Ch01
Scott, Financial Accounting Theory, 7th Edition 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
1
Copyright © .
Scott, Financial Accounting Theory, 7th Edition Instructor’s Solutions Manual Chapter 1
LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
1.
The Broad Outline of the Book
I use Figure 1.1 as a template to describe the broad outline of the book. Since the students typically have not had a chance to read Chapter 1 in the first course session, I stick fairly closely to the chapter material.
The major points I discuss are:
•
Accounting in an ideal setting. Here, present-value-based accounting is natural. I go over the ideal conditions needed for such a basis of accounting to be feasible, but do not go into much detail because this topic is covered in greater depth in Chapter 2.
•
An introduction to the concept of information asymmetry and resulting problems of adverse selection and moral hazard. These problems are basic to the book and I feel it is desirable for the students to have a “first go” at them at this point. I concentrate on the intuition underlying the two problems. For example, adverse selection can be illustrated by asking who would be first in line to purchase life insurance if there was
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
1
Copyright © .
Scott, Financial Accounting Theory, 7th Edition Instructor’s Solutions Manual Chapter 1
LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
1.
The Broad Outline of the Book
I use Figure 1.1 as a template to describe the broad outline of the book. Since the students typically have not had a chance to read Chapter 1 in the first course session, I stick fairly closely to the chapter material.
The major points I discuss are:
•
Accounting in an ideal setting. Here, present-value-based accounting is natural. I go over the ideal conditions needed for such a basis of accounting to be feasible, but do not go into much detail because this topic is covered in greater depth in Chapter 2.
•
An introduction to the concept of information asymmetry and resulting problems of adverse selection and moral hazard. These problems are basic to the book and I feel it is desirable for the students to have a “first go” at them at this point. I concentrate on the intuition underlying the two problems. For example, adverse selection can be illustrated by asking who would be first in line to purchase life insurance if there was