LEARNING OBJECTIVES AND SUGGESTED TEACHING APPROACHES
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1. The Broad Outline of the Book
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I use Figure 1.1 as a template to describe the broad outline of the book. Since the
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students typically have not had a chance to read Chapter 1 in the first coursesession,
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I stick fairly closely to the chapter material.
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The major points I discuss are:
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• Accounting in an ideal setting. Here, present-value-based accounting is
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natural. I go over the ideal conditions needed for sucha basis of
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accounting to be feasible, but do not go into much detail because this
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topic is covered in greater depth in Chapter 2.
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• An introduction to the concept of information asymmetry and resulting
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problems of adverse selection and moral hazard. These problems are
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basic to the book and I feel it is desirable for the students to have a
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“first go” at them at this point. I concentrate on the intuition underlying
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the two problems. For example, adverse selection can be illustrated by
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asking who would be first in line to purchase life insurance if there was
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no medical examination, or what quality of used cars are likely to be
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brought to market. For moral hazard I try to pin them down on how hard
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they would work inthis course if there were no exams.
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• The environment in which financial accounting and reporting operates.
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My main goal at this point is that the students do not takethis
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environment for granted. I discuss the procedures of standard setting
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briefly and point out that this is really a process of regulation. In the
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past, there have been well-known cases of deregulation, such as
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airlines, trucking, financial institutions, powergeneration. However, we
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are entering what is likely to be a period of increasing regulation, at
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least for financial institutions. Instructors
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