A Note on Value Relevance of Mark-to-market Values of Energy Contracts under EITF Issue No. 98-10
Abstract
This paper examines whether marked-to-market values of energy trading assets and liabilities of companies that enter into energy contracts are related to market value of equity. The Emerging Issues Task Force of the Financial Accounting Standards Board ruled in November 2002 to ban the use of mark-to-market accounting for energy contracts out of concern that fair values can be easily inflated. We find that the excess of fair value over original value of energy trading assets and energy trading liabilities is not relevant for valuation. It may be inferred that fair values which are subject to management estimates and not verifiable are poor signals of worth and performance (Watts, R., 2003. Conservatism in accounting Part I: Explanations and implications. Accounting Horizons 17, 207-221).
Recommended Citation
Eng, L., Saudagaran, S., & Yoon, S. (2009). A Note on Value Relevance of Mark-to-market Values of Energy Contracts under EITF Issue No. 98-10. Journal of Accounting and Public Policy Elsevier.
The definitive version is available at https://doi.org/10.1016/j.jaccpubpol.2009.04.004
Department(s)
Business and Information Technology
Keywords and Phrases
Book Values; Energy Contracts; Fair Values; Mark-To-Market
International Standard Serial Number (ISSN)
0278-4254
Document Type
Article - Journal
Document Version
Citation
File Type
text
Language(s)
English
Rights
© 2009 Elsevier, All rights reserved.
Publication Date
01 May 2009
