Solution Manual for Financial Accounting Theory, 8th Edition by William R. Scott and Patricia O'Brien isbn-9780134166681 Complete Latest Verified Guide

Contents

,Chapter 1 Introduction .................................................................................................. 1
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Chapter 2 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 Efficient Securities Markets.................................................................... 129
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Chapter 5 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 The Efficient Contracting Approach to Decision Usefulness .......... 285
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Chapter 9 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
jj j j j j j j Issues................................................... 527




Pearson j j Canada j j Inc.

,Scott, Financial
jj Instructor’s Solutions Manual
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Accounting Chapter


CHAPTER 1 jj




INTRODUCTIO
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1.1 The Objective of This Book
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1.2 Some Historical j j j j Perspective

1.3 The 2007-2008 Market Meltdowns
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1.4 Efficient Contracting jj




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




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 j




1.12.2 Adverse j j Selection

1.12.3 Moral Hazard j j




1.12.4 Standard Setting j j




1.12.5 The Process of j j j j j j Standard j j Setting

1.13 Relevance of j j j j Financial Accounting Theory to Accounting Practice
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, Scott, Financial
jj Instructor’s Solutions Manual jj jj


Accounting Chapter

LEARNING J J OBJECTIVES AND SUGGESTED TEACHING J J J J JJ J J APPROACHES


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
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j j the book. Since the students typically have not had a chance to read
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Chapter 1 in the first course session, I stick fairly closely to the
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j j chapter material. j j




The major points I discuss are:
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• Accounting in an ideal setting. Here, present-value-based jj jj jj jj jj jj




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




jj such a basis of accounting to be feasible, but do not
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j j go into much detail because this topic is covered in
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j j greater depth in Chapter 2. j j j j jj j j




• An introduction to the concept of information asymmetry and
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j j resulting problems of adverse selection and moral j j j j j j j j j j j j




j j hazard. These problems are basic to the book and I feel
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j j it is desirable for the students to have a ―first go‖ at them at
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jj this point. I concentrate on the intuition underlying the two
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jj problems. For example, adverse selection can be illustrated by
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j j asking who would be first in line to purchase life
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j j insurance if there was no medical examination, or what j j j j j j j j j j j j j j j j




j j quality of used cars are likely to be brought to market.
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j j For moral hazard I try to pin them
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down on how hard they would work in this course if there were
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no exams.
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• The environment in which financial accounting and reporting
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j j operates. My main goal at this point is that the students do not
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jj take this environment for granted. I discuss the procedures
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j j of standard setting briefly and point out that this is
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j j really a process of regulation. In the past, there have
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j j been well-known cases of deregulation, such as airlines,
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jj trucking, financial institutions, power generation. However,
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