Usefulness Of Derivative Instruments In Emerging Markets: Turkish Experience

This article presents an overview of derivative markets, definitions of derivative investment instruments, development of global derivative markets and the applicability of derivative markets in Turkey, given their economic value added to the Turkish economy. Readers will acquire insight into investing in various investment instruments and hedging against risk. Turkish derivative markets will be described, supportive statistical data will be presented, and readers will be introduced to the development and current status of these derivative markets in the Turkish emerging market. Finally, the contribution of derivative instruments and derivative markets to the Turkish economy will be discussed

Information Content Of Exchange Rate Volatility: Turkish Experience

This study constructs an empirical model of the volatility of the TL/US$ exchange rate for the Turkish economy during the post-2001 crisis period ending on August 2006. Employing the Exponential GARCH (EGARCH) estimation methodology of econometrics, we find that the volatility of a given shock to the exchange rate is highly persistent and the successive forecasts of the conditional variance converge to the steady state quite slowly. In addition, the conditional variance of the exchange rate reacts differently to a given negative shock than to a positive shock with equal magnitude. The plot of the News Impact Curve indicates that a foreign investor would face a higher uncertainty when there is an unanticipated increase in the exchange rate when compared to an unanticipated decrease

Stability Of Money Multipliers: Evidence From Turkey

This paper investigates whether the money multiplier process in the Turkish economy is stable and can be forecasted. Research results show that the processes which convert the base money supply into the final monetary aggregates are unstable and decrease the effectiveness of monetary policies pursued by the CBRT. In addition, the sub-components of the money multiplier do not support a stable money multiplier process, indicating that traditional monetarist prescriptions for the conduct of economic policy are not appropriate for the Turkish economy.&nbsp

GAAP/Tax Differences In Accounting For Nonqualified Employee Stock Options: The Gathering Storm

The escalating size of compensation packages to senior managers and investor disillusionment resulted in the issuance of FAS 123(R). Under the current rules, the grant date fair value of employee stock options (ESO) are expensed over the vesting period. The two primary methods used to value ESO are the Black-Scholes closed form equation and the lattice model. Several studies suggested an alternative Simple model for valuing ESO that marks the option expense to market in succeeding financial statement dates and allows for the staggered exercise dates of option holders. This approach is easy to understand, would have a low cost of implementation, and offers a superior estimate of the true cash flow effects and economic injury associated with the opportunity cost to shareholders of ESO exercise. Moreover, the Simple model would head off another threat to the legitimacy of the FASB that is unfolding in the U.S. Congress as Senator Carl Levin holds hearings on ESO in the Senate Permanent Subcommittee on Investigations to decide what to do about the multi-billion dollar gap between what companies report to stockholders as ESO expense and what they deduct on their tax returns. In addition, this gap results in highly controversial rules of accounting and reporting for the favorable impact of the deductions in the financial statements

No More Scandals: A Simple Model For Valuing Employee Stock Options

The escalating size of compensation packages to senior managers and investor disillusionment have resulted in growing calls for the expensing of employee stock options (ESO).  While initially slow to respond, the FASB has now mandated the expensing of ESO.  The two primary methods used to value ESO, the Black-Scholes closed form equation and the lattice model, suffer from several deficiencies  .A Simple model for valuing ESO that marks the option expense to market in succeeding financial statement dates and allows for the staggered exercise dates of option holders is available. The model is easy to understand, would have a low cost of implementation, and offers a superior estimate of the true cash flow effects associated with the opportunity cost to shareholders of ESO exercise

Controversies In Accounting For Post-Retirement Benefits

SFAS 158 addresses certain reporting and disclosure problems identified in prior standards concerning postretirement benefits. We present several controversies that the FASB left unanswered and plans to address in the future. Accountants, financial analysts, and investor groups have a huge stake in these answers

The PCAOB Audit Quality Indicator Framework Project: Feedback From Stakeholders

Audit Quality Indicators (AQIs), as defined by the Center for Audit Quality, include four different elements:firm leadership and tone at the top; engagement team knowledge, experience, and workload; monitoring; and auditor reporting. AQIs are quantitative and qualitative measures designed to improve audit quality and help audit committees select the best audit firm for their current needs. They are intended to increase the reliability and accuracy of financial reporting. The Public Company Accounting Oversight Board (PCAOB) has issued a concept release proposing twenty-eight potential AQIs for use in the United States. The PCAOB release describes the AQI reporting framework and asks for public opinion on whether or not it should be implemented. This study reviews the comment letters in response to PCAOB Docket 041,Concept Release on Audit Quality Indicators, and the AQI reporting frameworks currently in place in the United Kingdom, Singapore, and other countries. After reviewing the PCAOB’s proposed AQI framework, response letters to Docket 041, and the AQI frameworks used in other countries, this paper provides an opinion on how the PCAOB should proceed with the AQI framework initiative in the U.S. The analysis suggests that AQI reporting should not be mandated in the U.S., but should become a flexible and voluntary framework that provides valuable information, enhances transparency in the audit profession, and establishes a commitment to the improvement of audit quality

The Income Tax Accounting Controversy: A Matter Of Perspective

The study examines SFAS No. 96 and SFAS No. 109 in the context of the unit problem. The unit problem involves the selection of the appropriate perspective for applying measurement and recognition conventions to the phenomenon of interest. From an individual event perspective, the FASBs conclusions regarding liability recognition are inconsistent with their definition of a liability found in State of Finance Accounting Concepts No. 6. In addition, the use of inconsistent perspectives by the SFAS No. 96 and SFAS No. 109 create disagreements with the Boards positions. The simultaneous use of both the individual and aggregate perspectives as the basis of the Boards decisions is the source of these disagreements. The study argues that the income tax accounting issue should be viewed from an aggregate perspective and concludes that the flow through method of accounting for income taxes should be adopted

Accounting For Convertible Bonds

First, various views of convertible bonds (CBs) are analyzed along with current professional standards of accounting. Present rules are found to be flawed because they do not properly: (1) measure the interest cost of the CB and the total financing cost resulting from the issuance of debt and conversion commitments inherent in the CB; (2) classify the commitments arising from the CB; and (3) account for the conversion of the CB. Based on deductive reasoning and theoretical and empirical evidence, an accounting methodology for CBs is proposed that: (1) recognizes separately the debt and conversion commitments of the CB at date of issuance; (2) recognizes the total financing expense on the CB arising from the interest cost and in the increase in the fair value of the conversion commitment; and (3) accounts for the conversion under the market value method