Solution Manual For Financial Accounting Theory 7th Edition by William R. Scott, Patricia O'Brien Chapters 1 - 13, | ISBN: 9780273773436|Complete updated version 2025

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

, Contents


Chapter 1 li Introduction.................................................................................................. 1

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




NTRODUCTION

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 li




1.5 A Note on Ethical Behaviour
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1.6 Rules-Based v. Principles-Based Accounting Standards li li li li




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 li




1.12.2 Adverse Selection li




1.12.3 Moral Hazard li




1.12.4 Standard Setting li




1.12.5 The Process of Standard Setting li li li li




1.13 Relevance of Financial Accounting Theory to Accounting Practice
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, 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 stud
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ents typically have not had a chance to read Chapter 1 in the first coursesession, I stic
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k 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- li li li li li li




based accounting is natural. I go over the ideal conditions needed for su
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cha basis of accounting to be feasible, but do not go into much detail bec
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ause this topic is covered in greater depth in Chapter 2.li li li li li li li li li li




• An introduction to the concept of information asymmetry and resulting p
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roblems of adverse selection and moral hazard. These problems are b li li li li li li li li li li




asic to the book and I feel it is desirable for the students to have a “first go
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” at them at this point. I concentrate on the intuition underlying the two pr
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oblems. For example, adverse selection can be illustrated by asking wh li li li li li li li li li li




o would be first in line to purchase life insurance if there was no medical
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examination, or what quality of used cars are likely to be brought to mar li li li li li li li li li li li li li




ket. For moral hazard I try to pin them down on how hard they would work
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inthis course if there were no exams.
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• The environment in which financial accounting and reporting operates.
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li My main goal at this point is that the students do not takethis environme
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nt for granted. I discuss the procedures of standard setting briefly and p
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oint out that this is really a process of regulation. In the past, there have
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been well- li




known cases of deregulation, such as airlines, trucking, financial institli li li li li li li li li




utions, powergeneration. However, we are entering what is likely to be li li li li li li li li li li li li




a period of increasing regulation, at least for financial institutions. Instru
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ctors