Covering Up Trading Losses: Opportunity-Cost Accounting as an Internal Control Mechanism
AbstractThis paper analyzes the methods of loss concealment used by rogue traders in the Barings and Daiwa scandals. The analysis clarifies how and why these firms' top managers and home-country regulators deserve blame for allowing cumulative losses to become so large. The central point is that information systems that focus exclusively on cash flows tempt amoral traders to build credits that generate a high level of accounting profits. Constructing opportunity-cost measures of profit imposes additional restraints on reporting activity. These restraints make it easier for higher-ups, auditors, and regulators to identify the true sources of accounting profit and to challenge counterfeit earnings.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6823.
Date of creation: Dec 1998
Date of revision:
Publication status: published as (Retitled "Breakdown of Accounting at Barings and Daiwa: Benefits of Using Opportunity Cost Measures for Trading Activity") Pacific Basin Finance Journal, Vol. 7 (August 1999): 203-228.
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Find related papers by JEL classification:
- G2 - Financial Economics - - Financial Institutions and Services
- G3 - Financial Economics - - Corporate Finance and Governance
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- W.P. Hogan, 1996.
"The Barings Collapse: Explanations And Implications,"
Economic Papers, The Economic Society of Australia,
The Economic Society of Australia, vol. 15(3), pages 1-27, 09.
- Hogan, W.P., 1996. "The Barings Collapse: Explanations and Implications," Working Papers, University of Sydney, School of Economics 235, University of Sydney, School of Economics.
- repec:fth:sydnec:235 is not listed on IDEAS
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