Communication and income smoothing through accounting method choice

Article Abstract:

Managers are often suspected of maximizing their utility by smoothing income through their selection of accounting methods that misrepresent their firms' economic performance. Research into information asymmetry arising from accounting method choice was conducted to determine its affect on accounting income smoothing. If a sign regarding the future productivity of a two-period agency is available to the public, the principal can develop the rules for sharing so that the anticipated ratio of the marginal utilities of the principal and the agent contingent on the sign is equal across both signs and periods, therefore attaining the most efficient risk sharing across both signs and periods. If a sign is not available to the public, it is impossible to attain efficient risk sharing across either signs or periods.

Research, Management science, Accounting, Income accounting

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Note: rule-based forecasting vs. damped-trend exponential smoothing

Article Abstract:

A simpler alternative to the rule-based approach to time series forecasting is the damped-trend exponential smoothing fitted to minimize the Mean-Absolute-Deviation (MAD) criterion. This system, which is simpler in terms of operation and user-friendliness, is more accurate than the rule-based expert forecasting system which was based on an earlier technique that required substantial human intervention. The performance of such systems however, can still be improved by incorporating principles of damped-trend exponential smoothing which can be adapted not only to the MAD criterion but also to Mean-Squared-Error (MSE) and other error measures. Forecasts can then be adjusted to account for first-order autocorrelation in the residuals.

Forecasting, Usage, Business forecasting, Time-series analysis, Time series analysis, Rule-based systems, Rule based systems

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