Accrual Accounting for Performance Evaluation

Accrual Accounting for Performance Evaluation This paper examines alternative accrual accounting rules from an incentive and control perspective. For a range of common production, financing and investment decisions we consider alternative asset valuation rules. The criterion for distinguishing among these rules is that the corresponding performance measure should provide managers with robust incentives to make present value maximizing decisions. Such goal congruence is shown to require intertemporal matching of revenues and expenses, though the specific form of matching needed for control purposes generally differs from GAAP. The practitioner oriented literature on economic profit plans (EPP) has made various, and at times conflicting, recommendations regarding adjustments to the accounting rules used for external financial reporting. Our goal congruence approach provides a framework for comparing and evaluating these recommendations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Accrual Accounting for Performance Evaluation

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Publisher
Springer Journals
Copyright
Copyright © 2005 by Springer Science+Business Media, Inc.
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-005-4213-6
Publisher site
See Article on Publisher Site

Abstract

This paper examines alternative accrual accounting rules from an incentive and control perspective. For a range of common production, financing and investment decisions we consider alternative asset valuation rules. The criterion for distinguishing among these rules is that the corresponding performance measure should provide managers with robust incentives to make present value maximizing decisions. Such goal congruence is shown to require intertemporal matching of revenues and expenses, though the specific form of matching needed for control purposes generally differs from GAAP. The practitioner oriented literature on economic profit plans (EPP) has made various, and at times conflicting, recommendations regarding adjustments to the accounting rules used for external financial reporting. Our goal congruence approach provides a framework for comparing and evaluating these recommendations.

Journal

Review of Accounting StudiesSpringer Journals

Published: Aug 19, 2005

References

  • Asymptotic Optimality of Residual Income Maximization
    Anctil, R.; Jordan, J.; Mukherji, A.
  • Performance Evaluation and Corporate Income Taxes
    Baldenius, T.; Ziv, A.
  • Residual Income Past and Future
    Bromwich, M.; Walker, M.
  • Dynamic Incentives and Responsibility Accounting: A Comment
    Christensen, P.; Feltham, G.; Sabac, F.

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