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. TheABroadAOutlineAofAtheABook
IAuseAFigureA1.1AasAaAtemplateAtoAdescribeAtheAbroadAoutlineAofAtheAbook.ASinceAth
eAstudentsAtypicallyAhaveAnotAhadAaAchanceAtoAreadAChapterA1AinAtheAfirstAcourseAs
ession,AIAstickAfairlyAcloselyAtoAtheAchapterAmaterial.
TheAmajorApointsAIAdiscussAare:
• AccountingAinAanAidealAsetting.AHere,Apresent-value-
basedAaccountingAisAnatural.AIAgoAoverAtheAidealAconditionsAneededAf
orAsuchAaAbasisAofAaccountingAtoAbeAfeasible,AbutAdoAnotAgoAintoAmuch
AdetailAbecauseAthisAtopicAisAcoveredAinAgreaterAdepthAinAChapterA2.
• AnAintroductionAtoAtheAconceptAofAinformationAasymmetryAandAresulti
ngAproblemsAofAadverseAselectionAandAmoralAhazard.ATheseAproble
msAareAbasicAtoAtheAbookAandAIAfeelAitAisAdesirableAforAtheAstudentsAto
AhaveAaA“firstAgo”AatAthemAatAthisApoint.AIAconcentrateAonAtheAintuitionA
underlyingAtheAtwoAproblems.AForAexample,AadverseAselectionAcanAb
eAillustratedAbyAaskingAwhoAwouldAbeAfirstAinAlineAtoApurchaseAlifeAins
uranceAifAthereAwasAnoAmedicalAexamination,AorAwhatAqualityAofAused
AcarsAareAlikelyAtoAbeAbroughtAtoAmarket.AForAmoralAhazardAIAtryAtoApin
AthemAdownAonAhowAhardAtheyAwouldAworkAinAthisAcourseAifAthereAwer
eAnoAexams.
• TheAenvironmentAinAwhichAfinancialAaccountingAandAreportingAoperat
es.AMyAmainAgoalAatAthisApointAisAthatAtheAstudentsAdoAnotAtakeAthisAe
nvironmentAforAgranted.AIAdiscussAtheAproceduresAofAstandardAsettin
gAbrieflyAandApointAoutAthatAthisAisAreallyAaAprocessAofAregulation.AInAt
heApast,AthereAhaveAbeenAwell-
knownAcasesAofAderegulation,AsuchAasAairlines,Atrucking,AfinancialAin
stitutions,ApowerAgeneration.AHowever,AweAareAenteringAwhatAisAlikel
yAtoAbeAaAperiodAofAincreasingAregulation,AatAleastAforAfinancialAinstitut
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. TheABroadAOutlineAofAtheABook
IAuseAFigureA1.1AasAaAtemplateAtoAdescribeAtheAbroadAoutlineAofAtheAbook.ASinceAth
eAstudentsAtypicallyAhaveAnotAhadAaAchanceAtoAreadAChapterA1AinAtheAfirstAcourseAs
ession,AIAstickAfairlyAcloselyAtoAtheAchapterAmaterial.
TheAmajorApointsAIAdiscussAare:
• AccountingAinAanAidealAsetting.AHere,Apresent-value-
basedAaccountingAisAnatural.AIAgoAoverAtheAidealAconditionsAneededAf
orAsuchAaAbasisAofAaccountingAtoAbeAfeasible,AbutAdoAnotAgoAintoAmuch
AdetailAbecauseAthisAtopicAisAcoveredAinAgreaterAdepthAinAChapterA2.
• AnAintroductionAtoAtheAconceptAofAinformationAasymmetryAandAresulti
ngAproblemsAofAadverseAselectionAandAmoralAhazard.ATheseAproble
msAareAbasicAtoAtheAbookAandAIAfeelAitAisAdesirableAforAtheAstudentsAto
AhaveAaA“firstAgo”AatAthemAatAthisApoint.AIAconcentrateAonAtheAintuitionA
underlyingAtheAtwoAproblems.AForAexample,AadverseAselectionAcanAb
eAillustratedAbyAaskingAwhoAwouldAbeAfirstAinAlineAtoApurchaseAlifeAins
uranceAifAthereAwasAnoAmedicalAexamination,AorAwhatAqualityAofAused
AcarsAareAlikelyAtoAbeAbroughtAtoAmarket.AForAmoralAhazardAIAtryAtoApin
AthemAdownAonAhowAhardAtheyAwouldAworkAinAthisAcourseAifAthereAwer
eAnoAexams.
• TheAenvironmentAinAwhichAfinancialAaccountingAandAreportingAoperat
es.AMyAmainAgoalAatAthisApointAisAthatAtheAstudentsAdoAnotAtakeAthisAe
nvironmentAforAgranted.AIAdiscussAtheAproceduresAofAstandardAsettin
gAbrieflyAandApointAoutAthatAthisAisAreallyAaAprocessAofAregulation.AInAt
heApast,AthereAhaveAbeenAwell-
knownAcasesAofAderegulation,AsuchAasAairlines,Atrucking,AfinancialAin
stitutions,ApowerAgeneration.AHowever,AweAareAenteringAwhatAisAlikel
yAtoAbeAaAperiodAofAincreasingAregulation,AatAleastAforAfinancialAinstitut
