Financial: Balance Sheet and Fair Value

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The Chinese University of Hong Kong
School of Accountancy

ACY 6110 Financial Accounting Theory
Fall 2011

Professor Kevin C. K. Lam
Room 1016 Chung Yu Tung (CYT) Building
The Chinese University of Hong Kong
Phone: 2609-7894

Course Scope and Objectives

Financial Accounting Theory is concerned with the models, hypotheses, and concepts that together form the foundation for financial accounting practice. This course introduces modern financial accounting theories and integrates accounting practices with theory. The course will provide insights to those who make accounting decisions and those who need to understand the accounting decisions of others (auditor or financial analyst). The tools and techniques introduced in this course will also help to lay foundations for students to undertake advanced accounting studies.

The first part of this course establishes benchmark for financial accounting theory by illustrating accounting under ideal conditions and defining decision usefulness. Later, we will discuss efficient market hypothesis and its implications on the information perspective of accounting. As information perspective was later replaced by the measurement perspective, we will discuss recent accounting measurement issues, including fair value accounting and off-balance sheet liabilities. Positive accounting theory, earnings management, executive compensation and economic consequences of standard setting will be covered in the last part.

Financial Accounting Theory is a rigorous subject requiring not only accounting but also financial and statistical knowledge. We are balancing between academic rigor and practical applicability in this course. To maintain rigor, we study research methods and introduce complicated quantitative models. To ensure theory applicability, we examine accounting practices as portrayed in case studies. Most of these cases we use this term will focus on the measurement perspective, as this is the forefront in current financial accounting standard setting.

Course Materials

Recommended text:
William R. Scott, Financial Accounting Theory, Sixth Edition. Prentice-Hall (available from the campus bookstore).

Additional material:
Case materials will be distributed. Please print your own handouts and bring them to class. Other materials will be posted to the WEBCT. To avoid copyright infringement, please do not photocopy copyrighted cases without explicit permission from the copyright holders.

Grading and Class Participation

Your final course grade will be determined as follows:


Group case presentation & discussion 30%
Group research paper critique & presentation 10%
Individual participation10%

Peer evaluation 10%

Final test 20%



There will be four unannounced in-class quizzes during this course. Students will be graded out of their best three results. The quizzes will be open-book and comprehensive.

Group Case Presentation & Discussion

Students, in a group of not more than six, will be asked to analyze four assignment cases. They are required to submit a brief analysis report (in Word format) for these cases, presenting one of them (please also submit PowerPoint file for the presentation case) and discussing on another one. Each written report is worth a maximum of 5 marks. Presentation quality (including the presentation file) will be graded with a maximum of 7 marks, and discussion quality a maximum of 3 marks. The maximum presentation time allowed is 20 minutes and the maximum discussion time allowed is 10 minutes. In addition, there will be time allowed for questions and answers from other student groups. Both the presentation and the discussion cases will be assigned randomly.

Research paper Critique & Presentation
One of the most...
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