• introduction to FAT,
• brief historical development,
• information asymmetry leading to adverse selection and moral hazard problem,
• reliability versus relevancy in financial reporting, and
• historical versus current value accounting.

• review of Chapter 1,
• how to read research papers,
• absolute certainty versus probability certainty,
• financial statements under absolute certainty and probability certainty,
• current value accounting versus historical cost accounting,
• balance sheet approach versus income statement approach,
• measurement perspective versus information perspective,
• comparing differences between current value, historical cost, and cash flow accounting basis, and
• the mixed measurement model.

• review of Chapters 1 and 2,
• worked through Chapter 2 Question 18 (see answer key below) under probability certain case and an update of asset value,
• introduction of prior and posterior probabilities from Chapter 3,
• decision making using prior and posterior probabilities (using restaurant selection as example),
• introduction to risk, return, correlation, and market portfolio, and
• introduction to CAPM, systematic and non-systematic risks, and beta.

• review of Chapter 2 and 3 practice questions,
• Chapter 4 efficient market hypothesis,
• 4 main points regarding efficient market hypothesis,
• informed investors that can profit from short term unusual situation that keeps market efficient,
• information asymmetry leading to lower price paid by buyer or even incomplete markets,
• estimation risk,
• how accountants help reduce estimation risk.

• went through the first three research papers that we will go through in class briefly on what the researcher is trying to find out,
• information approach in Chapter 5,
• decision theory model in Chapter 5,
• findings of subsequent research based on ERC in Chapter 5,
• the effects of classifying expenses as unusual or extraordinary and their effects on current and future profits, and
• information as public goods and the cost involved.

• we had two presentations today on Ball & Brown and check for information asymmetric via spin-off,
• recap of the two research papers, and
• structural and behavioral reasons and examples of why the market is not efficient at times.

• a review of structural and behavioral reasons why market is not efficient at all times,
• review of the classifical cash flow and dividend based firm valuation approach,
• introduction to the clean surplus model for firm valuation,
• the four input required for clean surplus approach to firm valuation,
• unbiased versus biased accounting and the implication on the value of goodwill,
• legal liabilities reasons for using current values, and
• conditional versus unconditional conservatism.

• summary of chapters one to six,
• numerical example of application of clean surplus model,
• economic consequences,
• employee stock option plans and economic consequences,
• introduction to positive accounting theory, and
• presentation on two research papers testing the bonus and debt convenant hypothesis under the positive accounting theory.

• review of economic consequences,
• review of employee stock plans,
• positive accounting theory,
• the three hypothesis of the positive accounting theory, and
• the opportunistic version and the efficient contracting version of PAT.

• review mid-term test,
• overview of chapter 9,
• concept of price taker in the market under CAPM,
• prisoners' dilemma and Nash equilibrium,
• cooperative and non-cooperative games,
• single play vs multiple play non-cooperative game,
• first best direct monitoring of manager effort,
• second best indirect monitoring of manager effort, and
• moving support vs fixed support.

• review of prisoners' dilemma and Nash equilibrium,
• how to set bonus level to maximum shareholder utilities,
• agency contract on lending,
• using net income and share price as performance measurement,
• precision vs sensitivity,
• can market force replace incentive contracts,
• increase sensitivity of net income by reducing recognition lag with current value accounting and full disclosure,
• compensation risk,
• reduce compensation risk by RPE, cap and floor, compensation committee, and conservative accounting,
• manager compensation might not be as high as believed because of restrictions on share options, and
• summary and review for final exam.

• chapter 11 earnings management,
• using accrual and accounting policy for earnings management,
• 4 patterns of earnings management,
• 4 motivations of earnings management,
• good side of earnings management - contractual and reveal of inside information,
• bad side of earnings management,
• disclosure to reduce effects of earnings management,
• chapter 12 and 13 on standard setting,
• proprietory vs non-proprietory information,
• finer, addition, and more creditable information,
• contractual and market-based incentives for information production,
• the disclosure principle,
• signalling, market failures in private information production, and
• public interest theory vs interest group theory.

For this course, a general purpose non-financial calcuator can be used. Students who do not have ready access to a financial calculator should be able to perform all the required analysis and calculations using a general purpose non-financial calculator for the tutorials, assignments, mid-term test, and final examination.

You can also use a non-programmable financial calculator for the tutorials, assignment, mid-term test, and final examination. Common financial calculators are HP12c and TI BAII PLUS. User manual in simplified chinese and a tutorial for the HP12c can be found here and a simple tutorial for the HP12c can be found here. User manual for the TI BAII can be found here.

Regardless of the types of calculators used for this course, students are responsible for their own equipment and they cannot be shared in a quiz, test, or examination situation. As a result, students MUST bring their own calculators to each class. In addition, each student must be proficient in the use of their own equipment.

Electronic translators CANNOT be used for quiz, test, or examination situations, but they can be used during class (only with volume off) and your own study time.

There are specific terms that apply to accounting and finance, and there are various online sources that can help students understand these terms.

Download and print for reference:

• Hong Kong Exchange glossary of terms (English to Chinese)
• 88translation.com finance dictionary (Chinese to English, English to Chinese)

Online finance dictionaries:

• Reuters Chinese to English and English to Chinese finance dictionary
• Goldman Sachs English to Chinese finance dictionary
• Goldman Sachs Chinese to English finance dictionary
• Morgan Stanley English to Chinese finance dictionary

Other unverified sources of financial references:

• Finance Street - a finance related site prepared by the government
• Financial glossary of terms
• List of dictionaries