On the Pricing of Mandatory DCF Disclosures: Evidence from Oil and Gas Royalty Trusts

2015 ◽  
Vol 90 (6) ◽  
pp. 2449-2482 ◽  
Author(s):  
Panos N. Patatoukas ◽  
Richard G. Sloan ◽  
Jenny Zha
Keyword(s):  
Cash Flow ◽  
Stock Price ◽  
Oil And Gas ◽  
Cost Accounting ◽  
Data Availability ◽  
Discounted Cash Flow ◽  
Historical Cost ◽  
Security Valuation ◽  
Accounting Expertise ◽  
Historical Cost Accounting

ABSTRACT We identify a setting in which firms are required to disclose discounted cash flow (DCF) estimates relating to the value of their primary assets. ASC 932 (formerly SFAS No. 69) has mandated DCF disclosures for proved oil and gas reserves since 1982, and these reserves constitute the primary assets of oil and gas royalty trusts. For a hand-collected sample of oil and gas royalty trusts, we find that (1) the mandatory DCF disclosures are incrementally value-relevant over historical cost accounting variables, (2) investors misprice royalty trust units because they underweight the disclosed DCF estimates when forecasting future distributions, and (3) media articles bringing attention to discrepancies between price and the disclosed DCF estimates are significant stock price catalysts. While our evidence indicates that mandatory DCF disclosures can be incrementally useful for security valuation, it also indicates that investors may overlook such information, potentially due to lack of attention and accounting expertise. Data Availability: Data are publicly available from sources indicated in the text.

Accounting Transparency and the Asset Substitution Problem

2009 ◽  
Vol 84 (3) ◽  
pp. 689-712 ◽  
Author(s):  
Katrin Burkhardt ◽  
Roland Strausz
Keyword(s):  
Substitution Effect ◽  
Cost Accounting ◽  
Asset Substitution ◽  
Historical Cost ◽  
Optimal Capital Structure ◽  
Negative Effect ◽  
Optimal Capital ◽  
Positive Effect ◽  
Historical Cost Accounting ◽  
Debt Levels

ABSTRACT: We develop a model to show that transparent accounting can worsen the asset substitution effect of debt. This negative effect can outweigh the usual positive effect of transparency. We demonstrate this point by comparing pure historical cost accounting to the conservatively skewed accounting regime of lower-of-cost-or-market (LCM). In a market with asymmetric information, the two regimes lead to different degrees of transparency. The more transparent LCM regime produces more efficient results for firms with lower debt levels, while the opaque rule of pure historical cost accounting is preferable for higher debt levels. We explore the implications of this result for the firm's optimal capital structure.

Banks' Asset Reporting Frequency and Capital Regulation: An Analysis of Discretionary Use of Fair-Value Accounting

2018 ◽  
Vol 94 (2) ◽  
pp. 157-178 ◽  
Author(s):  
Carlos Corona ◽  
Lin Nan ◽  
Gaoqing Zhang
Keyword(s):  
Cost Accounting ◽  
Fair Value ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Critical Determinant ◽  
Historical Cost ◽  
Accounting Choices ◽  
Reporting Frequency ◽  
Value Changes ◽  
Historical Cost Accounting

ABSTRACT This paper examines banks' choice between fair-value and historical-cost accounting when reported accounting information is used in capital requirement regulation. We center our analysis on a key difference between fair-value and historical-cost accounting: the frequency with which asset value changes are reported. We show that the elasticity of banks' loan returns to aggregate lending is a critical determinant of the interaction between capital adequacy requirements and accounting choices. If lending returns are inelastic, then higher capital requirements reduce fair-value usage. By contrast, higher capital requirements encourage fair value if capital requirements are low and lending returns are sufficiently elastic. In equilibrium, banks may elect different accounting choices, and we find that mandating uniform adoption of historical cost (fair value) is desirable when capital requirements are loose (tight). Our study offers many other implications about fundamental links between accounting and prudential choices.

scholarly journals Conceptual framework and measurement: A survey on the international debate

2015 ◽  
Vol 12 (4) ◽  
pp. 24-37
Author(s):  
Giusy Guzzo ◽  
Massimo Costa
Keyword(s):  
Conceptual Framework ◽  
Financial Reporting ◽  
Cost Accounting ◽  
Fair Value ◽  
Policy Implications ◽  
Mixed System ◽  
Fair Value Accounting ◽  
International Debate ◽  
Historical Cost ◽  
Historical Cost Accounting

In response to the ‘2011 Agenda Consultation’, the IASB launched in July 2013 a call for a new Discussion Paper on the ‘Conceptual Framework for Financial Reporting’. This article aims to offer a contribution to the debate on the effectiveness of the theme of ‘Measurement’, by investigating the use of the current evaluation models in the literature and practice of Financial Reporting. The article proposes at first a historical survey both of the international debate on Fair Value Accounting vs. Historical Cost Accounting and of the Italian theories on the valuation. Later the paper proposes some considerations about the key questions related to Measurement and the possible policy implications of the main research finding, by conceptualising a ‘mixed’ system combining fair value Accounting and historical cost Accounting to try giving a more rational base to the financial reports.

scholarly journals KONSEP METODE HISTORICAL COST VERSUS GENERAL PRICE LEVEL ACCOUNTING DALAM PENYUSUNAN LAPORAN KEUANGAN

2018 ◽  
Author(s):  
Yanna Eka Pratiwi
Keyword(s):  
Literature Review ◽  
Price Level ◽  
Cost Accounting ◽  
Historical Cost ◽  
General Price Level ◽  
Historical Cost Accounting

AbstrakLaporan keuangan merupakan hal sangat penting bagi sebuah perusahaan. Laporan keuangan haruslah relevan dan disajikan dengan akurat, karena informasi-informasi yang terdapat pada laporan keuangan akan digunakan oleh pihak-pihak yang berkepentingan untuk pengambilan keputusan yang berkaitan dengan perusahaan tersebut. Tulisan ini membahas tentang bagaiman perbedaan laporan keuangan yang disusun berdasarkan konsep akuntansi biaya historis (historical cost accounting) dan berdasarkan General Price Level Accounting (GPLA). Berdasarkan literature review, penelitian ini menunjukkan bahwa laporan keuangan yang menggunakan metode General Price Level Accounting lebih interpretatif dan relevan, meskipun masih ada masalah tentang cara dan alat untuk menerapkan metode General Price Level Accounting. Kata kunci: historical cost, general price level accounting, laporan keuangan

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