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