Instruction Mode: In-class & Online Instruction
Professor: Multiple Professors
Resource(s): | Type | Description | Required | Textbook | Financial Accounting Theory, Scott, W.R. and O'Brien, Patricia C., Prentice-Hall, 8th, 2020 |
Applicable student group(s): Bachelor of Business Administration
Course Details: Module 1: Accounting Under Ideal Conditions
1. Review historical perspective and recent developments in financial
reporting
2. Identify the fundamental problem of financial accounting theory
3. Evaluate the relevance of financial accounting theory to accounting
practice
4. Appreciate the concept of ideal conditions
5. Use the present value model under ideal conditions to prepare an
articulated set of financial statements for a simple firm
6. Evaluate reserve recognition accounting (RRA) as an application of
the present value model
7. Assess historical cost accounting in the mixed measurement model
8. Question the existence of net income as a well-defined economic
construct
Learning Outline: 1
Text Reference: Ch 1 & 2
Module 2: The decision usefulness approach to financial reporting
1. Compare rules-based & principles-based accounting standards
2. Assess ways to increase the usefulness of financial reporting
3. Apply the decision theory to a single person
4. Identify issues in applying the decision theory model
5. Describe the rational, risk-averse investor
6. Utilize optimal individual investment decision and the principle of
portfolio diversification
7. Assess the reaction of professional accounting bodies to the
decision usefulness approach
Learning Outcome: 2
Text Reference: Ch 1.6 & 3
Module 3: Implication of efficient securities markets on financial
reporting
1. Explain the Efficient Market Hypothesis.
2. Discuss how market prices fully reflect all available information
3. Identify the implications of efficient securities markets for
financial reporting
4. Discuss the informativeness of price
5. Apply a model of cost of capital such as the capital asset pricing
model (CAPM)
6. Critique the capital asset pricing model
7. Discuss information asymmetry and the fundamental value
8. Identify the social significance of securities markets that work
well
Learning Outcome: 3
Text Reference: Ch 4
Quiz #1 - 5% (Mod. 1 - 3)
Module 4: The Information approach to decision usefulness
1. Understand the value relevance of accounting information
2. Discuss empirical securities markets-based accounting research
3. Outlining the research problem, methodology and findings
4. Review the Ball & Brown study
5. Evaluate the earnings response coefficient
6. Discuss the value relevance of other financial statement
information
7. Appreciate the limitations of empirical securities markets research
for accounting policy recommendations
Learning Outcome: 4
Text Reference: Ch 5
Module 5: Valuation approach to decision usefulness
1. Understand the valuation approach to financial reporting
2. Discuss reasons why financial reporting is moving in a valuation
direction
3. Review theory and evidence that securities markets may not be fully
efficient.
4. Discuss market efficiency versus behavioural finance
5. Defend market efficiency theory and average investor rationality
6. Discuss Ohlson's clean surplus theory
7. Discuss how auditor legal liability leads to conservative
accounting
Learning Outcome: 4
Text Reference: Ch 6
Module 6: Valuation applications
1. Identify the major financial instrument accounting standards
2. Differentiate between fair value and value-in-use
3. Review long-standing examples of current cost accounting
4. Evaluate accounting for financial assets and liabilities
5. Explain accounting for derivative financial instruments
6. Evaluate a measurement perspective on intangibles
7. Report on risk
Learning Outcome: 4
Text Reference: Ch 7
Quiz #2 - 5% (Mod. 4 - 6)
Mid-Term Examination 25% (Module 1 - 6)
Module 7: The Efficient Contracting Approach to Decision Usefulness
1. Discuss the view of firms using the efficient contracting theory
2. Identify sources of efficient contracting demand for financial accounting information
3. Discuss accounting policies for efficient contracting
4. Evaluate contract rigidity and employee stock options
5. Research manager opportunism versus efficient contracting
6. Illustrate efficient contracting for debt & stewardship
7. Illustrate a single-period non-cooperative game
8. Illustrate a trust-based non-cooperative game
Learning Outcome: 5
Text Reference: Ch 8
Module 8: An Analysis of Conflict
1. Examine models of cooperative game/agency theory
2. Examine manager's information advantage
3. Identify the implications of agency theory for accounting
4. Reconcile efficient securities market theory with economic
consequences
Learning Outcome: 6
Text Reference: Ch 9
Group Research Projects Topics Selection due
Module 9: Executive Compensation
1. Examine the desirability of incentive contracts
2. Discuss the theory of executive compensation
3. Discuss the implications of agency theory for executive
compensation
4. Identify the qualities needed by a good performance measure
5. Evaluate the role of net income in compensation plans in relation
to stock-based performance measures
6. Review empirical evidence on the role of net income in compensation
plans
7. Evaluate political aspects of executive compensation
8. Understand the power theory of executive compensation
Learning Outcome: 7
Text Reference: Ch 10
Module 10: Earnings management
1. Identify patterns of earnings management
2. Discuss evidence of earnings management for bonus purposes
3. Examine other possible motivations for earnings management
4. Provide arguments in favour of earnings management
5. Provide arguments opposing earnings management
6. Discuss earnings management and market efficiency
7. Discuss the concept of strategic accounting policy choices
Learning Outcome: 7
Text Reference: Ch 11
Quiz #3 - 5% (Mod 7 - 10)
Module 11: The economic issues related to standard setting
1. Discuss the need for the regulation of economic activity
2. Conceptualize ways in which firms can produce information
3. Review incentives for firms to produce information
4. Discuss market failure in information production
5. Discuss the extent to which private market forces limit market
failure
6. Evaluate costs/benefits of regulation
Learning Outcome: 8
Text Reference: Ch 12
Module 12: The political issues related to standard setting
1. Discuss public interest theory of regulation as it applies to
standard setting
2. Discuss interest group theory of regulation as it applies to
standard setting
3. Examine the existence of conflict and compromise in standard
setting
4. Identify the criteria for a successful standard
5. Discuss information asymmetry between firm manager and regulator
6. Discuss benefits and challenges of international convergence of
accounting standards
Learning Outcome: 8
Text Reference: Ch 13
Group Research Project Reports (20%) and Presentations (5%)
Final Examination (Cumulative) 30%