Solution Manual
Financial Accounting Theory
By William Scott, Patricia O'brien
8th Edition
, Contents
Chapteri1 Introduction .................................................................................................. 1
Chapteri2 Accountingiunderiidealiconditions .............................................................. 7
Chapteri3 Theidecisioniusefulnessiapproachitoifinancialireporting............................... 68
Chapteri4 Efficientisecuritiesimarkets ......................................................................... 129
Chapteri5 Theivalueirelevanceiofiaccountingiinformation ............................................ 153
Chapteri6 Theimeasurementiapproachitoidecisioniusefulness ...................................... 194
Chapteri7 Measurementiapplications .......................................................................... 237
Chapteri8 Theiefficienticontractingiapproachitoidecisioniusefulness ............................ 285
Chapteri9 Anianalysisioficonflict ...............................................................................321
Chapteri10iiexecutiveicompensation .............................................................................371
Chapteri11iiearningsimanagement .................................................................................425
Chapteri12iistandardisetting:Ieconomiciissues ...............................................................487
Chapteri13iistandardisetting:Ipoliticaliissues ..................................................................527
Pearson Canada Inc.
,Chapteri1ii
Ntroduction
1.1 Theiobjectiveiofithisibook
1.2 Someihistoricaliperspective
1.3 Thei2007-2008imarketimeltdowns
1.4 Efficienticontracting
1.5 Ainoteioniethicalibehaviour
1.6 Rules-Basediv.Iprinciples-Basediaccountingistandards
1.7 Theicomplexityiofiinformationiinifinancialiaccountingiandireporting
1.8 Theiroleiofiaccountingiresearch
1.9 Theiimportanceiofiinformationiasymmetry
1.10 Theifundamentaliproblemiofifinancialiaccountingitheory
1.11 Regulationiasiaireactionitoitheifundamentaliproblem
1.12 Theiorganizationiofithisibook
1.12.1 Idealiconditions
1.12.2 Adverseiselection
1.12.3 Moralihazard
1.12.4 Standardisetting
1.12.5 Theiprocessiofistandardisetting
1.13 Relevanceiofifinancialiaccountingitheoryitoiaccountingipractice
, Learningiobjectivesiandisuggestediteachingiapproaches
1. Theibroadioutlineiofitheibook
Iiuseifigurei1.1iasiaitemplateitoidescribeitheibroadioutlineiofitheibook.Isinceitheistu
Dentsitypicallyihaveinotihadiaichanceitoireadichapteri1iinitheifirsticourseisession,Iiist
Ickifairlyicloselyitoitheichapterimaterial.
Theimajoripointsiiidiscussiare:
• Accountingiinianiidealisetting.Ihere,Ipresent-Value-
Basediaccountingiisinatural.Iiigoioveritheiidealiconditionsineedediforis
Uchiaibasisiofiaccountingitoibeifeasible,Ibutidoinotigoiintoimuchidetailib
Ecauseithisitopiciisicoverediinigreateridepthiinichapteri2.
• Aniintroductionitoitheiconceptiofiinformationiasymmetryiandiresultingi
Problemsiofiadverseiselectioniandimoralihazard.Itheseiproblemsiarei
Basicitoitheibookiandiiifeeliitiisidesirableiforitheistudentsitoihaveiai“Firsti
Go”Iatithemiatithisipoint.Iiiconcentrateionitheiintuitioniunderlyingitheitw
Oiproblems.Iforiexample,Iadverseiselectionicanibeiillustratedibyiaskin
Giwhoiwouldibeifirstiinilineitoipurchaseilifeiinsuranceiifithereiwasinoime
Dicaliexamination,Ioriwhatiqualityiofiusedicarsiareilikelyitoibeibroughtit
Oimarket.Iforimoralihazardiiitryitoipinithemidownionihowiharditheyiwoul
Diworkiinithisicourseiifithereiwereinoiexams.
• Theienvironmentiiniwhichifinancialiaccountingiandireportingioperates
.Imyimainigoaliatithisipointiisithatitheistudentsidoinotitakeithisienvironm
Entiforigranted.Iiidiscussitheiproceduresiofistandardisettingibrieflyiand
Ipointioutithatithisiisireallyiaiprocessiofiregulation.Iinitheipast,Ithereihav
Eibeeniwell-
Knownicasesiofideregulation,Isuchiasiairlines,Itrucking,Ifinancialiinstit
Utions,Ipowerigeneration.Ihowever,Iweiareienteringiwhatiisilikelyitoibei
Aiperiodiofiincreasingiregulation,Iatileastiforifinancialiinstitutions.Iinstr
Uctors
Financial Accounting Theory
By William Scott, Patricia O'brien
8th Edition
, Contents
Chapteri1 Introduction .................................................................................................. 1
Chapteri2 Accountingiunderiidealiconditions .............................................................. 7
Chapteri3 Theidecisioniusefulnessiapproachitoifinancialireporting............................... 68
Chapteri4 Efficientisecuritiesimarkets ......................................................................... 129
Chapteri5 Theivalueirelevanceiofiaccountingiinformation ............................................ 153
Chapteri6 Theimeasurementiapproachitoidecisioniusefulness ...................................... 194
Chapteri7 Measurementiapplications .......................................................................... 237
Chapteri8 Theiefficienticontractingiapproachitoidecisioniusefulness ............................ 285
Chapteri9 Anianalysisioficonflict ...............................................................................321
Chapteri10iiexecutiveicompensation .............................................................................371
Chapteri11iiearningsimanagement .................................................................................425
Chapteri12iistandardisetting:Ieconomiciissues ...............................................................487
Chapteri13iistandardisetting:Ipoliticaliissues ..................................................................527
Pearson Canada Inc.
,Chapteri1ii
Ntroduction
1.1 Theiobjectiveiofithisibook
1.2 Someihistoricaliperspective
1.3 Thei2007-2008imarketimeltdowns
1.4 Efficienticontracting
1.5 Ainoteioniethicalibehaviour
1.6 Rules-Basediv.Iprinciples-Basediaccountingistandards
1.7 Theicomplexityiofiinformationiinifinancialiaccountingiandireporting
1.8 Theiroleiofiaccountingiresearch
1.9 Theiimportanceiofiinformationiasymmetry
1.10 Theifundamentaliproblemiofifinancialiaccountingitheory
1.11 Regulationiasiaireactionitoitheifundamentaliproblem
1.12 Theiorganizationiofithisibook
1.12.1 Idealiconditions
1.12.2 Adverseiselection
1.12.3 Moralihazard
1.12.4 Standardisetting
1.12.5 Theiprocessiofistandardisetting
1.13 Relevanceiofifinancialiaccountingitheoryitoiaccountingipractice
, Learningiobjectivesiandisuggestediteachingiapproaches
1. Theibroadioutlineiofitheibook
Iiuseifigurei1.1iasiaitemplateitoidescribeitheibroadioutlineiofitheibook.Isinceitheistu
Dentsitypicallyihaveinotihadiaichanceitoireadichapteri1iinitheifirsticourseisession,Iiist
Ickifairlyicloselyitoitheichapterimaterial.
Theimajoripointsiiidiscussiare:
• Accountingiinianiidealisetting.Ihere,Ipresent-Value-
Basediaccountingiisinatural.Iiigoioveritheiidealiconditionsineedediforis
Uchiaibasisiofiaccountingitoibeifeasible,Ibutidoinotigoiintoimuchidetailib
Ecauseithisitopiciisicoverediinigreateridepthiinichapteri2.
• Aniintroductionitoitheiconceptiofiinformationiasymmetryiandiresultingi
Problemsiofiadverseiselectioniandimoralihazard.Itheseiproblemsiarei
Basicitoitheibookiandiiifeeliitiisidesirableiforitheistudentsitoihaveiai“Firsti
Go”Iatithemiatithisipoint.Iiiconcentrateionitheiintuitioniunderlyingitheitw
Oiproblems.Iforiexample,Iadverseiselectionicanibeiillustratedibyiaskin
Giwhoiwouldibeifirstiinilineitoipurchaseilifeiinsuranceiifithereiwasinoime
Dicaliexamination,Ioriwhatiqualityiofiusedicarsiareilikelyitoibeibroughtit
Oimarket.Iforimoralihazardiiitryitoipinithemidownionihowiharditheyiwoul
Diworkiinithisicourseiifithereiwereinoiexams.
• Theienvironmentiiniwhichifinancialiaccountingiandireportingioperates
.Imyimainigoaliatithisipointiisithatitheistudentsidoinotitakeithisienvironm
Entiforigranted.Iiidiscussitheiproceduresiofistandardisettingibrieflyiand
Ipointioutithatithisiisireallyiaiprocessiofiregulation.Iinitheipast,Ithereihav
Eibeeniwell-
Knownicasesiofideregulation,Isuchiasiairlines,Itrucking,Ifinancialiinstit
Utions,Ipowerigeneration.Ihowever,Iweiareienteringiwhatiisilikelyitoibei
Aiperiodiofiincreasingiregulation,Iatileastiforifinancialiinstitutions.Iinstr
Uctors
