Solution Manual For Financial Accounting Theory 7th Edition byWilliam R. Scott, Patricia O'Brien Chapters 1 - 13, Complete

Solution Manual For Financial Accounting Theory
7th Edition by William R. Scott, Patricia O'Brien
Chapters 1 - 13, Complete

, Contents


Chapter 1 s Introduction.................................................................................................. 1

Chapter 2 s Accounting Under Ideal Conditions ........................................................... 7
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Chapter 3 s The Decision Usefulness Approach to Financial Reporting ........................ 68
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Chapter 4 s Efficient Securities Markets .......................................................................129
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Chapter 5 s The Value Relevance of Accounting Information .......................................153
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Chapter 6 s The Measurement Approach to Decision Usefulness ..................................194
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Chapter 7 s Measurement Applications.........................................................................237
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Chapter 8 s The Efficient Contracting Approach to Decision Usefulness ...................... 285
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Chapter 9 s An Analysis of Conflict ........................................................................... 321
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Chapter 10 Executive Compensation .......................................................................... 371
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Chapter 11 Earnings Management .............................................................................. 425
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Chapter 12 Standard Setting: Economic Issues ........................................................... 487
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Chapter 13 Standard Setting: Political Issues .............................................................. 527
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Pearson Canada Inc.

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



CHAPTER 1 s




s INTRODUCTIO

N

1.1 The Objective of This Book
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1.2 Some Historical Perspective
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1.3 The 2007-2008 Market Meltdowns
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1.4 Efficient Contracting s




1.5 A Note on Ethical Behaviour
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1.6 Rules-Based v. Principles-Based Accounting Standards
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1.7 The Complexity of Information in Financial Accounting and Reporting
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1.8 The Role of Accounting Research
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1.9 The Importance of Information Asymmetry
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1.10 The Fundamental Problem of Financial Accounting Theory
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1.11 Regulation as a Reaction to the Fundamental Problem
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1.12 The Organization of This Book
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1.12.1 Ideal Conditions s




1.12.2 Adverse Selection s




1.12.3 Moral Hazard s




1.12.4 Standard Setting s




1.12.5 The Process of Standard Setting
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1.13 Relevance of Financial Accounting Theory to Accounting Practice
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, Scott, Financial Accounting Theory Instructor’s Solutions Manual Chapter 1


LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
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1. The Broad Outline of the Book
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I use Figure 1.1 as a template to describe the broad outline of the book. Since the
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s students typically have not had a chance to read Chapter 1 in the first course
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session, I stick fairly closely to the chapter material.
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The major points I discuss are:
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• Accounting in an ideal setting. Here, present-value-based accounting s s s s s s s




s is natural. I go over the ideal conditions needed for sucha basis of
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s accounting to be feasible, but do not go into much detail because this s s s s s s s s s s s s




s topic is covered in greater depth in Chapter 2.
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• An introduction to the concept of information asymmetry and resulting
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s problems of adverse selection and moral hazard. These problems are s s s s s s s s s




s basic to the book and I feel it is desirable for the students to have a “first
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s go” at them at this point. I concentrate on the intuition underlying the
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s two problems. For example, adverse selection can be illustrated by
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s asking who would be first in line to purchase life insurance if there was
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s no medical examination, or what quality of used cars are likely to be
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s brought to market. For moral hazard I try to pin them down on how hard
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s they would work inthis course if there were no exams.
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• The environment in which financial accounting and reporting
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s operates. My main goal at this point is that the students do not takethis s s s s s s s s s s s s s s




s environment for granted. I discuss the procedures of standard setting s s s s s s s s s




s briefly and point out that this is really a process of regulation. In the
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s past, there have been well-known cases of deregulation, such as
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s airlines, trucking, financial institutions, powergeneration. However,
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s we are entering what is likely to be a period of increasing regulation, at
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least for financial institutions. Instructors
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