Accounting Theory

Curriculum Guideline

Effective Date:
Course
Discontinued
No
Course Code
ACCT 4850
Descriptive
Accounting Theory
Department
Accounting
Faculty
Commerce & Business Administration
Credits
3.00
Start Date
End Term
Not Specified
PLAR
No
Semester Length
15 Weeks X 4 Hours per week = 60 Hours
Max Class Size
30
Course Designation
None
Industry Designation
None
Contact Hours
Lecture: 4 Hours per week or 2 Hours lecture and 2 Hours on-line
Method(s) Of Instruction
Hybrid
Online
Lecture
Learning Activities

In-class lectures and/or on-line.

Course Description
This course will provide students with a critical examination of problem areas of current interest in financial accounting theory. Practical and theoretical problems of the present value model, historical costs, decision usefulness, portfolio risk, efficient securities markets, fair-value-oriented standards with application to traditional accounting, positive accounting theory, game and agency theory, executive compensation and earnings management will be examined. Economic and political issues and criteria related to standard setting, in Canada, the U.S., and internationally, will also be discussed, as well as the contribution of economics, finance and other disciplines to accounting theory.
Course Content
  1. Accounting under ideal conditions:  present value model, reserve recognition accounting, historical cost accounting.
  2. Decision usefulness approach to financial reporting: single person decision theory, rational, risk averse investor, portfolio diversification, optimal investment decisions, portfolio risk.
  3. Efficient securities markets and their implications for financial reporting: informativeness of price, capital asset pricing model, information asymmetry.
  4. Information perspective on decision usefulness: market response, earnings response coefficients, unusual, non-recurring and extraordinary items.
  5. Measurement perspective on decision usefulness: theories relating to the efficiency of securities markets.
  6. Measurement perspective applications: traditional reporting, fair-value-oriented standards, financial instruments, accounting for intangibles, reporting on risk.
  7. Economic consequences: employee stock options, government assistance, successful-efforts accounting, positive accounting theory (PAT).
  8. Analysis of conflict: game theory (non-cooperative and cooperative), agency theory.
  9. Executive compensation: theory, incentives, compensation plans, role of risk, politics.
  10. Earnings management: motivations, patterns, “good” and “bad” side of earnings management.
  11. Standard setting – economic issues: private incentives for information production, sources of market failure, regulation of economic activity and decentralization regulation.
  12. Standard setting – political issues: public interest and interest group theories; standard setting in Canada and the U.S., International Accounting Standards Boards (IASB), conflict and compromise, criteria for standard setting.
Learning Outcomes

At the end of the course, the successful student should be able to:

  1. describe various theories that underlie financial accounting and reporting
  2. explan the impact of accounting policies on financial accounting and reporting
  3. explain the impact of financial accounting and reporting on securities markets
  4. explain game and agency theory and their implications for accounting
  5. explain the criteria, and the economic and political issues involved in the standard setting process
  6. demonstrate awareness of ethical and professional standards and responsibilities of financial management professionals
Means of Assessment

 

Assignments/projects/cases/tests  30%
Midterm examination  35%
Final examination  35%
  100%

 

STUDENTS MUST WRITE BOTH THE MIDTERM EXAMINATION AND THE FINAL EXAMINATION TO OBTAIN CREDIT FOR THE COURSE.

 

To pass this course, students must obtain a minimum of 50% on invigilated assessments, with the 50% calculated on a weighted average basis.

 

Invigilated assessments include, in-class quizzes, in-class tests, midterm exam(s) and the final exam.

 

Students may conduct research as part of their coursework in this class. Instructors for the course are responsible for ensuring that student research projects comply with College policies on ethical conduct for research involving humans, which can require obtaining Informed Consent from participants and getting the approval of the Douglas College Research Ethics Board prior to conducting the research.

Textbook Materials

Textbooks and Materials to be Purchased by Students

Required: William R. Scott.  Financial Accounting Theory, latest Canadian edition.  Prentice-Hall, Toronto, or other textbooks as approved by department.

Optional (at discretion of instructor): Schroeder, Clark and Cathey, Financial Accounting Theory and Analysis: text readings and cases, latest edition. John Wiley & Sons Inc.

Instructor compiled materials (if applicable)

Only Faculty of Commerce and Business approved calculators may be used for tests and examinations.

Prerequisites

(ACCT 3310 with a minimum grade of C OR ACCT 3410 with a minimum grade of C) AND (FINC 2340 with a minimum grade of C)

OR ACCT 3310 with a minimum grade of C and currently active in:

PBD Accounting
PBD Accounting & Finance
PDD Accounting Studies
PDD Accounting

 

 

OR Instructor's Approval

Equivalencies

Courses listed here are equivalent to this course and cannot be taken for further credit:

  • No equivalency courses