An economic analysis of financial institutions' accounting practice
An economic analysis of financial institutions' accounting practice
The core conclusion of this work is that UK accounting standards setters should immediately adopt market value accounting as an evolutionary step toward the widespread use of economic values by all financial institutions. This thesis provides an economic analysis of different accounting methodologies in the context of regulations for financial institutions and also analyses the impact of a recent banking innovation on the net worth of banks.
The first chapter provides a contextual background. A brief review of accounting theory, a review of measurement systems and an overview of financial institutions' regulators are presented. The second chapter concludes that European Union (EU) accounting rules on valuation need to be harmonized so that the bank Solvency Directive can achieve its stated aims of a competitive and sound EU banking system. Furthermore, ways forward for the evolution of EU accounting rules are proposed. The third chapter concludes that Market Value Accounting (MVA) is a more relevant and transparent form of accounting than the traditional Historical Cost method of accounting. The fourth chapter builds on the third, by analysing different forms of accounting through a formal contingent claims theoretical model. The core conclusions reached about the most relevant form of accounting, to enable users of accounts to effectively assess the net worth of a financial institution, is that a new form of accounting, Economic Value Accounting (EVA), should be adopted. Furthermore, a data expansion approach, consisting of HC, MV and EV should be the method of balance sheet presentation as each measurement system provides valuable information. The fifth chapter, provides a primer to a recent banking innovation which is securitisation. The key conclusion reached is that it gives rise to new informational requirements for users of accounts. The chapter highlights the important issue of recourse and outlines how various forms of recourse can be valued using contingent claims theory. Finally, the last chapter develops a theoretical model of a banking institution to formally analyze the potential effects that this new financial innovation might have on banks' capital positions.
University of Southampton
1997
Wolfe, Simon St.John
(1997)
An economic analysis of financial institutions' accounting practice.
University of Southampton, Doctoral Thesis.
Record type:
Thesis
(Doctoral)
Abstract
The core conclusion of this work is that UK accounting standards setters should immediately adopt market value accounting as an evolutionary step toward the widespread use of economic values by all financial institutions. This thesis provides an economic analysis of different accounting methodologies in the context of regulations for financial institutions and also analyses the impact of a recent banking innovation on the net worth of banks.
The first chapter provides a contextual background. A brief review of accounting theory, a review of measurement systems and an overview of financial institutions' regulators are presented. The second chapter concludes that European Union (EU) accounting rules on valuation need to be harmonized so that the bank Solvency Directive can achieve its stated aims of a competitive and sound EU banking system. Furthermore, ways forward for the evolution of EU accounting rules are proposed. The third chapter concludes that Market Value Accounting (MVA) is a more relevant and transparent form of accounting than the traditional Historical Cost method of accounting. The fourth chapter builds on the third, by analysing different forms of accounting through a formal contingent claims theoretical model. The core conclusions reached about the most relevant form of accounting, to enable users of accounts to effectively assess the net worth of a financial institution, is that a new form of accounting, Economic Value Accounting (EVA), should be adopted. Furthermore, a data expansion approach, consisting of HC, MV and EV should be the method of balance sheet presentation as each measurement system provides valuable information. The fifth chapter, provides a primer to a recent banking innovation which is securitisation. The key conclusion reached is that it gives rise to new informational requirements for users of accounts. The chapter highlights the important issue of recourse and outlines how various forms of recourse can be valued using contingent claims theory. Finally, the last chapter develops a theoretical model of a banking institution to formally analyze the potential effects that this new financial innovation might have on banks' capital positions.
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Published date: 1997
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Local EPrints ID: 463247
URI: http://eprints.soton.ac.uk/id/eprint/463247
PURE UUID: ecc23e65-20bc-4c85-8b09-f8c139df2c02
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Date deposited: 04 Jul 2022 20:48
Last modified: 04 Jul 2022 20:48
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Author:
Simon St.John Wolfe
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