Abstract The collapse of Enron, which represents the largest bankruptcy in U.S. history, led to thousands of employees losing their life savings in 401(k) plans tied to the company's stock. Arthur Andersen, Enron's auditing firm, has been indicted for obstruction of justice for allegedly shredding thousands of Enron documents. This paper explores to what extent a business disaster could have been averted by using modern database technology such as knowledge management tools or data warehousing applications to create a safer working environment.
From the Paper "But what could have prevented so many individuals from losing their life savings? Is there any database application that could have prevented that? Probably not from a user perspective but certainly for an auditing perspective. Data mining allows for the extraction of particular information based on defined goals. Once the attributes are created, the user can extract hidden predictive information from large databases. In the case of Enron's auditing practices, perhaps a data-mining tool would have been able to unearth hidden information. Remember, data mining is data-driven, not user or verification-driven. A user formats a theory about a possible relation in the database and converts this hypothesis into a query."
Abstract Using Enron's collapse as a background, this paper endeavors to arrive at the restoration of integrity within American business organizations. It scrutinizes the reasons for Enron's downfall in the light of the auditing business, looks at their law firm's role in the collapse and Enron's lack of 401(k) diversification. The paper concludes with proposals for restoring integrity within the American business arena.
From the Paper "The fallout from Enron's collapse will influence our business systems and economy for years, maybe even decades. More importantly, the collapse will shape the American business community's psyche in ways we have only begun to imagine. Before its collapse, Enron's value rivaled Maylasia's GDP: when an entity that large implodes, there are bound to be side effects and repercussions through almost every facet of the economy. The hardest hit sectors, of course, will be institutional investing and accounting and auditing practices: a thorough examination of how company 401(k) retirement funds are managed will be necessary to determine why so many aging working Americans suddenly lost almost every penny of their 401(k)s ? their hope and their family's hope for their retirement years, just around the corner ? when Enron collapsed. Accounting companies who combine their services with consulting services ? not just Arthur Anderson: every accounting firm does it at least to a certain extent, Anderson just happened to get caught ? will need to be checked and after years of congressional grumbling, this time it may actually happen."
Abstract This paper is about the importance of liquidity. The writer shows how all organizations need to be liquid because the need for cash can arise at any time. Banks are especially vulnerable to liquidity crises, as happened in the Asian crisis. The concept of asset management is examined as a way to meet liquidity needs.
From the Paper "Yes, liquidity is very important, to say the least. And what exactly is liquidity since it is important to know about? Liquidity is the indication of the organization's ability to meet its current and maturing obligations as they come due; it is the near term cash perspective of the business; and it is cash fuel supply management. The implications of liquidity are that typically lenders will default or shut off credit first to operations with: marginal or negative liquidity, (particularly when coupled with) high debt to asset amounts. Liquidity has one essential rule: be liquid with appropriate working capital. Liquidity is a vital financial concept, as during good times, more expansion/growth opportunities exist due to it; during bad times, still more expansion/growth opportunities exist; liquidity provides revenue opportunities as commodities can be held through low prices; liquidity often reduces costs with lower interest rates; liquidity reduces stress; and during difficult times, sufficient cash stays in business (Birch, 2000). "
Abstract This paper is an analysis of the Boston Beer Company and shows how by examination of its financial statement that the company has been able to sustain costs instead of increasing profit. This enables it to raise the profit margins otherwise not possible.
From the Paper "The company maintains a 10 percent operating margins, 4 to 5 percent growth margin and 14 percent on return on capital. It also mandates half of the capital be cash. The company holds a strong stand among industry leaders but there are some pitfalls to its operation. The year 2001 proved a mixture of growth and decline for Boston Beer. Readers must note the industry has become stagnant over the last 2 years [Crouch, 2001]. The valuation of the growth rate has decreased each year. Boston Beer too has decreased in profit rate due to the decline in demand. The plus points that could be awarded to Boston Beer are its brand Samuel Adams and distribution network. For this reason the company is able to sustain its operations for quite a long time with constant injection of investment. However, investment is limited for outsiders because the company members hold most of the stock. For example Koch holds about 4.1 million B shares in the company. Outsiders like Miller Beer have tried to buy out the company through agency stock but have been unsuccessful in its attempt [Marcial, 1999]. This shows the resistant characteristics of the company against outside aggressive competitors."
Abstract The writer provides critical reviews of published literature on the topic of corporate accountability and includes discussions on several aspects of accountability. The topics discussed are corporate ethics, managerial performance and using the performance reviews for accountability purposes as well as individual worker ethics and accountability. The paper shows how accountability at all levels of business can be a key factor in success or failure.
From the Paper "Within the last decades several studies have been conducted regarding the importance of ethics in business at the corporate and executive level. One such study was published by Harvard University's Graduate School of Business, written by Lynn Sharp Pain and explored the need for managing an organization's integrity(Paine, 1994). Paine believes that managers often think ethics are a question of personal scruples that is confidential between them and their conscious."
This paper is a detailed, well-written account of the Charles Keating / Lincoln Savings and Loan scandal that rocked the U.S. in the 80's and led to the S&L downfall.
Abstract This paper discusses the Savings and Loan crisis of the 80's that was an economic and bureaucratic disaster; wherein, one case alone, Charles Keating, cheated over seventeen thousand of investors and cost the American taxpayers more than $3.4 billion. The author explains how the S&L, traditionally one of the slowest sectors of the American economy, became involved in this scandal. The paper details the role of Keating, his legal battle and the bailout that cost taxpayers $2.5 billion.
From the Paper "This narrow opportunity for profits was a result of the extremely little latitude they were given in the scope of their investment portfolio. Whereas investment banks could hold securities that were on average riskier but more profitable, S&L's could hold nothing but the safest securities (government-backed). Federal laws and regulations prevented S&L's from doing much else. As a result, they did not pay their customers high interest at all and were hard pressed to compete with even the well-regulated commercial banking industry."
Tags: bureaucratic, disaster, investors, bailout, mortgage, state
Discusses budgeting in public sector & non-profit organizations. Critiques primary budget formats (performance, program, zero-based and objects of expenditure).
1,350 words (approx. 5.4 pages), 6 sources, 1988, $ 47.95
From the Paper " The purpose of this paper is to critique the principal budget formats used by public sector and non-profit organizations. In this critique, the strengths and weaknesses of each budget format are identified, and their managerial implications are stated.
THE BUDGETING PROCESS
A budget, as a noun, is a detailed financial plan for the organization, which (1) describes financial resources expected to be available to the organization during the period covered by the budget, (2) identifies anticipated sources of the financial resources, and (3) provides a plan for the allocation and use of the identified financial resources (Garrison, 1985, p. 274). Budgeting, as a verb, is the process by which a budget is created (...)"
This paper is a financial analysis using liquidity ratios for 1990 to 1992 of Johnson and Johnson, the largest and most comprehensive health care company in the world: Debt, equity, profit margin. Tables.
1,125 words (approx. 4.5 pages), 7 sources, 1994, $ 39.95
From the Paper "Johnson and Johnson is the largest and most comprehensive health care company in the world, offering a broad line of consumer products, prescription and over-the-counter pharmaceuticals, and various other medical and dental items. Johnson and Johnson brands include Tylenol, Band-Aid and Reach. The company has a large international business (contributing 49 percent of sales in 1993) and is divided into three major operating segments: consumer, professional and pharmaceutical.. This research examines the company's financial performance for the period 1990 - 1992 through the use of ratio analysis. A complete table of the ratios used in this document is provided on page six.
Liquidity ratios are used to determine the ability of a company to meet its current (short-term) obligations. Common measure ... "
From the Paper "In recent years, activity-based cost (ABC) accounting has challenged traditional accounting methods as the preferred method for internal reporting. Some companies have incorporated ABC to provide external accounting reports, as well. This increase in the popularity of a relatively new technique suggests that the accounting profession as a whole and companies across the business spectrum are recognizing that ABC can offer increased benefits to those organizations willing to take the time to implement ABC systems. This research explores ABC techniques, how ABC compares to traditional accounting methods, and considers the environments where ABC can effectively be implemented."
Abstract Accountants and auditors prepare, analyze and verify financial reports crucial to all business and government organizations. Two of the major accounting specialties are public accounting and managerial accounting.
This paper discusses the differences between chartered public accountants (CPA) and chartered managerial accountants (CMA) including the clients they serve and the examinations they have to pass before becoming qualified. The paper also examines the differences in wage earnings and career opportunities.
From the Paper "The professional designation of Certified Management Accountant (CMA) is achieved through the CMA Professional Program, a demanding training process in emerging business practices, which fosters management and leadership abilities, interpersonal and communication skills. CMAs are employed at all corporate levels, mostly in middle, senior and executive management positions which include but are not limited to: Chief Financial Officers (CFO), Controllers, treasurer, director of internal audit, chief accountant or cost accountant, director of taxation, managers or supervisors. Other CMAs are employed as accountants, auditors, analysts and consultants, with careers for management accounting professionals in all sectors of business and industry. (Rosenberg, pp.55-69.)"
Abstract This paper discusses how the accountant in a modern organization must be able to perform many more functions than in the past. Managerial accountants are important in assuring that the organization is on target for meeting strategic goals. It looks at how it is no longer enough to have a basic understanding of receivables, payables and cash flow and how accountants now play an active role in management and decision making. They are responsible for goal setting, forecasting and many other activities that were previously in the realm of management and must consider corporate culture and be able to adapt their techniques to meet specific company needs.
From the Paper "Corporate culture and accounting used to be two terms that should never occur in the same sentence. Accounting was a separate entity from other systems in the organization. Now accounting is an integral part of every phase of the business including legal, political and social systems within an organization (Shraddha and Sidney, 1997). As the needs of an organization change, so do the accounting system change to meet these changing needs. A modern accountant must be more flexible in practice than in the past. Modern accounting practices must be able to adapt a trait that was not synonymous with accounting in the past. Accounting used to adhere to a rigid set of rules and procedures, but now they must remain flexible and willing to change on short notice. "
Abstract The paper attempts to answer the following questions: 1) What are derivatives? 2) What purpose do they serve? 3) How are the risks calculated? 4) What methods of accounting are generally accepted? By best estimates, companies and banks around the world are involved in some 52 trillion dollars worth of financial derivatives. The paper explains these concepts and discusses their importance.
From the Paper "Since the concept behind derivatives is foreign exchange rates, then the concept really derives from 1971 when America abandoned the gold standard and fixed exchange was replaced by floating exchange. The floating exchange rate gave birth to the need for "hedging" (protecting assets against unfavorable movement). The need to hedge, in turn, gave birth to the concept of exchange rate futures, an idea that the "Merc" introduced in 1972. The "Merc" (Chicago Mercantile Exchange) first listed currency futures and the idea of selling and buying investment stakes in the future value of a nation's currency was born."
A theoretical analysis of recent developments on accounting standards for stock options and a practical application to Cisco Systems, Inc. as an illustration.
Abstract This paper analyzes developments in the accounting field for stock options regulating standards. The writer shows how the accounting technique caused huge controversy among regulators and academics with respect to the treatment of stock options in the financial statements because the primary objective of decision usefulness of financial reporting as well as net income depends on whether or not the company recognises stock options as expenses on a fair value based method in the income statements. It argues that although the recent developments of the accounting standards proceed in the right direction, there are still issues that must be addressed. It shows that in order to solve the remaining issues, it is necessary to improve the qualitative aspects of financial information, such as relevance, reliability and comparability which directly relate to the primary objective of financial reporting.
1 Introduction
2 Historical Developments on Accounting for Stock Options
2.1 APB 25: Intrinsic Value
2.2 SFAS 123: Introduction of Fair Value Based Method
2.3 SFAS 148: More Timely and More Prominent Disclosure
3 Theoretical Analysis
3.1 Fundamentals of Financial Reporting
3.1.1 Objective of Financial Reporting
3.1.2 Qualitative Characteristics of Accounting Information
3.2 Recognition of Expense
3.2.1 What Is an Expense?
3.2.2 Assets under SFAC 6
3.2.3 Liabilities under SFAC
3.2.4 Assets under Exit Value Accounting
3.2.5 Liabilities under Exit Value Accounting
3.2.6 Comparison of the Recognitions
3.3 Measurement
3.3.1 Fair Value Method
3.3.2 Intrinsic Value Method
3.4 Summary of Theoretical Analysis
4 Practical Analysis - Cisco Systems, Inc.
4.1 About Cisco Systems, Inc.
4.2 Applications to the Accounting Standards
4.3 Pro Forma Disclosure in the Profit and Loss Statement
4.4 Market Share Price and Employees Stock Option Incentives
4.5 A Need for Change
5 Conclusion
6 Bibliography
Appendix
From the Paper "High-tech companies such as Cisco Systems have developed as major global business players during the last decade. One of the devices that many of these companies often applied in the process of their economic growth was a stock-based compensation plan. Such small venture businesses, which were normally deficient in cash in their initial stages, provided employees with the right to purchase their own stocks instead of cash. As a result, stock options could enormously reduce the amount of cash and wage expenses at the same time. Further, entrepreneurs could effectively retain talented staffs by granting them stock options, and could elevate motivation among the employees. However, the series of frauds and corporate crisis over the past year raised the question of accounting treatment for stock options whether the present standards achieve the principal objective of decision usefulness of financial reporting."
Abstract This paper discusses how Economic Value Added (EVA) is not a new concept in economics and financial theory and is based on the 19th century concept of "economic profit", it has only been widely adopted recently by business firms as an accounting practice. It describes what EVA is and looks at its pros and cons from the point of view of the company adopting the practice and the investors. It also examines how EVA differs from some other emerging accounting practices and the major issues relating to EVA as compared to other commonly used accounting principles. Finally, the possible problems and opportunities that a company adopting EVA principles can face are analyzed.
From the Paper "In other words Economic Value Added is not the straightforward accounting "profit" that we get by subtracting the costs minus revenue. In EVA we take into account the "cost of capital" that is invested in the business and the cost of capital includes both debt and equity. Hence if we invest, for example, $ 100,000 in a business and get $110,000 as revenue the profit is not simply ($ 110,000 minus $ 100,000 = $ 10,000) since the $ 100,000 at the time of investment had an opportunity cost that has to be accounted for before we determine our "real" profit. If the opportunity cost of $100,000 at the time of investment was $ 120,000, i.e., the investor could earn $ 20,000 by investing his/her money elsewhere, the $10,000 "paper profit" would actually be a "loss" in real terms."
