Solution Manual for Financial Accounting Theory 8th Edition by William Scott, Patricia O'Brien

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, Contents


Chapter 1 Introduction .................................................................................................. 1
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Chapter 2 f f f Accounting Under Ideal Conditions ..................................................... 7
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Chapter 3 The Decision Usefulness Approach to Financial Reporting.............. 68
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Chapter 4 f f f Efficient Securities Markets ................................................................... 129
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Chapter 5 f f f The Value Relevance of Accounting Information .............................. 153
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Chapter 6 The Measurement Approach to Decision Usefulness ......................... 194
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Chapter 7 Measurement Applications ...................................................................... 237
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Chapter 8 f f f The Efficient Contracting Approach to Decision Usefulness ............ 285
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Chapter 9 f f f 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 f Canada f Inc.

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


CHAPTER 1 f




f INTRODUCTIO

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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
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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 f




1.12.2 Adverse Selection f




1.12.3 Moral Hazard f




1.12.4 Standard Setting f




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
f f Instructor’s Solutions Manual f f


Theory Chapter

LEARNING F OBJECTIVES AND SUGGESTED TEACHING APPROACHES F F F F




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.
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f Since the students typically have not had a chance to read Chapter 1 in
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f the first courseiisession, 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 f f f f f f




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




f suchiia basis of accounting to be feasible, but do not go into much
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f detail because this topic is covered in greater depth in Chapter 2.
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• An introduction to the concept of information asymmetry and
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f resulting problems of adverse selection and moral hazard.
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f These problems are basic to the book and I feel it is
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f desirable for the students to have a ―first go‖ at them at this
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f point. I concentrate on the intuition underlying the two problems.
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f For example, adverse selection can be illustrated by asking who
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f would be first in line to purchase life insurance if there was
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f no medical examination, or what quality of used cars are
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f likely to be brought to market. For moral hazard I try to pin
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f them down on how hard they would work inthis course if there
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f were no exams. f f




• The environment in which financial accounting and reporting
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f operates. My main goal at this point is that the students do f f f f f f f f f f f




f not takethis environment for granted. I discuss the procedures of
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f standard setting briefly and point out that this is really a
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f process of regulation. In the past, there have been well-known
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f cases of deregulation, such as airlines, trucking, financial
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