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Accounting alchemy

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  • Robert E Verrecchia

Abstract

The controversy about the choice among accounting alternatives is often based on arguments suggesting heuristic behaviour by market participants and firm managers. Debates focus on whether accounting methodology systematically alters reported earnings and whether this effect may add or subtract economic value independently of any effect on underlying cash flows. Arguments based on heuristic behaviour of firms’ management and investors influence decisions about the applicability of standards and regulation.

Suggested Citation

  • Robert E Verrecchia, 2010. "Accounting alchemy," BIS Working Papers 302, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:302
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    Keywords

    earnings reporting; heuristic behaviour; fair value; disclosure;

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