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 or deceptive information, and attempting to exploit each other’s weakness for personal gain.
Conceptual Parallels Between Poker Online and Managerial Risk Accounting
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 is the adjustable and erratic raising; the opportunity cost is the chips you could have won had you bet more, re-raised, or called your opponent. While in business your product or services value is measured up against that of your competitors, in poker it does not necessarily matter what cards you have but the strength of hand your opponents possess. In the end, the objective is the same for both: the breakeven point in managerial risk accounting equates to being “in the money” in poker. In either instance, calculated risks, sound strategy, and judgment calls are needed to make the best decision possible.
The most interesting similarity, however, may be with the bluffing and fraud parallel. Just like with accounting, the undertaking (or even the suspicion) of misleading, posturing, or outright lying in judi poker can get you into serious trouble; although it may lead to profits initially, it will only take you so far before you get caught and potentially lose everything. For example, in the Enron-Arthur Andersen scandal of 2001, due primarily because of a conflict of interest between having the same company providing auditing and consulting services, companies can be exposed of such practices during independent audits or deeper investigations into its financial statements and accounting. In the same regard, poker players can be exposed on bet calls from their opponents. In each case, the results can be crippling and nearly impossible to recover from.
One distinct difference, however, is the valuation of volatility (or variance). This is typically reserved for pricing financial instruments and foreign exchange realm, not accounting. While this may be true from an assessment and judgment-call perspective at the time of purchase, the calculation and rationale must be legitimized 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 against the implied volatilities: payout ratio versus the number of competitors, the buy-in (sunk cost), paying back your investors (sponsors that fronted the initial investment), etc.
Additionally, the game of poker, at worse, will potentially impoverish your personal bankroll; in contrast, any misstep by the accounting department could have catastrophic downstream consequences and potentially bankrupt the business and cause widespread unemployment to the vast majority of your company’s workforce. Furthermore, while in poker you are taking calculated risks and making judgment calls based on intuition, percentages, and tells (a change in a player’s behavior or demeanor to give clues to the player’s assessment of their hand); 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 the Enron scandal as well as other corporations), to ensure corrective measures are taken prior to formal reporting privately (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.
While there may be a universal perception of managerial risk accounting being a conservative profession and boringly crunching numbers, one can find many parallels to the exciting world of high stakes poker. In fact, that consensus opinion is as erroneous as suggesting that poker entails simply counting chips or divvying up and playing cards. The rewards may differ centered on the conventions utilized to succeed, but the costs of missteps can be gargantuan, and there is nothing simple about that. As a matter of fact, fortunes can swing on a dime.