This paper discusses stock options, a contract offered by the employer that gives an employee the right to buy or sell a certain number of shares in the company at a specific price within a certain period of time.
Abstract This paper explains that stock options have been hailed as a great way to share ownership, attract and retain employees in a tight labor market, and "fuel the entrepreneurial fire?; but, at the same time, they have been condemned as a major cause of the high-profile business scandals during 2000-01 and the subsequent down-turn in the U.S. stock markets.
The author points out that another attraction of stock options from the employees? point of view is that the only capital gains tax is applicable on gains made from stock options. The paper relates the future of stock options does not appear bright because of accounting changes requiring firms to reflect the cost of stock options in their earnings as expenses by 2005.
Table of Contents
What are Stock Options?
History of Stock Options
Advantages of Stock Options
Disadvantages
Future of Stock Options
From the Paper "Stock options first began to appear in the US businesses in the 1950s, but at the time they were generally modest in size. The trend of offering stock options (particularly to the top managers) began to take off in the late 1980s and by the turn of the century the typical CEO of financial sector firm was receiving stock options worth $55 million a year?more than 30 times his salary. (Shapiro, 2002). The offer of stock options became more widespread and the NCEO estimated that as of 2001, up to 10 million employees were receiving stock options in the US."
Abstract In the summer of 2002, when Congress was attempting to decide how to clean up the shady financial practices of corporate America, mutual fund company lobbyists convinced lawmakers to exempt their area of the financial services industry. Since then, this industry has occupied center-stage in the spotlight targeted at ethical problems in financial management. This paper shows that there are a number of important ethical issues that have been ignored by mutual fund managers and their firms, issues that are of great concern to investors, legislators, and regulators. These areas of concern include conflicts of interest, director independence, and transparency of fee and expense reporting.
From the Paper "There is a notable lack of independence among the members of the boards of directors who are supposed to be making sure mutual funds are run in the best interest of the investors. The watchdog role of a fund's board of directors theoretically includes not only watching the big picture, but also the minutiae of the funds? service contracts, operations and investment policies. These board members should be free of potential conflicts of interest in order to play the biggest role possible in making sure the best interests of their funds? shareholders are served."
Abstract This report evaluates whether or not the hypothesis at the heart of the "Agency Theory", which states that if an executive is given an ownership stake, it will have a positive effect on stock performance, works as expected. Furthermore, this paper tracks the increasing use of the "Agency Theory" in executive compensation and enumerates and evaluates the effects that the increasing use of the "Agency Theory" has had on American business and on stock performance. The paper also evaluates the effect of what has been described as "over the top" use of increasingly generous, stock-dependent, executive compensation packages, both on stock performance and on other business evaluative factors. The effect of the scandals involving executive compensation/stock performance on the social/commercial fabric of the U.S. is discussed briefly, as well.
Outline
The "Agency Theory", Executive Compensation and Stock Performance
The Effect of Pay on Executive Motivation
The Effect of FASB Rules on Compensation/Stock Performance
From the Paper "In the wake of the Enron, ImClone and WorldCom financial scandals, the increasing use of stock options as part of executive compensation packages came under public scrutiny. Because of the lax was in which FASB guidelines are written, it was possible, lacking adequate corporate governance, for CEOs to use their stock options to increase their personal wealth while diminishing the strength of the corporation and decreasing"or completely negating"benefits for shareholders. In addition to the problematical FASB rules, also operative was a management theory, the Agency Theory, formulated by academicians and economists in the last century. The theory held that giving executives a financial stake in the financial health of the company would increase their motivation to run those companies for maximum profits for shareholders; in short, this form of executive compensation was thought to be able to produce superior stock performance. The findings of several researchers even before the scandals of the past few years, however, revealed that results often departed wildly from what the theory predicted."
Abstract This report attempts to explain how the new American Institute of Certified Public Accounts SAS No.99 will change the way accounting firms will be required to conduct corporate audits. The paper outlines the objectives of the new standards, the fundamental areas they are to focus upon, and key provisions, and then explains how these standards will help both external and internal auditors eliminate the possibility of fraud in corporate offices.
From the Paper "As can be expected, the Enron collapse in Texas and the WorldCom scandal in Mississippi have each dramatically demonstrated how critical it is that regulating bodies ensure that Corporate America provides high quality, trustworthy, and reliable financial reporting. ?The 40-year-old accountant is accused of creating and managing the complex web of partnerships that disguised the true state of affairs at the disgraced energy firm.? (BBCi, Enron finance chief denies charges) Enron basically opened America's eyes into what may actually be going on in many organizations throughout our nation. The philosophy of everyone must be doing it was confirmed only a few short months later when the chief financial officer of the telecoms giant WorldCom was indicted because of another multi-billion dollar accounting fraud. ?The company's collapse followed exposure of an accounting fraud, now put at $7.68bn (?5bn), which made the company look profitable when it was not.? (BBCi, "Ex-WorldCom finance boss indicted")"
Abstract This paper explains that the Real Option Valuation technique, which involves the prediction of the returns with an assumption that the asset valuation is closely connected to the management of assets, is an alternative over the discounted cash flow technique. The author clarifies that the Real Options Valuation technique emphasizes the value of the flexibility of the management while making decisions during the operation of the project; thus, it integrates the strategic planning options, such as to include, defer, abandon and other choices, which prevents committing error decisions. The paper relates that a weakness of the Real Options Valuation approach is that it neglects the influence of other parties.
From the Paper "The terminology, Economic Value Added, is also used to mean the economic profit. A positive economic profit indicates greater returns of the company over the cost of capital. In order that the company operates with a real profit it should be ensured that the returns are more than the cost of capital conversely it leads to loss. The long term investments are associated with uncertainty, and therefore necessitate firm decision making techniques analyzing and estimating the probability of outcomes taking and the values of these expected outcomes. Even though the firm managers try to put all their efforts for reducing risk taking assistance of the best possible information available, the uncertainty of weather and markets cannot be avoided. This makes essential the firms to depend upon the various decision making techniques while making strategic long term investments."
Tags: prediction, valuation, assets, flexibility, capital
Abstract This paper briefly examines the history of insider trading from a criminal standpoint, but focuses mainly on contemporary issues in terms of existing legal codes, as well as codes put forth by the SEC, and the way these rules and regulations have changed in the past few years. The contemporary nature of the report is also heightened by the current mass-media fixation on the issue of insider trading, which is also explored through examples, including that of Eri I. Tsao, Martha Stewart, and other case histories that center around criminal justice's handling of insider trading cases. Changes in the system are discussed mainly as they are related to the SEC and criminal law.
From the Paper "In the case of Tsao, a leading research scientist at Medlmmune, the criminal activity which took place involved using insider information to buy and sell stock for a profit. "The SEC said Eric I. Tsao, a vice president at the Gaithersburg company, bought stock in three biotechnology companies soon after learning Medlmmune was close to completing business deals with each of them" (Barbaro, E1). Using this information, which had not been released to the public, to his own advantage, caused Tsao to be indicted on charges of insider trading. The biotechnology companies were supposed to have business deals with Medlmmune, which caused their stocks to go up after the deals were completed, earning Tsao a considerable profit of over one-hundred thousand dollars. Tsao's case deals with the somewhat blurry line between criminal and civil suits, and thus should not be dwelt upon too extensively. His case represents criminal behavior, most definitely, but the suit filed against him by the SEC was not based on criminal charges, but rather, civil ones."
A look at whether the present effort to improve the securities laws in the U.S. as well as the financial reporting and disclosure laws is achieving its objectives.
Abstract This paper examines the current effort at reform of securities laws in an attempt to determine whether those reforms will be effective in avoiding another Enron-type crisis. The paper reviews literature relevant to this topic and makes an assessment as to the viability of the reforms in view of the scope of the problem. A summary of the research is provided in the conclusion.
Executive Summary and Synopsis
Introduction
Explanation of Clarke and Oliver Observation
Analysis
Financial Statement Composition Today
"Patching Up" Initiatives
Sufficiency of Initiatives to Date
From the Paper "However, in contrast to the "on market" exchanges, derivative transactions that are conducted "off market" (these are, in effect, non-standard direct contracts between bilateral parties), have attracted increasing attention from regulators with good reason: "Over the past decade or so, the volume of such transactions, across a wide swath of asset classes and instruments, has been extraordinary" (Warner 2001, p. 5). In the market in which Enron competed, schedules of fees for buying and selling securities are not fixed, and dealers derive their profits from the markup of their selling price over the price they paid. The investor may buy directly from a dealer willing to sell stocks or bonds that he owns or with a broker who will search the market for the best price."
Tags: securities, exchange, commission, sec, collapse, investors, corporate, information
Abstract This paper describes and evaluates research theories and methodologies in order to classify accounting systems internationally. The paper explains the purpose of classification and the two methods used for classifying international accounting systems, looks at some of the problems of these methods of classification, and touches briefly upon the impact that culture and society values have on accounting.
From the Paper "Classification of international accounting systems has many purposes, as it aims to help financial users to better understand each system and to contribute to the harmonization of these heterogeneous systems. Classifications intend to sharpen the description, analysis and prediction of accounting systems (which refers to the extent to which national systems are similar or not, the pattern of development of systems, which may have important potential for change, and the reasons why some systems dominate others), to help describe and compare different national systems in order to better understand them, to make assessments of harmonization prospects, to guide national policy makers in taking the right steps in order to achieve full economic development, to help developing countries choose appropriate systems, which would not impede but facilitate their development, and to help MNEs overcome problems of establishing control systems."
Abstract This paper discusses the job done by a CPA , Certified Public Accountant. The paper presents the educational requirements necessary for pursuing a career as a CPA and outlines the average salaries earned by accountants. The paper provides an outlook for the future of the accountant's job description with regard to technological advancements.
From the Paper "Certified Public Accountants (CPAs) are found in many walks of life. They are the well-paid and often highly publicized (albeit sometimes for the wrong reasons) Chief Financial Officers (CFOs) of major corporations and advisors to smaller neighborhood businesses (CPA.net., 2004). They work for both large and small public accounting firms, and are typically well-respected strategic business advisors and decision-makers. CPAs also act as business consultants on many issues, including taxes and accounting. Public accountants perform a variety of accounting, auditing, tax, and consulting activities for their clients, who include corporations, governments, nonprofit organizations, or individuals (U.S. Department of Labor Bureau of Labor Statistics, 2004). For instance, some CPAs concentrate on tax matters, such as helping companies understand the tax advantages and disadvantages of their business decisions and preparing individual income tax returns. Others serve as consultants in areas such as compensation or employee healthcare benefits, the development of accounting and data processing systems, and the selection of controls to protect assets. Others may audit clients' financial statements and report to investors and authorities that the statements have been properly prepared and reported. CPAs' usually either have their own businesses or work for public accounting firms."
Abstract This paper addresses the costs of smoking on society by evaluating the impact on health, the various economic costs attributed to smoking, and the taxation measure utilized to reduce the demand for tobacco. Issues that are addressed include the social costs of smoking, whether smokers cover the smoking-related costs that the rest of the community bears, and whether the average lifetime health care costs of tobacco users is higher than those of non-smokers. It also looks at whether tobacco taxes are an effective measure to reduce the demand for tobacco and reduce health care costs imposed by smokers.
From the Paper "Do smokers cover the smoking-related costs that the rest of the community bears? Typically, these costs are covered by tobacco tax revenues imposed by governments to compensate the public sector, which are borne by the smokers themselves. However, a high percentage of the smoking-attributable costs are borne by private individuals or by business (Collins and Lapsley, 2003). Smokers impose direct health costs on non-smokers, which include irritation and nuisance. There may also be a cost from fires, environmental degradation, and deforestation from tobacco growing and processing, and from the consequences of smoking (Jha and Chaloupka, 1999). Smokers impose physical costs on others as well as possible financial costs. In theory, smokers would smoke less if they took these costs into account, because the socially optimal level of consumption, in which resources are efficiently distributed in society, is reached when all costs are borne by the consumer."
Abstract This paper explains that the portfolio of Perry Ellis International, Inc. includes men's and women's brands, which it designs, sources, markets, and licenses nationally and internationally at multiple price points and across all major levels of retail distribution. The author points out that during the fiscal year ended January 31, 2004, approximately 91% of the company's net sales were from branded products The company owns 13 and licenses five brands, such as Perry Ellis, Jantzen, Munsingwear, and Manhattan; has developed over 42 sub-brands, such as Perry Ellis Portfolio and Penguin Sport; and distributes the PING, Nike, Tommy Hilfiger, NAUTICA ,and Ocean Pacific brands under license arrangements. The paper reports that, for 2005, Perry Ellis expects to report record revenue and net income; earnings per fully diluted share are projected in the $2.10-$2.20 per fully diluted share range, below their previous guidance of $2.35. Tables and graph.
Table of Contents
Executive Summary
Background
Current Status of Perry Ellis (2004)
Perry Ellis 1999-2004
Total Revenues
Royalty Income
Cost of Sales
Gross Profit
Selling, General and Administrative Expenses
Depreciation and Amortization
Interest Expense
Long-Term Debt
Future Positioning
Perry Ellis Income Statement
From the Paper "Perry Ellis' President acknowledged disappointment in the swimwear business for 2004, but plans to take actions such as a rationalization of product offering, changes in sourcing and overhead expense structure and a significant reduction in inventory levels. Perry Ellis intends that those measures will position the company for a profitable swimwear line in fiscal 2006. Perry Ellis predicts that the menswear brands, especially Perry Ellis, Original Penguin, Cubavera, PING, and PGA Tour will achieve record sales with a continuing momentum to continue into next year."
Abstract This paper presents a brief explanation of what a country's balance of payments is and the main elements of the balance of payments. The paper discusses the links between a country's balance of payments and its rate of economic growth, as well as the links between a country's balance of payments and the exchange rate of its currency. The paper analyzes the main reasons for the United States' balance of payments deficits over the past five years and examines the effects of these deficits upon the economy.
From the Paper "Currently, the U.S. in 2004 maintains a deficit in merchandise trade and the absence of strong net investment income inflows, a current account deficit. This has occurred for some time, but before these deficits were of not much concern, as they were theoretically and comfortably offset by the current account surpluses, such as the purchase of U.S. assets by foreign individuals and institutions. The result was such that net flow of receipts and payments was in balance, allowing for statistical discrepancy, without the need to any type of official transfers. (Ruby, 1999) But concern in light of the continuation of this state of affairs, combined with a weakened U.S. dollar has grown and the widening deficit reveals US continued and more sustained reliance on foreign cash than previously thought. (J Hughes, Financial Times, 15 September 2004) "
Abstract The Institute of Internal Auditors, founded by the New York Chapter in 1941, is the primary supporting organization of internal auditors today. This paper explores the organization's role and duties and looks at the principles it follows and tries to implement in its subjects.
From the Paper "The Institute serves its members in internal auditing, governance and internal control, IT audit, education and security for more than 120 countries. The IIA leads the world in certification, education, research and technological guidance for the profession. They are considered the profession's watchdog and resource on significant auditing issues around the globe. The IIA provides internal audit practitioners, executive management, boards of directors and audit committees with standards, guidance and information on best practices in internal auditing."
Abstract This paper provides a review of the relevant literature to define and describe junk bonds and leveraged buyouts, followed by a discussion and analysis of the current economic trends today. A summary of the research and salient findings are provided in the conclusion.
From the Paper "Michael Milken's vast and increasingly powerful junk-bond network fostered the "merger mania" of the 1980s, in which his clients, partners, and allies, among others, engaged in a wave of corporate mergers, acquisitions, hostile takeovers, and leveraged buyouts. By the end of the 1980s, the junk-bond market had grown to $150 billion in size, and Drexel Burnham had become one of the leading financial firms in the United States. Milken's own operations accounted for at least half of the firm's profits, and his own salary zoomed from $25,000 in 1970 to $550 million in 1987 (the highest annual compensation at that time) ("Leveraged buyouts," 2002, 4-5)."
Abstract This paper examines the process of transferring an organization's accounting system from a manual to a computerized system. It looks at the advantages and disadvantages of such a move and explains the problems that could occur. The different steps in the process are explained and detailed.
From the Paper "In accounting systems, certain controls are needed to ensure that employees are doing their jobs properly and ensure that the system runs properly. These checks are in the best interest of the organization. These controls come in the form of internal and external controls for the system. The internal controls are the checks that are placed in the system my the company's own management and directors. Today more and more companies are moving from the manual accounting systems to computerized accounting information systems. The advantages of a computerized system are increases in the speed and accuracy of processing accounting information."
