Accounting procedures, market data, cash-flow figures, and insolvency classification: the case of the insurance industry
Article Abstract:
A study was conducted to compare statutory accounting principles (SAP), generally accepted accounting principles, and an alternative market-value and cash-flow based accounting procedure (MVA) to determine which procedure is best for identifying financial distress and monitoring the solvency of property-liability (P&L) insurance companies. SAP are used by P&L companies to measure and monitor bankruptcy. SAP are different than GAAP principles in that SAP values the P&L companies' equity portfolios at market rates and display a dichotomy between revenues and expenses. The study used data from 105 P&L companies that went bankrupt between 1975 and 1987. Research results reveal that SAP and MVA provide better information and are better predictors of P&L insurance companies' insolvencies than do GAAP.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1990
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The role of debt covenants in assessing the economic consequences of limiting capitalization of exploration costs
Article Abstract:
A study examining 24 loan agreements of 18 gas and oil companies was conducted to determine how private and public loan agreements were affected by accounting procedures and requirements set up by the Securities and Exchange Commission on May 6, 1986. The companies all recorded writeoffs of costs associated with exploration for first quarter 1986. Research results indicate that there were no observable economic consequences for affected firms even in situations where mandated accounting procedures caused technical violations of contracts and large financial statement differences.
Publication Name: Accounting Review
Subject: Business, general
ISSN: 0001-4826
Year: 1989
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