TY  - JOUR
AU  - Kane,Edward J.
AU  - DeTrask,Kimberly
TI  - Covering Up Trading Losses:  Opportunity-Cost Accounting as an Internal Control Mechanism
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6823
PY  - 1998
Y2  - December 1998
UR  - http://www.nber.org/papers/w6823
L1  - http://www.nber.org/papers/w6823.pdf
N1  - Author contact info:
Edward J. Kane
2325 E Calle Los Altos
Tucson, AZ 85718
Tel: 520-299-5066
E-Mail: edward.kane@bc.edu
AB  - 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.
ER  -