Covering Up Trading Losses: Opportunity-Cost Accounting as an Internal Control Mechanism
This 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.
|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.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Hogan, W.P., 1996.
"The Barings Collapse: Explanations and Implications,"
235, University of Sydney, School of Economics.
- W.P. Hogan, 1996. "The Barings Collapse: Explanations And Implications," Economic Papers, The Economic Society of Australia, vol. 15(3), pages 1-27, 09.
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