Internal reporting

Many accountants need to unlearn some rules they have picked up in ‘normal’,
accounting. The differences are greater for the Japanese and continental European
methods of accounting than for the Anglo-Saxon methods. It is unfortunate that
while many of the rules of historical-cost accounting are not applicable to trading
businesses, many organizations have thrown the baby out with the bathwater by
also abandoning for their daily reporting the double-entry record-keeping invented
by Pacioli in Italy in 1497. Double-entry provides a welcome discipline which is valid
whatever accounting conventions are used.
All serious players use mark-to-market accounting (where the value of assets and
liabilities is recalculated daily based on market parameters) for most of their trading
business, although this may require exceptions (see discussion of arbitrage businesses
below). The remaining trading entities which may still be using accrual
accounting (where a profit is calculated at the time of trade, and recognized over the
lifetime of the position, while losses are recognized as soon as they occur) are those
which are subsidiary businesses of organizations whose main business is other than
trading. 475