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
, Scott, Financial Accounting Theory Instructor’s Solutions Manual Chapter 1
LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
1. The Broad Outline of the Book
I use dFigure d1.1 das da dtemplate dto ddescribe dthe dbroad doutline dof dthe dbook.
dSince dthe dstudents dtypically dhave dnot dhad da dchance dto dread dChapter d1 din
dthe dfirst dcoursedsession, dI dstick dfairly dclosely dto dthe dchapter dmaterial.
The dmajor dpoints dI ddiscuss dare:
• Accounting din dan dideal dsetting. dHere, dpresent-value-based
daccounting dis dnatural. dI dgo dover dthe dideal dconditions dneeded
dfor dsuchda dbasis dof daccounting dto dbe dfeasible, dbut ddo dnot dgo
dinto dmuch ddetail dbecause dthis dtopic dis dcovered din dgreater
ddepth din dChapter d2.
• An dintroduction dto dthe dconcept dof dinformation dasymmetry dand
dresulting dproblems dof dadverse dselection dand dmoral dhazard.
dThese dproblems dare dbasic dto dthe dbook dand dI dfeel dit dis
ddesirable dfor dthe dstudents dto dhave da d“first dgo” dat dthem dat dthis
dpoint. dI dconcentrate don dthe dintuition dunderlying dthe dtwo
dproblems. dFor dexample, dadverse dselection dcan dbe dillustrated
dby dasking dwho dwould dbe dfirst din dline dto dpurchase dlife
dinsurance dif dthere dwas dno dmedical dexamination, dor dwhat
dquality dof dused dcars dare dlikely dto dbe dbrought dto dmarket. dFor
dmoral dhazard dI dtry dto dpin dthem ddown don dhow dhard dthey
dwould dwork dindthis dcourse dif dthere dwere dno dexams.
• The denvironment din dwhich dfinancial daccounting dand dreporting
doperates. dMy dmain dgoal dat dthis dpoint dis dthat dthe dstudents ddo
dnot dtakedthis denvironment dfor dgranted. dI ddiscuss dthe
dprocedures dof dstandard dsetting dbriefly dand dpoint dout dthat dthis
dis dreally da dprocess dof dregulation. dIn dthe dpast, dthere dhave
dbeen dwell-known dcases dof dderegulation, dsuch das dairlines,
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
, Scott, Financial Accounting Theory Instructor’s Solutions Manual Chapter 1
LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
1. The Broad Outline of the Book
I use dFigure d1.1 das da dtemplate dto ddescribe dthe dbroad doutline dof dthe dbook.
dSince dthe dstudents dtypically dhave dnot dhad da dchance dto dread dChapter d1 din
dthe dfirst dcoursedsession, dI dstick dfairly dclosely dto dthe dchapter dmaterial.
The dmajor dpoints dI ddiscuss dare:
• Accounting din dan dideal dsetting. dHere, dpresent-value-based
daccounting dis dnatural. dI dgo dover dthe dideal dconditions dneeded
dfor dsuchda dbasis dof daccounting dto dbe dfeasible, dbut ddo dnot dgo
dinto dmuch ddetail dbecause dthis dtopic dis dcovered din dgreater
ddepth din dChapter d2.
• An dintroduction dto dthe dconcept dof dinformation dasymmetry dand
dresulting dproblems dof dadverse dselection dand dmoral dhazard.
dThese dproblems dare dbasic dto dthe dbook dand dI dfeel dit dis
ddesirable dfor dthe dstudents dto dhave da d“first dgo” dat dthem dat dthis
dpoint. dI dconcentrate don dthe dintuition dunderlying dthe dtwo
dproblems. dFor dexample, dadverse dselection dcan dbe dillustrated
dby dasking dwho dwould dbe dfirst din dline dto dpurchase dlife
dinsurance dif dthere dwas dno dmedical dexamination, dor dwhat
dquality dof dused dcars dare dlikely dto dbe dbrought dto dmarket. dFor
dmoral dhazard dI dtry dto dpin dthem ddown don dhow dhard dthey
dwould dwork dindthis dcourse dif dthere dwere dno dexams.
• The denvironment din dwhich dfinancial daccounting dand dreporting
doperates. dMy dmain dgoal dat dthis dpoint dis dthat dthe dstudents ddo
dnot dtakedthis denvironment dfor dgranted. dI ddiscuss dthe
dprocedures dof dstandard dsetting dbriefly dand dpoint dout dthat dthis
dis dreally da dprocess dof dregulation. dIn dthe dpast, dthere dhave
dbeen dwell-known dcases dof dderegulation, dsuch das dairlines,
