Paradox of Writing Clear Rules: Interplay of Financial Reporting Standards and Engineering
Attempts to improve financial reporting by adding clarity to its rules and standards through issuance of interpretations and guidance also serve to furnish a better roadmap for evasion through financial engineering. Thus, paradoxically, regulation of financial reporting becomes a victim of its own pursuit of clarity. The interplay between rules written to govern preparation and auditing of fi nancial reports on one hand, and fi nancial engineering of securities to manage the appearance of fi nancial reports on the other, played a signifi cant role in the financial crisis of the recent years. Fundamental rethinking about excessive dependence of financial reporting on written rules (to the exclusion of general acceptance and social norms) may be necessary to preserve the integrity of financial reporting in its losing struggle with financial engineering.
Volume (Year): 1 (2011)
Issue (Month): (December)
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- Sunder, Shyam, 2002.
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Journal of Accounting and Public Policy,
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"The fog of fraud – mitigating fraud by strategic ambiguity,"
Working Paper Series of the Max Planck Institute for Research on Collective Goods
2010_24, Max Planck Institute for Research on Collective Goods.
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- Shyam Sunder, 2007. "Uniform Financial Reporting Standards: Reconsidering the Top-Down Push," Yale School of Management Working Papers amz2572, Yale School of Management, revised 01 Sep 2007.
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- Shyam Sunder, 2002. "Extensive Income and Value of the Firm: Who Gets What?," Yale School of Management Working Papers amz2607, Yale School of Management, revised 01 Jun 2009.
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