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Mark-to-market Accounting (mark-to-market + accounting)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

Assessing the Information Content of Mark-to-Market Accounting with Mixed Attributes: The Case of Cash Flow Hedges

JOURNAL OF ACCOUNTING RESEARCH, Issue 2 2007
FRANK GIGLER
ABSTRACT We examine how outsiders rationally interpret a reported loss on derivatives when the application of mark-to-market accounting to cash flow hedges creates a mixed attribute problem. We find that because of the mixed attribute problem, the information content of mark-to-market accounting is related to the information content of historical cost accounting in a very specific way. This relationship allows us to identify the circumstances under which mark-to-market accounting facilitates and when it detracts from the objective of providing an early warning of potential financial distress. We show that the reporting of an impending derivative loss by a distressed firm can actually lead outsiders to infer that the firm is in a better financial position than what they would have inferred under the silence associated with historical cost accounting. Without the mixed attribute problem, mark-to-market accounting would always yield more accurate assessments of the firm's financial position. [source]

Discussion of Assessing the Information Content of Mark-to-Market Accounting with Mixed Attributes: The Case of Cash Flow Hedges and Market Transparency and the Accounting Regime

JOURNAL OF ACCOUNTING RESEARCH, Issue 2 2007
HYUN SONG SHIN
First page of article [source]

Revenue Recognition in a Multiperiod Agency Setting

JOURNAL OF ACCOUNTING RESEARCH, Issue 1 2002
Sunil Dutta
This paper examines how various revenue recognition rules affect the incentive properties of accounting information in a stewardship setting. Our analysis demonstrates that if revenues are recognized according to the realization principle, a single performance measure based on aggregated accounting information can be used to provide desirable production and effort incentives to the manager. In contrast, mark-to-market accounting does not provide efficient aggregation of raw information to solve the stewardship problem. Mark-to-market accounting, though sensible from a valuation perspective, fails to provide desirable incentives because it relies on the anticipated, rather than the actual, performance of the manager. We also consider a setting in which the manager can control the timing of the firm's sales. It then becomes desirable to modify the realization principle and apply the lower-of-cost-or-market valuation rule. The desirable accounting thus exhibits a conservative bias. [source]

Assessing the Information Content of Mark-to-Market Accounting with Mixed Attributes: The Case of Cash Flow Hedges

JOURNAL OF ACCOUNTING RESEARCH, Issue 2 2007
FRANK GIGLER
ABSTRACT We examine how outsiders rationally interpret a reported loss on derivatives when the application of mark-to-market accounting to cash flow hedges creates a mixed attribute problem. We find that because of the mixed attribute problem, the information content of mark-to-market accounting is related to the information content of historical cost accounting in a very specific way. This relationship allows us to identify the circumstances under which mark-to-market accounting facilitates and when it detracts from the objective of providing an early warning of potential financial distress. We show that the reporting of an impending derivative loss by a distressed firm can actually lead outsiders to infer that the firm is in a better financial position than what they would have inferred under the silence associated with historical cost accounting. Without the mixed attribute problem, mark-to-market accounting would always yield more accurate assessments of the firm's financial position. [source]

Revenue Recognition in a Multiperiod Agency Setting

JOURNAL OF ACCOUNTING RESEARCH, Issue 1 2002
Sunil Dutta
This paper examines how various revenue recognition rules affect the incentive properties of accounting information in a stewardship setting. Our analysis demonstrates that if revenues are recognized according to the realization principle, a single performance measure based on aggregated accounting information can be used to provide desirable production and effort incentives to the manager. In contrast, mark-to-market accounting does not provide efficient aggregation of raw information to solve the stewardship problem. Mark-to-market accounting, though sensible from a valuation perspective, fails to provide desirable incentives because it relies on the anticipated, rather than the actual, performance of the manager. We also consider a setting in which the manager can control the timing of the firm's sales. It then becomes desirable to modify the realization principle and apply the lower-of-cost-or-market valuation rule. The desirable accounting thus exhibits a conservative bias. [source]

TRANSFORMING ENRON: THE VALUE OF ACTIVE MANAGEMENT

JOURNAL OF APPLIED CORPORATE FINANCE, Issue 4 2001
Vince Kaminski
Soon after Enron was formed as a regulated gas pipeline company in 1985, economic events forced a dramatic reorganization of the company. The result was the creation of an unregulated energy trading operation whose mission was to capitalize on opportunities arising from the deregulation of the natural gas market The initial form of the new business was that of a "gas bank" in which Enron became an intermediary between buyers and sellers of gas, locking in the spread as profit. Since there was no source of liquidity to the market, Enron had to develop its own risk management system. Furthermore, the need to respond quickly to rapidly changing market conditions required that Enron flatten its organizational structure and hire new people whose skills were better suited to the new decentralized organization. The focus of the new Enron accordingly became human and intellectual capital, not physical assets. Employees were encouraged to move about the firm to staff new business ventures. And in what may well be a unique feature in corporate America, Enron's top management today uses its human capital flows to guide its allocations of financial capital. Other aspects of the Enron model include attempts to capitalize on the option (as opposed to current DCF) value of assets, recognition of the value of networks in adding value to trading platforms, and the use of mark-to-market accounting for business transactions as a means of ensuring transparency and promoting timely decision-making. [source]