12.2 Adverse Selection nn




1.12.3 Moral Hazard nn




1.12.4 Standard Setting nn




1.12.5 The Process of Standard Setting
nn nn nn nn




1.13 Relevance of Financial Accounting Theory to Accounting Practice
nn nn nn nn nn nn nn

, Scott, Financial Accounting
nn nn Instructor’s Solutions Manual Chapter nn nn nn


Theory 1

LEARNING NN OBJECTIVES AND SUGGESTED TEACHING APPROACHES
NN NN NN NN




1. The Broad Outline of the Book
nn nn nn nn nn




I use Figure 1.1 as a template to describe the broad outline of the book.
nn nn nn nn nn nn nn nn nn nn nn nn nn nn




nn Since the students typically have not had a chance to read Chapter 1 in the
nn nn nn nn nn nn nn nn nn nn nn nn nn nn




first course session, I stick fairly closely to the chapter material.
nn nn nn nn nn nn nn nn nn nn nn




The major points I discuss are:
nn nn nn nn nn




• Accounting in an ideal setting. Here, present-value-based
nn nn nn nn nn nn




nn accounting is natural. I go over the ideal conditions needed for
nn nn nn nn nn nn nn nn nn nn




nn such a basis of accounting to be feasible, but do not go into
nn nn nn nn nn nn nn nn nn nn nn nn




nn much detail because this topic is covered in greater depth in
nn nn nn nn nn nn nn nn nn nn




nn Chapter 2. nn




• An introduction to the concept of information asymmetry and
nn nn nn nn nn nn nn nn




nn resulting problems of adverse selection and moral hazard.
nn nn nn nn nn nn nn




nn These problems are basic to the book and I feel it is desirable
nn nn nn nn nn nn nn nn nn nn nn nn




nn for the students to have a ―first go‖ at them at this point. I
nn nn nn nn nn nn nn nn nn nn nn nn nn




nn concentrate on the intuition underlying the two problems. For
nn nn nn nn nn nn nn nn




nn example, adverse selection can be illustrated by asking who
nn nn nn nn nn nn nn nn




nn would be first in line to purchase life insurance if there was
nn nn nn nn nn nn nn nn nn nn nn




nn no medical examination, or what quality of used cars are likely
nn nn nn nn nn nn nn nn nn nn




nn to be brought to market. For moral hazard I try to pin them
nn nn nn nn nn nn nn nn nn nn nn nn




down on how hard they would work in this course if there were
nn nn nn nn nn nn nn nn nn nn nn nn nn




nn no exams.
nn




• The environment in which financial accounting and reporting
nn nn nn nn nn nn nn




nn operates. My main goal at this point is that the students do not
nn nn nn nn nn nn nn nn nn nn nn nn




take this environment for granted. I discuss the procedures of
nn nn nn nn nn nn nn nn nn nn




nn standard setting briefly and point out that this is really a
nn nn nn nn nn nn nn nn nn nn




nn process of regulation. In the past, there have been well-known
nn nn nn nn nn nn nn nn nn




nn cases of deregulation, such as airlines, trucking, financial
nn nn nn nn nn nn nn




nn institutions, power generation. However, we are entering what
nn nn nn nn nn nn nn




nn is likely to be a period of increasing regulation, at least for
nn nn nn nn nn nn nn nn nn nn nn




financial institutions. Instructors
nn nn nn