introduction the aim of financial accounting theory is to examine various theories that have been put forward to understand the role of financial accounting in. introduction to financial accounting theory what is efficient contracting? efficient contracting is an alternate way of financial reporting, compared to fair. A Steve Jobs keynote presentation is an extraordinary expe- rience, and he. a passionate perfectionist and a visionary Financial Accounting and.
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Willian R Scott Financial Accounting medical-site.info - Ebook download as PDF File . pdf), Text File .txt) or read book online. The rapidly growing literature in the broad area of financial accounting. Lhcory has made it difficult, if not impossible, for a student of the subject. Lo assimilate. Public Accountants has defined the Financial Accounting as "the art of recording, The candidate must pass a vigorous examination in Accounting Theory.
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Hicks, Value and capital, 2nd ed. Oxford University Press, Alexander, revised D.
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. 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 download life insurance if there was no medical examination, or what quality of used cars are likely to be brought to market.
For moral hazard I try to pin them down on how hard they would work in this course if there were no exams. My main goal at this point is that the students do not take this environment for granted. I discuss the procedures of standard setting briefly and point out that this is really a process of regulation. In the past, there have been well-known cases of deregulation, such as airlines, trucking, financial institutions, power generation.
However, we are entering what is likely to be a period of increasing regulation, at least for financial institutions. I suggest that it is easy to take this term for granted, and call for definitions.
This usually generates considerable hesitation by the students. The purpose at this point is simply to get them to realize that information is a complex commodity.
Indeed, I make an analogy between the financial accounting and reporting industry and a stereotypical manufacturing industry such as agriculture or automobiles, and ask what is the product of the accounting industry, why is it valuable, how is it quantified? I do not go deeply into the answers to questions like these, since some decision-theoretic machinery needs to be developed Section 3. Nevertheless, I try to end up with the conclusions that information has something to do with improving the process of decision-making, and that it is crucial to the operation of securities markets.
Relevance to Accounting Practice My undergraduate accounting theory classes usually consist of a majority of students who are heading for a professional accounting designation. There are usually also some students heading for careers in management. Since students who are facing professional accounting exams can be quite focused in their learning objectives, it is essential that the nature of the course in relation to these objectives be discussed up front.
I begin by pointing out that the book is intended to give the student an appreciation and understanding of the financial reporting environment, which should help with breadth questions on professional exams. Arguments such as these can only be pushed so far. Nevertheless, I think it is important to make them. I also point out that the text includes coverage of major accounting standards such as financial instruments, impairment, consolidations, de-recognition, and that they will have the opportunity to learn about these standards on the way through.
Finally, since management is a major constituency in standard-setting, a critical awareness of the need for standard setting and the standard-setting process Chapters 12 and 13 is useful for any manager. I have not had problems with student course evaluations as a result of using the material in this book.
For this, I find that the financial media are helpful sources of current articles which I bring to class to serve as a basis for discussion. Instructors may wish to briefly discuss the structure of standard setting bodies at this point.
Social Issues Underlying Regulation Instructors who wish to dig more deeply into social issues underlying financial reporting and standard setting can usefully spend a class session on the Merino and Neimark paper in Section 1. This paper raises fundamental issues about the role of financial reporting in society which go well beyond the textbook coverage of this paper, which confines itself largely to a brief description of reporting problems leading up to the great stock market crash of and the creation of the SEC.
It provides food for thought both for those who do and do not favour the present financial reporting environment.
This edition continues its discussion of the Enron and WorldCom financial reporting disasters, since these are still relevant to accounting theory and practice.
I continue to include Section 1. In spite of the bewildering collection of acronyms, instructors may wish to discuss these market meltdowns early in the course, since they pervade the book and continue to have major implications for financial accounting.
With the extent of accountant and auditor involvement in numerous financial reporting disasters that have come to light since , such as Enron and WorldCom, and more recent criticisms of fair value accounting and off-balance sheet entities, the importance of ethical behaviour is very much apparent. Indeed, ethical behaviour underlies the distinction between rules-based and principles-based accounting standards Section 1. Thus, a longer—run view of ethical behaviour quickly turns into questions of full disclosure, usefulness, reputation, and cooperative behaviour.
The text tends to emphasize these latter components of professional responsibility. Some instructors may wish to introduce and discuss ethical issues more broadly. Some influential accounting academics are critical of the moves by standard setting bodies towards current value accounting. Chapter 8 is devoted to an alternative view, namely efficient contract theory also called positive accounting theory.