Accrual Accounting for Performance Evaluation |
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Authors: | Sunil?Dutta Email author" target="_blank">Stefan?ReichelsteinEmail author |
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Institution: | (1) Haas School of Business, University of California, Berkeley, USA, CA, 94720;(2) Graduate School of Business, Stanford University, Stanford, CA 94305, USA |
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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. |
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Keywords: | performance management accrual accounting managerial incentives |
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