Solution Manual for Financial Accounting Theory 7th Edition by William R. Scott | Complete Solutions for Chapters 1-13 | Verified Answers

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


Chapterl1 Introduction.................................................................................................. 1

Chapterl2 AccountinglUnderlIdeallConditions ............................................................ 7

Chapterl3 ThelDecisionlUsefulnesslApproachltolFinanciallReporting ......................... 68

Chapterl4 EfficientlSecuritieslMarkets........................................................................129

Chapterl5 ThelValuelRelevanceloflAccountinglInformation........................................153

Chapterl6 ThelMeasurementlApproachltolDecisionlUsefulness ..................................194

Chapterl7 MeasurementlApplications .........................................................................237

Chapterl8 ThelEfficientlContractinglApproachltolDecisionlUsefulness ....................... 285

Chapterl9 AnlAnalysisloflConflict ............................................................................ 321

Chapterl10llExecutivelCompensation .......................................................................... 371

Chapterl11llEarningslManagement .............................................................................. 425

Chapterl12llStandardlSetting:lEconomiclIssues ............................................................ 487

Chapterl13llStandardlSetting:lPoliticallIssues ............................................................... 527




PearsonlCanadalInc.
l

,Scott,lFinanciallAccountinglTheory Instructor’slSolutionslManuallChapterl1



CHAPTERl1lI

NTRODUCTION

1.1 ThelObjectiveloflThislBook

1.2 SomelHistoricallPerspective

1.3 Thel2007-2008lMarketlMeltdowns

1.4 EfficientlContracting

1.5 AlNotelonlEthicallBehaviour

1.6 Rules-Basedlv.lPrinciples-BasedlAccountinglStandards

1.7 ThelComplexityloflInformationlinlFinanciallAccountinglandlReporting

1.8 ThelRoleloflAccountinglResearch

1.9 ThelImportanceloflInformationlAsymmetry

1.10 ThelFundamentallProblemloflFinanciallAccountinglTheory

1.11 RegulationlaslalReactionltolthelFundamentallProblem

1.12 ThelOrganizationloflThislBook

1.12.1 IdeallConditions

1.12.2 AdverselSelection

1.12.3 MorallHazard

1.12.4 StandardlSetting

1.12.5 ThelProcessloflStandardlSetting

1.13 RelevanceloflFinanciallAccountinglTheoryltolAccountinglPractice

, Scott,lFinanciallAccountinglTheory Instructor’slSolutionslManuallChapterl1


LEARNINGlOBJECTIVESlANDlSUGGESTEDlTEACHINGlAPPROACHES

1. ThelBroadlOutlineloflthelBook

IluselFigurel1.1laslaltemplateltoldescribelthelbroadloutlineloflthelbook.lSincelthelstude
ntsltypicallylhavelnotlhadlalchanceltolreadlChapterl1linlthelfirstlcourselsession,lIlsticklf
airlylcloselyltolthelchapterlmaterial.

ThelmajorlpointslIldiscusslare:

• Accountinglinlanlideallsetting.lHere,lpresent-value-
basedlaccountinglislnatural.lIlgoloverlthelideallconditionslneededlforlsu
chlalbasisloflaccountingltolbelfeasible,lbutldolnotlgolintolmuchldetaillbec
auselthisltopiclislcoveredlinlgreaterldepthlinlChapterl2.

• Anlintroductionltolthelconceptloflinformationlasymmetrylandlresultinglp
roblemslofladverselselectionlandlmorallhazard.lTheselproblemslarelba
sicltolthelbooklandlIlfeellitlisldesirablelforlthelstudentsltolhavelal“firstlgo”l
atlthemlatlthislpoint.lIlconcentratelonlthelintuitionlunderlyingltheltwolpro
blems.lForlexample,ladverselselectionlcanlbelillustratedlbylaskinglwhol
wouldlbelfirstlinllineltolpurchasellifelinsurancelifltherelwaslnolmedicallex
amination,lorlwhatlqualityloflusedlcarslarellikelyltolbelbroughtltolmarket.l
ForlmorallhazardlIltryltolpinlthemldownlonlhowlhardltheylwouldlworklinlthi
slcourselifltherelwerelnolexams.

• Thelenvironmentlinlwhichlfinanciallaccountinglandlreportingloperates.l
Mylmainlgoallatlthislpointlislthatlthelstudentsldolnotltakelthislenvironme
ntlforlgranted.lIldiscusslthelproceduresloflstandardlsettinglbrieflylandlp
ointloutlthatlthislislreallylalprocessloflregulation.lInlthelpast,ltherelhavelb
eenlwell-
knownlcasesloflderegulation,lsuchlaslairlines,ltrucking,lfinanciallinstitu
tions,lpowerlgeneration.lHowever,lwelarelenteringlwhatlisllikelyltolbelal
periodloflincreasinglregulation,latlleastlforlfinanciallinstitutions.lInstruct
ors