The Orani-Macro Interface: An Illustrative Exposition*

The paper provides on illustration of the procedure used to interface the MACRO and ORANI modules of the IMPACT Project. The main interfacing problem is that of temporal aggregation. This problem arises when information is to be passed between a dynamic disequilibrium model such as MACRO and a comparative static general equilibrium model such as ORANI. A diagrammatic treatment of the solution to this problem is presented. The procedure is then illustrated by a numerical experiment .     

Using Nonfinancial Measures to Assess Fraud Risk

This study examines whether auditors can effectively use nonfinancial measures (NFMs) to assess the reasonableness of financial performance and, thereby, help detect financial statement fraud (hereafter, fraud). If auditors or other interested parties (e.g., directors, lenders, investors, or regulators) can identify NFMs (e.g., facilities growth) that are correlated with financial measures (e.g., revenue growth), inconsistent patterns between the NFMs and financial measures can be used to detect firms with high fraud risk. We find that the  difference  between financial and nonfinancial performance is significantly greater for firms that committed fraud than for their nonfraud competitors. We also find that this difference is a significant fraud indicator when included in a model containing variables that have previously been linked to the likelihood of fraud. Overall, our results provide empirical evidence suggesting that NFMs can be effectively used to assess fraud risk.     

Did Subjectivity Play a Role in CDO Credit Ratings?

Analyzing 916 collateralized debt obligations (CDOs), we find that a top credit rating agency frequently made positive adjustments beyond its main model that amounted to increasingly larger AAA tranche sizes. These adjustments are difficult to explain by likely determinants, but exhibit a clear pattern: CDOs with smaller model‐implied AAA sizes receive larger adjustments. CDOs with larger adjustments experience more severe subsequent downgrading. Additionally, prior to April 2007, 91.2% of AAA‐rated CDOs only comply with the credit rating agency's own AA default rate standard. Accounting for adjustments and the criterion deviation indicates that on average AAA tranches were structured to BBB support levels.     

Consumer benefits of policies and regulations in the tent and sleeping bag industry

The need for information on tents and sleeping bags, to enable consumers to make informed purchase decisions, is becoming more urgent as the popularity of outdoor activities increases. From an approach made to a number of companies with international sales of these items, it became obvious that there is a lack of regulation and that information on important attributes of tents (such as water repellency, wind resistance, breathability, ultraviolet resistance and durability) is sadly lacking. For sleeping bags, more of the critical details tend to be available, but the most important one of all, the temperature rating, is not provided in a standard form. The information obtained enabled the authors to speculate on the requirements for an ‘ideal’ tent and sleeping bag.     

Foreign Exchange Gains and Losses: Impact on Reported Earnings

During the period 1974–77 firms affected by Statement 8 of the Financial Accounting Standards Board dealing with foreign currency translation responded to the FASB's invitation to comment. In this study, the reported exchange gains and losses of firms that submitted comments to the FASB and a broad sample of multi-national companies are examined. There is limited evidence that FASB respondents suffered greater swings in pretax earnings as a result of FASB than did other multinationals.