Financial Accounting Theory – 7th Edition (William R. Scott, Patricia O’Brien) – Complete Solution Manual for Chapters 1–13

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

INTRODUCTION

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
m m m m m m m

, Scott, Financial Accounting Theory Instructor’s Solutions Manual Chapter 1


LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
m m m m m




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




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




m the students typically have not had a chance to read Chapter 1 in the first
m m m m m m m m m m m m m m




coursesession, I stick fairly closely to the chapter material.
m m m m m m m m m m




The major points I discuss are:
m m m m m




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




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




sucha basis of accounting to be feasible, but do not go into much
m m m m m m m m m m m m m m




detail because this topic is covered in greater depth in Chapter 2.
m m m m m m m m m m m m




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




resulting problems of adverse selection and moral hazard. These
m m m m m m m m m




problems are basic to the book and I feel it is desirable for the
m m m m m m m m m m m m m m




students to have a “first go” at them at this point. I concentrate on
m m m m m m m m m m m m m m




the intuition underlying the two problems. For example, adverse
m m m m m m m m m




selection can be illustrated by asking who would be first in line to
m m m m m m m m m m m m m




purchase life insurance if there was no medical examination, or
m m m m m m m m m m




what quality of used cars are likely to be brought to market. For
m m m m m m m m m m m m m




moral hazard I try to pin them down on how hard they would work in
m m m m m m m m m m m m m m m




this course if there were no exams.
m m m m m m m




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




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




takethis environment for granted. I discuss the procedures of
m m m m m m m m m m




standard setting briefly and point out that this is really a process of
m m m m m m m m m m m m m




regulation. In the past, there have been well-known cases of
m m m m m m m m m m




deregulation, such as airlines, trucking, financial institutions, power
m m m m m m m m




generation. However, we are entering what is likely to be a period
m m m m m m m m m m m m




of increasing regulation, at least for financial institutions. Instructors
m m m m m m m m m