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