Instructor’s Manual financial account theory 17th edition well elaborated and updated2025

INSTRUCTOR’S SOLUTIONSMANUAL
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for



FinancialAccounting B




Theory
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SeventhEdition B




WilliamR.Scott B




UniversityofWaterloo
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notice.
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, Contents


Chapter 1
BBB Introduction .................................................................................................. 1

Chapter 2
BBB Accounting Under Ideal Conditions .......................................................... 7
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Chapter 3
BBB The Decision Usefulness Approach to Financial Reporting ...................... 68
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Chapter 4
BBB Efficient Securities Markets....................................................................... 129
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Chapter 5
BBB TheValue Relevance of Accounting Information ........................................ 153
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Chapter 6
BBB The Measurement Approach to Decision Usefulness ................................ 194
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Chapter 7
BBB Measurement Applications ....................................................................... 237
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Chapter 8
BBB The Efficient Contracting Approach to Decision Usefulness .................... 285
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Chapter 9
BBB An Analysis of Conflict ............................................................................ 321
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Chapter 10
BBB B B B Executive Compensation ................................................................. 371
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Chapter 11
BBB B B B Earnings Management ...................................................................... 425
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Chapter 12
BBB B B B Standard Setting: Economic Issues ................................................... 487
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Chapter 13
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B B B B Standard Setting: Political Issues ...................................................... 527
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Copyright © 2015 Pearson Canada Inc.
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,Scott, Financial Accounting Theory, 7th Edition Instructor’s Solutions Manual Chapter 1



CHAPTER 1 BBB B




INTRODUCTION
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1.1 TheObjectiveofThisBook
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1.2 Some Historical Perspective
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1.3 The2007-2008MarketMeltdowns
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1.4 Efficient Contracting BBB




1.5 A NoteonEthical Behaviour
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1.6 Rules-Based v. Principles-Based Accounting Standards B BB B BB B BB BBB




1.7 The Complexityof Information in FinancialAccountingand Reporting
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1.8 The Roleof AccountingResearch
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1.9 TheImportanceofInformationAsymmetry
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1.10 TheFundamentalProblem of FinancialAccountingTheory
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1.11 RegulationasaReaction totheFundamentalProblemB B B BB B B B




1.12 TheOrganizationofThisBook
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1.12.1 IdealConditions BB




1.12.2 Adverse Selection B BB




1.12.3 Moral Hazard BB




1.12.4 Standard Setting BB




1.12.5 The Processof Standard Setting BBB B BBB BBB




1.13 Relevance of FinancialAccountingTheoryto AccountingPractice
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Copyright © 2015 Pearson Canada Inc.

, Scott, Financial Accounting Theory, 7th Edition Instructor’s Solutions Manual Chapter 1


LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
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1. The Broad Outline of the Book
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IuseFigure1.1asatemplatetodescribethebroadoutlineofthebook.Sincethe
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BBstudentstypicallyhave nothad a chance to read Chapter 1 in thefirst course session, I
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stick fairly closely to the chapter material.
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ThemajorpointsIdiscussare:
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• Accounting in an ideal setting. Here, present-value-based B BB B BB B BB B BB B BB B BB B




BB accountingisnatural.Igoovertheidealconditionsneededforsucha B B B B B B B B B B B B B




BB basis of accounting to be feasible, but do not go into much detail
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BB because this topic is covered in greater depth in Chapter 2.
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• An introduction to the concept of information asymmetry and
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BB resulting problems of adverse selection and moral hazard. B BB B BB B BB B BB B BB B BB B BB B




BB These problems are basic to the book and I feel it is desirable for the
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BB studentstohavea―firstgo‖atthematthispoint.Iconcentrateonthe
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BB intuition underlying the two problems. For example, adverse
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BB selection can be illustrated by asking who would be first in line to
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BB purchaselifeinsuranceiftherewasnomedicalexamination,orwhat B B B B B B B B B B B




BB quality of used cars are likely to be brought to market. For moral
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BB hazardItrytopinthemdownonhowhardtheywouldworkin this course
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BB if there were no exams.
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• The environment in which financial accounting and reporting
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BB operates. Mymaingoalat thispoint is that thestudentsdonottake this BBB B B B BBB B BBB BB BBB B B B B B BB B




BB environment for granted. I discuss the procedures of standard BBB BBB BBB BBB BBB BBB BBB BBB B




BB settingbrieflyandpointoutthatthisisreallyaprocessofregulation.
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BB Inthepast,therehavebeenwell-knowncasesofderegulation,such as
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BB airlines, trucking, financial institutions, power generation.
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BB However, we are entering what is likely to be a period of increasingBBB BBB BBB BBB BBB BBB BBB BBB BBB BBB BBB BBB B




BB regulation, atleastforfinancialinstitutions. Instructors BBB B B B B BBB




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