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 fFigure f1.1 fas fa ftemplate fto fdescribe fthe fbroad foutline fof fthe fbook. fSince
fthe fstudents ftypically fhave fnot fhad fa fchance fto fread fChapter f1 fin fthe ffirst
fcoursefsession, fI fstick ffairly fclosely fto fthe fchapter fmaterial.
The fmajor fpoints fI fdiscuss fare:
• Accounting fin fan fideal fsetting. fHere, fpresent-value-based
faccounting fis fnatural. fI fgo fover fthe fideal fconditions fneeded ffor
fsuchfa fbasis fof faccounting fto fbe ffeasible, fbut fdo fnot fgo finto
fmuch fdetail fbecause fthis ftopic fis fcovered fin fgreater fdepth fin
fChapter f2.
• An fintroduction fto fthe fconcept fof finformation fasymmetry fand
fresulting fproblems fof fadverse fselection fand fmoral fhazard. fThese
fproblems fare fbasic fto fthe fbook fand fI ffeel fit fis fdesirable ffor fthe
fstudents fto fhave fa f“first fgo” fat fthem fat fthis fpoint. fI fconcentrate
fon fthe fintuition funderlying fthe ftwo fproblems. fFor fexample,
fadverse fselection fcan fbe fillustrated fby fasking fwho fwould fbe ffirst
fin fline fto fpurchase flife finsurance fif fthere fwas fno fmedical
fexamination, for fwhat fquality fof fused fcars fare flikely fto fbe fbrought
fto fmarket. fFor fmoral fhazard fI ftry fto fpin fthem fdown fon fhow fhard
fthey fwould fwork finfthis fcourse fif fthere fwere fno fexams.
• The fenvironment fin fwhich ffinancial faccounting fand freporting
foperates. fMy fmain fgoal fat fthis fpoint fis fthat fthe fstudents fdo fnot
ftakefthis fenvironment ffor fgranted. fI fdiscuss fthe fprocedures fof
fstandard fsetting fbriefly fand fpoint fout fthat fthis fis freally fa fprocess
fof fregulation. fIn fthe fpast, fthere fhave fbeen fwell-known fcases fof
fderegulation, fsuch fas fairlines, ftrucking, ffinancial finstitutions,
fpowerfgeneration. fHowever, fwe fare fentering fwhat fis flikely fto fbe fa
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 fFigure f1.1 fas fa ftemplate fto fdescribe fthe fbroad foutline fof fthe fbook. fSince
fthe fstudents ftypically fhave fnot fhad fa fchance fto fread fChapter f1 fin fthe ffirst
fcoursefsession, fI fstick ffairly fclosely fto fthe fchapter fmaterial.
The fmajor fpoints fI fdiscuss fare:
• Accounting fin fan fideal fsetting. fHere, fpresent-value-based
faccounting fis fnatural. fI fgo fover fthe fideal fconditions fneeded ffor
fsuchfa fbasis fof faccounting fto fbe ffeasible, fbut fdo fnot fgo finto
fmuch fdetail fbecause fthis ftopic fis fcovered fin fgreater fdepth fin
fChapter f2.
• An fintroduction fto fthe fconcept fof finformation fasymmetry fand
fresulting fproblems fof fadverse fselection fand fmoral fhazard. fThese
fproblems fare fbasic fto fthe fbook fand fI ffeel fit fis fdesirable ffor fthe
fstudents fto fhave fa f“first fgo” fat fthem fat fthis fpoint. fI fconcentrate
fon fthe fintuition funderlying fthe ftwo fproblems. fFor fexample,
fadverse fselection fcan fbe fillustrated fby fasking fwho fwould fbe ffirst
fin fline fto fpurchase flife finsurance fif fthere fwas fno fmedical
fexamination, for fwhat fquality fof fused fcars fare flikely fto fbe fbrought
fto fmarket. fFor fmoral fhazard fI ftry fto fpin fthem fdown fon fhow fhard
fthey fwould fwork finfthis fcourse fif fthere fwere fno fexams.
• The fenvironment fin fwhich ffinancial faccounting fand freporting
foperates. fMy fmain fgoal fat fthis fpoint fis fthat fthe fstudents fdo fnot
ftakefthis fenvironment ffor fgranted. fI fdiscuss fthe fprocedures fof
fstandard fsetting fbriefly fand fpoint fout fthat fthis fis freally fa fprocess
fof fregulation. fIn fthe fpast, fthere fhave fbeen fwell-known fcases fof
fderegulation, fsuch fas fairlines, ftrucking, ffinancial finstitutions,
fpowerfgeneration. fHowever, fwe fare fentering fwhat fis flikely fto fbe fa
