Conceptual Parallels Between Poker and Managerial Risk Accounting


Managerial risk accounting is the process of generation, disseminating, and utilization of risk related accounting information to managers within an organization to enable them to judge and shape the risk situation of the business according to the objectives of the company. The initiative behind poker is the same mentality; assess the situation and make the best personal decision for your own benefit or for the corporation’s profit. Calculating the odds and various possibilities are the basis for the accounting budgeting process. Conversely, there is also the unfortunate aspect of the nip-and-tuck game of bluffing, hiding information, and attempting to exploit each other’s weakness for personal gain.

The total chip stack represents market share and your opponents are your direct competitors. The fixed cost is the initial ante or blinds; the variable costs are the adjustable and systematic raising; the opportunity cost of chips you could have won you bet more, re-raised, or called your opponent. While in business your product value is measured against that of your competitors, the matter does not necessarily matter what cards you have but the strength of your opponents’ possess. In the end, the objective is the same for both: the breach point in managerial risk accounting equates to being “in the money” in poker. In either instances, calculated risks, sound strategies, and judgment the calls are needed to make the best decision possible 우리카지노.

The most interesting similarity, however, may be with the bluffing and fraud parallel. Just like accounting, the undertaking (or even the suspicion) of misleading, posturing, or outright lying in poker can get you into serious trouble; It will only take you so far before you get caught and potentially lose everything. For example, the Enron-Arthur Andersen scandal of 2001, due primarily to a conflict of interest between having the same company providing auditing and consulting services, or more investigations into its financial statements and accounting. In the same regard, poker players can be exposed to calls from their opponents. In each case, the results are almost impossible to recover from.

One distinct difference, however, is the valuation of volatility (or variance). This is reserved for pricing financial instruments and foreign exchange realm, not accounting. While this may be a true assessment and judgment, call the time of purchase perspective, the calculation and ratio must be legitimate on the statement of cash flow, the balance sheet, and the income statement. In poker, everything depends on the bottom line; the winnings you’ve accrued, compared to the implied volatilities: payout ratio versus number of competitors, the buy-in (sunk costs), paying back your investors (sponsors that fronted the initial investment), etc.

Additionally, the game of poker, worse, will potentially impoverish your personal bankroll; in contrast, any misstep by the accounting department could have catastrophic downstream consequences and potentially the business and cause of unemployment to the vast majority of your company’s workforce. Furthermore, while in poker you are taking risks and making judgment calls based on intuition, percentages, and telling (a change in a player’s behavior); whether right or wrong, decisions are made on educated guesses. In accounting, rules are in place, such as protocol standards set forth by Generally Accepted Accounting Principles (GAAP) and Sarbanes-Oxley (SOX) Act of 2002 (a regulatory law enacted as a reaction to Enron scandal as well as other corporations) (to internal decision makers and executive management) and most certainly publicly (to investors and competitors). With that being said, the similarities far outweigh the discrepancies, and thus the parallels between poker and managerial risk accounting cannot be ignored.

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