Malaspina University-College

					                                  Vancouver Island University
                  Faculty of Management, ~~
                                   Department of Accounting
                         ACCOUNTING 421 – ACCOUNTING THEORY
                                        Spring 2009

Faculty               Gordon Holyer, University College Professor
Office:               Building 250, Room 426
Phone:                753-3245, local 2539 / Fax: 740-6551

Office Hours          T 10.00-11.30, W 13.00-14.00, R 10.00-11.30

Text                  William R. Scott, Financial Accounting Theory, 5th Edition, Pearson, 2009

Reference             Canadian Institute of Chartered Accountants, CICA Handbook, Accounting
                      Volumes I and II, Current Edition

Course Objectives
                         To describe, examine and explore the various accounting theories that
                          form the basis of Generally Accepted Accounting Principles.
                         To examine the relevance of these theories in understanding financial
                          accounting procedures and reporting.
                         To examine the impact that economic and financial theories have on
                          accounting and the influence of political and social factors in financial
                          accounting information.

Specific Objectives
                         Examine accounting models and decision usefulness under ideal
                         Examine alternative financial and economic theories on markets and
                          decision usefulness.
                         Examine measurement perspective applications and their decision
                         Examine the economic consequences of financial information and positive
                          accounting theory.
                         Apply different models to alternative measurement issues.
                         Discuss the economic, social and political framework of accounting
                          standard setting.

Method of Instruction
                   This course will be taught on a lecture/discussion basis. There will be regular
                   reading assignments as well as assigned exercises and problems. Each
                   student is expected to participate in classroom discussion.

Evaluation            Term Test                              30%        Last day for academic
                      Essay                                  30%       penalty free withdrawal is
                      Comprehensive Final Examination        40%          February 27, 2009

                      The term test will be scheduled at the completion of Chapter 7. The test
                      date in this course outline is approximate. The student is responsible for
                      knowing the correct date.
        which is missed for any reason will be assigned a mark of zero. If the
        mark obtained in any unit test is less than that received on the final,
        the mark received on the final will be assigned to the unit test.

                   Presentations must be made on the date scheduled. The comprehensive final
                   will be three hours in length and will be held during the regular exam period,
                   April 8 –21, 2009.

Academic Misconduct
                 Academic misconduct will not be tolerated. Academic misconduct includes,
                 but is not limited to, giving or receiving information during any test or exam,
                 using unauthorized sources of information during any test or exam and
                 plagiarizing the work of another person. More details on this are set out in
                 the Student Conduct Policy of the online calendar.

                   No electronic dictionaries, cell phones or other electronic devices will be
                   allowed in exams/tests/quizzes. Only the following approved calculators may
                   be used in exams/tests/quizzes.
                                Texas Instrument BAII Plus, BAII, BA35
                                Sharp               EL-733A
                                Hewlett Packard     10B
                   No other materials will be allowed on the desktop apart from a pen/pencil
                   unless specifically approved by the faculty member.

Referencing        Faculty in Business require the Harvard style of referencing for academic
                   papers. Please see Quote, Unquote Referencing, at

Exam Accommodation
                Students with documented disabilities requiring academic and or exam
                accommodation should contact Disability Services in Building 200.

Grading Scale      Grades will   be assigned according to the following scale.
                   A+   93 –     100%                C+     67 – 69
                   A    86 –     92                  C      63 - 66
                   A-   80 –     85                  C-     60 – 62
                   B+   77 –     79                  D      50 - 59
                   B    73 –     76                  F      < 50
                   B-   70 –     72
Unit I
1.     Accounting Under Ideal Conditions
       Present Value Model Under Certainty
       Present Value Model Under Uncertainty
       Reserve Recognition Accounting
       Historical Cost Accounting

      Readings:    Scott, Chs. 1, 2
                   CICA Handbook, Sections 1000 and 1100

2.    Decision Usefulness Approach to Financial Accounting
      Single Person Decision Theory
      The Rational, Risk-Averse Investor
      Principle of Portfolio Diversification
      Optimal Investment Decision
      Portfolio Risk
      Reaction of Professional Accounting Bodies to the Decision Usefulness Approach

      Readings:    Scott, Ch. 3
                   CICA Handbook, Sections 1000 and 1100

3.    Efficient Securities Markets
      Capital Asset Pricing Model
      Information Asymmetry
      Social Significance of Properly Working Securities Markets
      Full Disclosure

      Readings:    Scott, Ch. 4
                   CICA Handbook, Sections 1505 and 4250

4.    Information Perspective on Decision Usefulness
      Outline of the Research Problem
      Ball and Brown Study
      Earnings Response Coefficients
      Extraordinary Items
      “Best” Accounting Policy

      Readings:    Scott, Ch. 5
                   CICA Handbook, Section 3480

5.    Measurement Perspective on Decision Usefulness
      Are Securities Markets Efficient?
      Value Relevance of Financial Statement Information
      Ohlson’s Clean Surplus Theory
      Reporting on Risk

      Readings:    Scott, Ch. 6
                   CICA Handbook, Sections 3051, 3061, 3461
6.    Measurement Perspective Applications
      Fair-Value-Oriented Standards
      Financial Instruments
      Reporting on Risk

      Readings:    Scott, Ch. 7

TEST UNIT I – March 4, 2009
Unit II
1.    Economic Consequences
      Employee Stock Options
      Government Assistance
      Positive Theory of Accounting

      Readings:    Scott, Ch. 8

2.    Analysis of Conflict
      Game Theory
      Models of Game Theory
      Implications of Agency Theory
      Reconciliation of Efficient Securities Market Theory with Economic Consequences

      Reading:     Scott, Ch. 9

3.    Applications of Conflict Between Contracting Parties
      Executive Compensation
      Are Incentive Contracts Necessary?
      Earnings Management
      Motivations for Earnings Management
      The Good and Bad Sides of Earnings Management

      Readings:    Scott, Chs. 10, 11

4.    Standard Setting: Economic Issues
      Private Incentives for Information Production
      Sources of Market Failure
      How Much Information is Enough?
      Decentralized Regulation

      Readings:    Scott, Ch. 12

5.    Standard Setting: Political Issues
      Theories of Regulation
      Standard Setting in Canada, the United States and Internationally
      Conflict and Compromise
      Criteria for Standard Setting

      Readings:    Scott, Ch. 13