PEST Analysis Essay Example | Topics and Well Written Essays - 3500 words

PEST Analysis - Essay Example Insecticides and pesticides are being sprayed extensively on crops without any notice and thus result in a number of medical problems. People suffer from digestion related issues, a number of carcinomas also take their origin from such chemically treated food products. As cited by Dich,  Zahm,  Hanberg and  Adami (1997), arsenic being used in these chemicals has been labeled as the potential carcinogen for humans by International Agency of Research on Cancer. Not only have the crops taken the toll, but the animal husbandry and dairy farming has also been suffering from the consequences over the past few decades. In short there is a dire need for a drastic change that will rid the mankind of this curse of chemicals and artificial products and this is where companies like Eden Food step in. As the changing trends introduced to the modern customer the organic food products, a ray of hope was seen. Organic food according to FDA as cited by Food Marketing Institute (2012) can be def ined by taking into consideration that the word organic does not simply refer to the food but also gives an indication as to how it has been produced. It must be noted that such food is different from natural food and also it must not be subject to any amount of irradiation whatsoever. Companies like Eden Food are a way out for the people seeking healthy, environment friendly food which is palatable too. As the awareness of the health conscious clientele is increasing, more questions arise and it becomes imperative for the industries and businesses to be more vigilant in their approach. Luckily enough Eden Foods has been able to cope up with the challenge it is made to face with and there have been introduced a wide variety of organic food products for the customers to choose from. With every passing day, the market for organic food and especially Eden Foods is growing by leaps and bounds. According to the Federal Marketing Institute as cited by Cook (2004), a study conducted in 200 0 showed that the global market for organic food was at an estimated 20 million dollars with USA accounting for 39% of it. In short, with the ever increasing demand of a healthy living, the responsibility on the food industry increases manifold and there is a dire need placed in front of Eden Foods to match the demands of the customers if successful business is to be managed in the long run. Procedure working of the product chosen As has been the trend observed over the past several decades, the third world countries are introduced to a new product when some time has been elapsed after the introduction of the same product in the markets of the first world countries. On the same basic principle it has been observed that the trend of organic foods in the first world traces back to the 80s and 90s, whereas the poorer states of the world are now being introduced to this concept and it is comparatively novel for them. On the other hand, when the needs of the two groups of countries are c ompared, it is seen that the people residing in the third world countries are more in need of pure and healthy food free from contaminants and artificial chemicals. These people are faced with the problems of unhealthy and unsanitary drinking water and the living conditions in general are not as refined as in the first world states (Gadgil, 1998). For that matter, the whole chiaroscuro of unhealthy lifestyle is evident in the form of malnutrition, more gastro

Strategic Management Essay Example | Topics and Well Written Essays - 1000 words - 3

Strategic Management - Essay Example These initiatives normally revolve around resource allocation, utilization, and performance in the external environment of the business. Additionally, strategic management provides the opportunity for an organization to specify its mental picture, policies, objectives, mission and plans. It allocates the required resources for the execution of its programs, projects and plans (Sachs & Ru?hli 2011 p. 1). Furthermore, strategic management ensures the organization develops a balanced scorecard for the evaluation of its general performance. The scorecard also enables it to determine if it is progressing towards its set objectives and make the necessary changes or adjustments. However, for an organization to perform its strategic management process successfully, it must have the right paradigm. Importance of an organization’s "paradigm" for strategic management Several contemporary organizations today are operating in complex environments where there are frequent and sudden changes of structures. They need to decamp from their traditional management structures to adapt new approaches to management. Incidentally, the operating environment for most organizations faces stiff competition and massive explosion in the field of information technology. This requires that the company update its management paradigm to fit in the new era adequately (Kachru 2009, p. 48). The enhanced utilization of information technology has led to the emergence of knowledge or information based economy. This is partially responsible for the increase in complexities of organizations. Consequently, many organizations have resorted to changing their paradigms to adopt new organizational structures. This includes the changes in leadership and management practices. Additionally, technologies such as the internet, e-mail, voice mail and telecommuting have also contributed in the rebranding of the structures of organizations to encompass virtual offices, companies and teams (Kachru 2009, p. 92 ). The shift to the new organizational paradigms has several uses to the organization. The adoption of new technologies in the field of information science is making both intra-organizational, as well as inter-organizational communications simpler (Kachru, 2009, p. 93). Consequently, this eliminates the previous communication boundaries leading to a global market place that is borderless. The elimination of the market place boundaries can significantly reduce the command chains within organizational structures and paradigm. As a result, the organization will have free control spans by replacing its departments with stronger teams that have been empowered. This paradigm assumes an organizational structure whereby a flatten hierarchy replaces vertical boundaries as cross-functional teams replace functional departments. This is important to the organization because it consolidates the activities of the organization around centralized processes (Kachru 2009, p. 84). The creation of the organizational paradigms without boundaries eliminates geographical barriers to the organization. This places an organization in a suitable position to interact freely with its clients and other business partners in the entire globe. For good strategic management, an organization needs to shift its paradigm to benefit from the following processes a. Reduced dependence on the leadership of command and control b. Hierarchy breakdown that leads to a lean change in the systems of management c. Enhanced commitment to the application and utilization of virtual technologies d. Increased teamwork reliance e. Attain flexibility f. Interactive system of knowledge transfer through electronic and mutual interest instead of authority systems New forms of management

Maslows Hierarchy of Needs Essay Example | Topics and Well Written Essays - 250 words

Maslows Hierarchy of Needs - Essay Example These two levels, according to Maslow are closely related to each other. While love/belonging generally refers to emotionally-based relationship such as family and friends and safety needs concerns security and order in home and in the workplace. From Maslows perspective on human needs for recognition reward in the workplace, people will not need any sort of material reward if they themselves feel satisfied about the job they have done. In some organizations, an extrinsic reward system may not work because one of its main tenets is providing material rewards (i.e. bonus, gift checks, movie passes) just to persuade an individual to perform better in his work. â€Å"Its not sustainable; if you withdrew the reward, the motivation disappears† (DAusilio, â€Å"What Motivates†). DAusilio also writes in that it is hurts the intrinsic and â€Å"removes their innate desire to do it in his own† (â€Å"What

Arab and israeli conflict Essay Example | Topics and Well Written Essays - 750 words

Arab and israeli conflict - Essay Example Evidently, this changed leading to a series of conflicts that are still being experienced today. Podeh (27) reveals that after the collapse of the Ottoman Empire, both the Arab and the Israeli aimed at occupying the empire; as a result, there was a political and nationalist conflict between Arab and Israeli over territorial competition. The conflict then spread to the local Israeli and the Palestinians. The conflict between Arab and Israeli was based on different aspects. There was religious aspect where by Muslim, Jewish and the Christian argued about the idea of the chosen people. Both sides claim to have full right to take the land of Canaan. The Israeli people claim that the land was for the children of Israel as promised by God according to the bible. The Arabs, on the other hand, claim the same land in accordance to their Quran. The Arabs argue that the land of Canaan was promised to all of Abrahams’ descendants including Ishmael. Arabs claim descent from Ishmael hence they had to fight for the land of Canaan. Despite a number of peace agreements between Arabs and Israeli, the conflict has moved from bad to worse. The two conflicting parties have involved into wars of which the Israeli defense force has won most of them. Throughout the conflict period, the Israeli government is positive at the conflict negotiations with their rivals Arabs. The conflict is one of a kind having lasted for almost six decades. Podeh (34) asserts that America has been in the front line to help in resolving the conflict between Arab and Israeli. The United States provides defense to the Israel against the common threats of the radical Islam and the terroristic activities. America has significantly promoted peace to the Arabs and Israelis by allowing the Israelis to take greater risks for peace. United State has also helped the government of Israeli to retain back many of its immigrants America being a superpower nation, it has

Plato vs. Aristotle Essay Example for Free

Plato vs. Aristotle Essay Plato and Aristotle, two philosophers in the 4th century, hold polar views on politics and philosophy in general. This fact is very cleverly illustrated by Raphaels School of Athens (1510-11; Stanza della Segnatura, Vatican), where Plato is portrayed looking up to the higher forms; and Aristotle is pointing down because he supports the natural sciences. In a discussion of politics, the stand point of each philosopher becomes an essential factor. It is not coincidental that Plato states in The Republic that Philosopher Rulers who possess knowledge of the good should be the governors in a city state. His strong interest in metaphysics is demonstrated in The Republic various times: for example, the similes of the cave, the sun, and the line, and his theory of the forms. Because he is so involved in metaphysics, his views on politics are more theoretical as opposed to actual. Aristotle, contrarily, holds the view that politics is the art of ruling and being ruled in turn. In The Politics, he attempts to outline a way of governing that would be ideal for an actual state. Balance is a main word in discussing Aristotle because he believes it is the necessary element to creating a stable government. His less metaphysical approach to politics makes Aristotle more in tune with the modern world, yet he is far from modern. Platos concept of what politics and government should be is a direct result of his belief in the theory of forms. The theory of forms basically states that there is a higher form for everything that exists in the world. Each material thing is simply a representation of the real thing which is the form. According to Plato, most people cannot see the forms, they only see their representation or their shadows, as in the simile of the cave. Only those who love knowledge and contemplate on the reality of things will achieve understanding of the forms. Philosophers, who by definition are knowledge lovers, are the only beings who can reach true knowledge. This concept has to be taken a step further because in The Republic, Plato states that philosophers should be the rulers since they are the only ones who hold the form of the good. Plato seems to be saying that it is not enough to know the forms of tables or trees, one must know the greatest formform of the goodin order to rule. The reasoning is: if you know the good, then you will do the good. Therefore, philosopher rulers are by far the most apt to rule. In The Republic, Plato builds around the idea of Philosopher Rulers. Even though it is not his primary point, it certainly is at the core of his discussion of the ideal state. The question that arises is, Why do you need ideal states which will have philosophers as rulers? There are many layers to the answer of this question. The first thing is that a state cannot be ideal without having philosophers as rulers. This answer leads to the question, Then why do you need ideal states to begin with? The Republic starts with a discussion of Justice which leads to the creation of the ideal state. The reason why an ideal state is needed is to guarantee the existence of Justice. This does not mean, though, that there cannot be states without Justice. Actually, Plato provides at least two reasons why the formation of a state cannot be avoided. These are: 1. human beings are not self-sufficient so they need to live in a social environment, and 2.each person has a natural aptitude for a specified task and should concentrate on developing it (The Republic, pp 56-62). Although a person is not self-sufficient, a composition of peoplea statesatisfies the needs of all its members. Furthermore, members can specialize on their natural fortitudes and become more productive members of society. States are going to form, whether purposefully or coincidentally. For this reason, certain rules have to be enacted for the well-being of the state. The main way to institutionalize rules is through government and in the form of laws. Platos The Republic is not an explication of laws of the people. It is a separation of power amongst three classesRulers, Auxiliaries, Commonersthat makes the most of each persons natural abilities and strives for the good of the community. The point is to create a harmonious unity amongst the three classes which will lead to the greater good of the community and, consequently, each individual. The three classes are a product of different aptitude levels for certain tasks amid various individuals. Plato assigns different political roles to different members of each class. It appears that the only classes that are allowed to participate in government are the Auxiliaries and, of course, the Philosopher Rulers. The lower class does not partake in politics because they are not mentally able. In other words, they do not understand the concept of the forms. Thus, it is better to allow the Philosophers, who do have this knowledge, to lead them. Providing food and abode for the Guardians is the only governmental responsibility the lower class has. The Auxiliaries are in charge of the military, police, and executive duties. Ruling and making laws is reserved for the Philosopher Rulers whose actions are all intended for the good of the state. To ensure that public good continues to be foremost on each Rulers agenda, the Rulers live in community housing, hold wives/children in common, and do not own private property. The separation of classes is understood by everybody Self-interest, which could be a negative factor in the scheme of things, is eliminated through a very moral oriented education system. All these provisions are generated to maintain unity of the state. The most extravagant precaution that Plato takes is the Foundation Myth of the metals. By making the people believe, through a myth, that the distinction of each class is biological as well as moral, Plato reassures that there wont be any disruption in the harmony of the state. Whereas Platos The Republic is a text whose goal is to define Justice and in doing so uses the polis, Aristotles The Politicss sole function is to define itselfdefine politics. Aristotle begins his text by answering the question: Why does the state exist? His answer is that the state is the culmination of natural associations that start with the joining of man and woman (pair), which have a family and form a household; households unite and form villages; villages unite and form the state. This natural order of events is what is best because it provides for the needs of all the individuals. Aristotle, like Plato, believes that a person is not self-reliant. This lack of sufficiency is the catalyst in the escalating order of unions among people. In The Politics, it appears that Aristotle is not very set on breaking down society. His argument says that there are different classes in society, but they are naturally defined. For example, he devotes a lot of time to an explanation of the naturalness of slaves and their role in society. Aristotle is also very sexist and explicitly states so. His view is that women are inferior to men in all senses. Perhaps the most pertaining to our discussion is the citizen, whose role is purely political. Both Plato and Aristotle seem to agree that some people are not capable of practicing an active role in political life. Platos reason is that the lower class is not mentally adept for the intricacies of higher knowledge on the good. Aristotle seems to base his opinion on a more political issue. He believes that only those that fully participate in their government should be considered citizens of the state. For this reason, he excludes workers as citizens because they would not have the required time to openly participate in politicking. The Aristotelian polis, as opposed to Platos, is a city with a large middle class which promotes stability and balances the conflicting claims of the poor and the rich. Aristotle combines elements of democracy with elements of aristocracy, again to balance opposing claims. Because he is aware that human interest is an inextricable entity, the distribution of scarce and valuable goods is in proportion to contribution to the good of the polis. This system provides for the self interested who believe that those who work harder should receive more. Another point is that the citizens rule and are ruled in turn, insofar as the mixed social system allows. This is permissible because of the strong involvement of the citizens in government; it is what one would call a true democracy. Overall, a spirit of moderation prevails. The philosophies of Aristotle and Plato have been around for over sixteen centuries, yet today it is difficult to find specific instances where either philosophy is applied. This may be a result of the fact that todays political philosophy differs from both philosophers. While Aristotle and Plato uphold the good of the community or state above individual good, todays constitution includes a bill of rights that guarantees the rights of each individual in the nation. Having these individual rights is a necessity for todays citizens. Going back in history to 1787 will show that one of the reasons there was controversy in the ratification of the constitution was that it did not include a Bill of Rights. When the drafters promised that as soon as the constitution was ratified, a Bill of Rights would be added, the doubting states proceeded to ratify it. According to Plato and Aristotle, a Bill of Rights is not necessary because it does not improve the good of the community. Another point of discrepancy between the philosophers and todays society involves the topic of slavery. Aristotle argues for the naturalness of slavery in The Politics, yet slavery has been considered grotesque for quite some time. In correlation to slavery, there is the undermining of the female population by Aristotle. Although Plato is a lot less discriminatory, he also believes women are the sub-species. While women have had to fight endless battles to achieve the recognition they deserve, today it is a well accepted fact (generally) that women are as capable as men in performing tasks. Naturally, since Aristotle and Plato have been around for such a long time, our society certainly contains some of their influences in a general sense. For example, today it is believed that certain people are born with certain capacities. Intelligence has been attributed to genetics. Because of the different intelligence levels among people, we have different classesfor example: advanced, intermediate, and beginners. In their appropriate level, each person develops his or her abilities to the highest potential. This concept is sometimes at odds with the ideal of equality, ie. we are all human beings. Yet, in essence, it does not take away from the ideal because we are all humans, but we differ in certain capacity levels to complete tasks. Platos and Aristotles philosophy have helped shape present thought, though, by no means, mandate our practices. The philosophers are very community oriented while we value the individual. Besides differing with todays standards, each philosopher is in his own way distinct. Plato is very attracted to metaphysical philosophy, while Aristotle is much more methodical. Both perspective views are and will continue to puzzle students for years to come.

Accounting Ratios for Account Manipulation

Accounting Ratios for Account Manipulation How companies manipulate their accounts using accounting ratios? Abstract The emergence of accounting scandals in the US has shaken the world over. Professionals, stakeholders, shareholders and regulatory authorities blame a multitude of factors for the proliferation of cases like Enron, Tyco, WorldCom and Xerox etc. The researcher is of the view that the rising number of bankruptcies and fraud cases in the corporate sector has been the result of weakness within the financial system and regulatory standards. In the US especially the flexibility of the financial standards has given firms the opportunities to manipulate accounts with the help of financial and accounting professionals for the benefit of top management. These individuals have knowledge of GAAP (generally accepted accounting principle) and its loopholes. They capitalize on these loopholes to the extent of crippling the economy and professional standards. The following research investigates the rationale for firms that resort to accounts manipulation through financial ratios and how it could be curbed. It identifies the measures for counteracting unethical professional behaviour by outlining the core weaknesses within the accounting standards and systems. It also compares the US standards with those of the UK to conclude that the UK is less liable to fraudulent behaviour because its authority has taken measures to strictly regulate accounting professionals, auditors and top executives to avoid engage in accounting manipulation and fraud. Table of Contents Chapter 1 Introduction Background Rationale Objectives Scope Work Map Chapter 2 Literature review Introduction Enron WorldCom Ratios Differing Accounting Standards in the UK and US Chapter 3 Research Methodology Inductive and Deductive Reasoning Qualitative and Quantitative Research Secondary and Primary Resources Research Rationale Chapter 4 Data collection and analysis Chapter 5 Conclusion and Recommendations Bibliography Appendices Background The growing number of accounting scandals with the likes of Enron, Tyco, WorldCom and Xerox etc. has raised cause for concern for stakeholders, shareholders, professional bodies and trade authorities alike. They are of the view that corporate finance has undergone transformation for the worse in the last ten years. Williams’ research (2002) indicates that accuracy of revenues and earnings help in operational decision support and formulation of corporate strategy for almost 60 percent of the firms. Others, approximately 58 percent, feel financial reporting transparency and compliance (93 percent) with external reporting requirements imperative for effective corporate and industry performance. However, the growing number of scandals related to fraudulent earnings, inflated asset values and understated liabilities have undermined this system of corporate governance (Lev 2003). Investor confidence has been shaken as each scandal reveals the weak foundation of financial information system of public companies and regulatory authority that oversees them. When Enron filed for Chapter 11 bankruptcy on December 2, 2001 and WorldCom did the same later, investors blamed their business failures on accounting manipulations. This practice is not new. In fact according to Mishra and Drtina (2004) some 200 companies in the past five years have restated their earnings as a result of accounting manipulations. CFO Magazine survey indicates chief financial officers (CFOs) are forced to misrepresent earnings or are pressured to violate generally accepted accounting principles (GAAP) to satisfy shareholders and top executive management. Accounting manipulation not only offers the chance for companies like Enron and WorldCom to increase the asset valuation but also to understate liabilities that would appreciate stock prices, hide losses and increase company valuation. The practice is not limited to the US only. In the UK accounting manipulation is also known as creative accounting. According to Amat, Blake and Dowds (1999) creative accounting refers to a process whereby accountants use their knowledge of accounting rules to manipulate the figures reported in the accounts of a business. Since the accounting process itself is flawed in the sense that it provides flexibility, and opportunities for manipulation and misstatement, financial professionals find it easy to engage in creative accounting. The practice helps in presenting increased profits, genuine economic growth and management efficiency whereas the opposite may also be true. According to Kamal Nasser (1993 qt. Amat, Blake and Dowds 1999) Creative accounting is the transformation of financial accounting figures from what they actually are to what preparers desire by taking advantage of the existing rules and/or ignoring some or all of them. The views of these authors indicate that accounting rules in Western countries are weak and offer plenty of room for manipulation. The damage resulting from accounting manipulation affects the accounting principles that the stakeholders, public and investors depend on and use to estimate, judge and predict corporate performance. The usefulness of accounting principles has regulated industries, balanced investment flow and capitalization in the past. However, Enron and the likes have proved that accounting principles (that the masses have depended on in the past) are unreliable. The scandals prove that accounting tools like financial ratio analysis or fundamental analysis for accounts estimation and prediction do not tr uly reflect the value of the investment. Artificial transactions can be used to manipulate balance sheet amount; profits can be moved from period to period; and assets can be re-arranged to depict a positive financial standing. Amat, Blake and Dowds (1999) are also of the view that companies employ creative accounting to smooth income and report a steady growth. This is achieved by manipulating accounts to depict improved profits even in weak economic conditions to harmonize the ongoing income. Investors, following accounting principles often utilize accounting ratios to judge and estimate the performance of firms, consider steady income growth as stability and judge a non-volatile stock as a good investment. Similarly Fox (1997) is of the view that accounts manipulation is for the purpose of normalizing income so that the company’s management can boost share price by reducing the levels of borrowing, lower risks and generate capital through new shares. Using the accounting rules companies often arrange financial accounts so that they would not reflect in the balance sheet, income statement or cash flow statement. The problem arises when the flexibility within the financial principles allows accountants of companies to manipulate accounts to avert investors, banks and financial institutions scrutiny. This kind of flexibility is limited in some countries while it is more pronounced in others. In the US for example the FASB (Financial Accounting Standard Board) rules that income from extended warranties may be recognized at the time of sale. Banks may not recognize this when they calculate the debt to equity ratios to allow the company to borrow through inventory. In the UK on the other hand there is less provision for using bad debts and inventory as a means to decrease liabilities and inadvertently inflate profitability. Thus, accounting manipulation undermines the moral and ethical standards that are expected of public limited companies. Decreasing apparent volatility in income, inflating debts to avoid taxes, smoothing income to create artificial opportunities for investments and manipulating accounting principles to control market mechanisms depict the weakness within the economy. It also reflects on the ethical standards and moral of the profession of accounting and auditing. Despite the knowledge and acknowledgement of this fact, professionals in the UK from a survey (Nasser 1993) indicate creative accounting is a problem that can never be resolved (91 percent). In the US creative accounting is more regular because it capitalizes on the mandate for detailed accounting rather than broad principles, which makes it even harder to detect fraud. The trend in fraud indicates that the foundation of accounting measures and ratios that firms, institutions and public use to estimate financial statements are not reliable. According to Mishra and Drtina (2004) financial statement ratios tend to focus on profitability not quality of the performance of the company. Ratios such as return on assets and return on equity are not adequate to gauge the firms ability to meet debt obligations or to measure the financial distress it is in. Similarly, ratios that accounting models use to tract shifting revenues and expenses through cash flow statement information merely asses the firms cash level based on operations, financing or investing activities. It is limited in calculating the value of the firm based on free cash flows or net income that affect cash flows. As a result, often firms tend to resort to bankruptcy declarations because of the lack of cash inflows. Furthermore, company’s stock performance is based on the performance of the stock prices but these values are risk dependent and the prices are set with the assumption that market value of the firm is efficient and the stock prices reflect information in the financial statements. However, when analysts base their decisions on ratios such as price to earnings, dividend yield and price to book ratios they are wholly dependent on information in the financial statements, which may be fraudulent (Mishra and Drtina 2004). Rationale When firms are constrained by fraud risks such as: opportunities, pressure and rationalization of unethical management, company information itself forms the basis for high risk (Hillison, Pacini and Sinason 1999). According to Cressey (1973) non-sharable financial need is responsible for the unethical practice that result in fraud such as accounts manipulation. The urgency, which forces management to pressure accountants and auditors to commit fraud, is due to the need to appropriate assets and resources to curb financial losses. In the process they undermine their professional integrity (See Appendix 1) (Hillison, Pacini and Sinason 1999). Riahi-Belkaoui and Picur (2000) in their attempt to understand fraud in the accounting environment write 59 percent of a KPMG 1998 Fraud Survey respondents believe fraud will become more prominent in the future. The reasons they cite include economic pressures, inadequate punishment for conviction, weakening social values, insufficient emphasis on prevention and detection, and criminal sophistication. Accounts manipulation is the result of favourable situations in which criminals recognize flexibility within the financial reporting system and audit failure to detect manipulation. Furthermore, when institutions gain power, privileges and position to create an environment conducive to white collar crime, members are likely to acquire earnings management knowledge that are within the framework of the accounting policies and alternatives. Abdelghany (2005) notes that earnings management help financial managers select certain target and tailor the financial results of the firm to match it. The basic premise is that management can manipulate soft numbers resulting from accrual accounting. As mentioned earlier firms engage in accounts manipulation due to several reasons some are unethical while others are due to the environment in which they operate. The approach to manipulate accounting principles to benefit from persistent high quality earnings and influence process decisions motivate firms to smooth income, inflate revenues, restate earnings and deflate liabilities. They try to meet the analysts expectations and company performance predictions (Abdelghany 2005). Other reasons include debt covenant avoidance, costs of investment, sustainable long-term performance and meeting up with bonus plan requirements etc. among others. The pressures of management performance, leadership, market failure, and future losses tend to motivate top management to conceal internal misappropriations and misstatements. The influence of these pressures on the reported statements is great as analysts depend on the information to make investment decisions, debt covenant, and professional pre diction. Abuse in the form of manipulating accounts affects not only the firm but also the industry and the economy at large. Given the above rationale the researcher is of the view that there is a great need to study accounts manipulation and its affect on industries, the public, accounting and auditing professionals, and the investment environment as a whole. Objectives The objectives of this study are as follows: To investigate how firms like Enron and WorldCom engage in accounts manipulation using financial ratios. To investigate the ethical and professional implications of financial ratios manipulation through accounting misstatements, earnings management and restatements. To study the role of the regulatory authority in contributing or deterring accounts manipulation by comparing the accounting standards in the US and UK. Scope The researcher aims to evaluate pertinent industry practice by evaluating case studies of Enron and WorldCom. The researcher shall also delve into issues of accounting principles weaknesses and the role of the authority in contributing to the current trend of accounting fraud and manipulation. Consequently, the study shall benefit professionals who are in the field, trying to find solutions for the current trend and how to curb it. Academicians might find the use of theoretical frameworks to study a current accounting dilemma interesting and contributory to future works. Moreover, the researcher expects the results of the study enumerating to both students and academicians alike who are interested in the study of accounting fraud and manipulation. However, readers might find the scope of this study limited in the sense that it will be focused on accounts manipulation particularly in the use of financial ratios. There are other methods of accounting manipulations, which will be covered briefly in the research. Overall, readers will find the findings useful and informative. Work Map The study shall be divided into the following sections: Chapter 1 introduces the topic through a brief overview of the current norms and practices in accounts manipulation. It also points out reasons why there is a need for the study with objectives for directing the topic for discussion in the following chapters. Chapter 2 is a Literature Review, which shall trace the Enron and WorldCom scandals in the light of accounts manipulation. It also reviews literature on financial ratios fraud and its effects. Lastly, it shall study the accounting standards adopted by the UK and US to compare which one is more prone to accounts manipulation. Chapter 3 shall outline the various methods considered and chosen for the development of the current study. Chapter 4 is an analysis of the data collected and evaluated from the researchers point of view based on the expertise of the scholars discussed in the Literature Review. Chapter 5 shall conclude the findings, and offers some recommendations to resolve the issues outlined in the objectives. Overview An efficient capital market is one that allows prices to shift rapidly in response to the latest information because public information is conveyed efficiently, interpreted and analyzed to make effective decisions. Disclosure therefore is an obligation imposed by law to facilitate market performance. Companies are obligated to provide information so that investors and the public can interpret information to participate in the market decisions. Professional ethics is relegated through understanding among accountants, auditors, management and executives on the premise that the market is entitled to receive full accounts and reports of companies’ performance as per regulatory authority. The form and content of the individual or consolidated accounts is regulated by the company law and by accounting standards issued to the accounting professionals and auditors. However, sometimes publicly traded company financial position becomes tradeoffs due to limited liability, losses and perf ormance pressure. Any compromise in their performance results in negative market reaction, as they are bound by standards and targets set by the public. This kind of market behaviour force companies to resort to unethical practices (Ferran 1999). Alternatively, when regulations change in response to the demand of the market, companies have to reshuffle their internal systems to comply with them. The preparation of accounts in accordance to applicable accounting standards often conflict with the companys standards and values. New accounting information requirements and standards are often viewed with apprehension as they put pressure on the statutory requirements. For example the Listing Rules of the London Stock Exchange require annual reports and accounts of companies to contain â€Å"additional information†. The changing environment therefore creates a problem for companies to align current with past performances (Ferran 1999). To gauge a companys financial standing, analysts use ratios to estimate and evaluate its performance by comparing it with the current status or against the industrys standards. Financial managers of companies are aware of the use of this tool to evaluate companys performance. Within the framework of legal accounting standards they employ planning and capital structure decisions to measure the performance of firms. Ratios such as price to earning, for example, are of particular interest to investors interested in gauging the performance of the company they want to invest in (Pike and Neale 1996). When pressured, accountants can manipulate accounts information, such as interests, liabilities, and pre-tax profits etc, to substantially inflate or deflate certain accounts according to the needs of the firms objectives for the short or long term. For example some companies might inflate earnings per share to depict higher dividend to increase the companys investment attractiveness. Others might deflate liabilities to depict low debt to equity ratio, to create opportunities for borrowing. Whichever the cause, the fact is that firms engage in accounts manipulation within the accounting principles framework. They are within their legal rights to employ such methods, which allow them to create a positive picture to investors, creditors and institutions. How far can firms employ such methods and to what extent constitutes unethical or illegal practice will be investigated in the following sections. Enron Among the recent cases of accounts manipulation is Enron. Enron products and services relate to gas and energy wholesale, as well as retail to a host of customers. The company is considered one of the most innovative with an efficient management team and a leader who is the envy of the industry. According to Mishra and Drtina (2004) Enron filed bankruptcy in 2001 when it had just revealed its strategic plans in the light of asset and non-asset expansions. The companys plan had been to expand into energy trading expertise with a host of new products and services. At the time its share had been traded at $90. From 1999 to 2001 the company underwent great changes in terms of its earnings per share from $1.27 in 1999 to $0.999 in 2000. To deflect speculation, Enron used off-balance sheet partnerships to finance and sustain its investment growth and rating (Mishra and Drtina 2004). This method is not a new practice but is employed by 27 percent of companies. Enron however used it to hide its massive debts by inflating revenue with gain from sale of assets to off-balance sheet partnerships by guaranteeing the partnerships debt with stocks. As a result Enron had to restate its earnings from time to time to reflect the reduction in shareholders’ equity due to the partnership. The stock price started to decline to less than $1 in November 2001 despite the fact that the company had been considered one of the fastest growing companies in the industry. While the book value of the assets tripled from $23.5 billion in 1997 to $65.5 billion in 2000, in actuality Enron had been deteriorating in its market capitalization (Kedia and Philippon 2005). Enron is a typical example of accounts manipulation where misreporting to show increased investment value and simulated income have created artificial resources whereas the company had been running into high level of debt s. The real cost of manipulation eventually reflects in the earnings. Earnings management has been used to boost stock prices so that managers can profit from the share trading but in effect undermine the organizations value. In theory the use of earnings management helps firms to manipulate price earning ratios to, firstly show firms potential activities, and secondly to restate the value of the firm. However, as a consequence, the earnings created theoretical growth in investment and employment depicting strong growth (Kedia and Philippon 2005; Healy and Wahlen 1999). According to the authors, Kedia and Philippon (2005), Enron used an earnings manipulation model, which has resulted real time inefficiencies, as it does not account for the fundamental value of the firms equity or account for the allocation of resources. Wamy’s (2004) investigation reveals that Enron inflated profits by nearly one billion dollars and top employees raked in millions of dollars (they should not have received) through complex and special partnerships to hide debt, inflate profits and to engage in allied unethical and heinous business practices. The companys unique business model depicts human capital as the leveraging point for its investments, instead of fixed assets. Since its people are considered physical assets, it could allocate earnings to these individuals to create higher value for the firm that owns them. Theorists blame the companys manipulated accounts as the basis for its bankruptcy in 2001. Others (Barlev and Haddad 2004; Wamy 2004) blame it on the transition within the accounting framework. Barlev and Haddad (2004) attribute the shift of accounting practices due to the inclusion of the new paradigm of fair value accounting has increased the pace of reporting in firms. The authors in their research prove that the new paradigm improved full disclosure, transparency and management efficiency mandates. However, the weak control system that governs accounts information contributed to abuse and manipulations. It has allowed Enron to sell its stakes to special purpose entities thereby minimizing reported activities. Since Enron took the position that as a result of the decrease in its ownership interest, it no longer controlled [SPEs] and was not required to consolidate [SPEs] in its balance sheet. SPEs had been acquired through bank loans and debt issuance, which resulted in high debt to equity ratio, but hidden from the investors. As business transactions at Enron grew, the company is also confronted with its inability to pay for these transactions (Dodd 2002). Further, the company has also abused the fair value framework by using hedging instruments such as changing fair value of assets and liabilities, variable cash flows and foreign currency exposure to emphasize on its valuation (Barlev and Haddad 2004) by recording inaccurate revenue and earnings growth. Enron reported prices and recognized fictitious unrealized gains to account for pretax income worth $1.41 billion for the year 2000, which is attested by its auditors as being true (Makkawi and Schick 2003). WorldCom WorldCom (now MCI) is one of the largest distance phone companies in the US to declare bankruptcy in 2004. The reason had been accounting irregularities that equal to $11 billion. According to Scharff (2005) the companys declaration had been one of the largest accounting frauds in the US history. The author writes of the perpetrator as being the organizational structure, group processes and culture, which mitigate fraud that had become an integral part of WorldComs operations. WorldComs rationale for following a corrupt course of action stems from groupthink behaviour and competitive industry environment that pressurize members of the organization to make decisions to pursue fraudulent activities (Whyte 1989). Scharff (2005) traces the development of WorldComs bankruptcy and notes that during the 1990s the company had been under strong pressure to maintain cash flows and earnings before interest. As the telecommunication industry is subjected to strict regulations, WorldCom executives resorted to fraud to allocate costs of capital as prepaid. Similarly, it also engaged in improper release of accruals so as to reduce current year expenses to increase earnings. Not only this, the company also ensured that minor revenue entries are made to increase operating earnings (Scharff 2005). The finance and accounts department had been encouraged by top management to engage in fraudulent behaviours (See Appendix 2) to cover for the invulnerable position the organization had been in. However, the most important issue had been when the company found out about loopholes in the GAAP that would support the entries the executives wanted to include. Through them, the company also managed to inflate cash flows for five quarters with the assumption that the company received cash flows from operations whereas most of its activities had been based on accruals. According to Tergesen (2002) the accounts manipulation engaged at WorldCom had been aimed at inflating consolidated cash flows to present a positive operation picture so that investors are attracted in buying its stocks to increase capitalization. Realizing that investors are risk averse, and avoid company stocks that raise cash through financings, such as debts or investment related activities such as assets, WorldCom managed to pose a positive and attractive picture through accounts manipulation. It managed to secure operations cash flows through securitizing, which is the selling of account receivables. Selling of receivables is recognized as cash collections, even though they are collected in the future. Although this practice is regular, the timing and the manner of entry makes it culpably the basis for accounts manipulation. Not only this, Tergesen also notes that WorldCom engaged in capitalizing expenses. This practice involves the capitalization of costs of assets in the bala nce sheet and writing it off as annual instalments. To compensate for the lack of cash, WorldCom also manipulated the GAAP rules of allowing cash raised through securities sales recorded in the â€Å"cash from operations† section, even though the activity is not related to cash flow. (Tergesen 2002). The motivation according to Zekany, Braun and Warder (2004) stemmed from the pressure to meet analysts and investors’ expectations. WorldCom had been closely connected with the stock market and a favourite of investors. To meet analysts’ forecast expectations, WorldCom used its public relation as guidance for meeting such expectations. These expectations are derived from earnings estimates, securities performance and market position of its stocks. WorldCom, pressured from the intensity of investment demand and analysts’ expectations, devised financial measures to meet the financial requirements. To increase the stock market value, the top executive had to engage in expansionary acquisitions, to increase revenue growth. At the same time the companys performance deteriorated along with the industry yet it had to prove that it performs above the others (Zekany, Braun and Warder 2004). The accounting department at WorldCom had become an important functional component under the directives of its executives engaged in accounts manipulation activities to boost E/R ratio. The authors explain that WorldCom adopted the line cost accruals system to compensate for the accrual revenue and the liability reported in the balance sheet. However, since the accrual system is highly risky, it is difficult to make provision for its accurate reportage. The pressure to meet up with the line cost accruals motivated executives to find creative accounting ideas to reduce and save costs. This approach would have been successful, however since the industry had been strived by deterioration, earnings could not be inflated to achieve the expected levels to portray a positive E/R ratio. E/R is basically a ratio to measure the return on business resources available to the management. It is similar to a measure of shareholder equity and management effectiveness. (Alexander 2001). Ratios Fraudulent financial reporting has given new dimensions to corporate fraud. Both external and internal auditors are striving with the legal liability to detect fraudulent financial statements, so as to save damage to their professional reputation and to prevent public dissatisfaction (Kaminski and Wetzel 2004). Previously professionals relied on the efficiency of ratios to detect expectation errors to make decision pertaining to stock prices, risks and value of stocks for future growth. Subsequent decisions are based on the credible reportage. Investors, borrowing institutions and the public, use accounting ratios to predict returns or performance. Ratios rely on earnings and book value to measure a firms value. Performance is predicted by a cross-sectional aggregate and indicators from figures in the financial statements. Investors use strategies such as fundamental ratio analysis, accruals analysis and fundamental value analysis, to account for their decisions and treatment of inve stment portfolios. However, Daniela, Hirshleifer and Teohb (2001) are of the view that these strategies are not effective predictors of future stock returns. They write: Earnings reported on firms financial statements differ from cash flows by accounting adjustments known as accruals. These are designed in principle to reflect better economic circumstanceshigh accruals predict negative long-run future returns. (Daniela, Hirshleifer and Teohb 2001) This strategy is affected by the discretionary working capital accrual and new equity. This is so because investors are fixated by earnings numbers. Consequently they tend to underestimate other accrual factors. Similarly, the authors also note that the fundamental value analysis strategy to predict future stock returns, relies on stock prices from an imputed value based on a fundamental value model (Daniela, Hirshleifer and Teohb 2001). Even in this model the discounted value of expected future residual earnings are defined in the context of normal return employed in future years. In re

Difficulty Writing an essay at Tertiary Level -- English Writing

Writing an essay at Tertiary level is an extremely difficult process. â€Æ' Introduction The ability to write a quality piece of writing at the tertiary level is a procedure that does not come easily. As mentioned in Marshall and Rowland (2006, p.195).the complexity of developing a style of writing that is personal and academic while processing and developing thoughts and concepts into a presentable piece of academic writing can be a daunting process ( myself included ). This essay will discuss some of the barriers a student may experience during their writing experience. The development of research and reading skills in their approach to learning and difficulties a student may experience due to procrastination and consequently questioning the usefulness of the essay as a learning tool. Motivation and Reasoning â€Å"For many students essay-writing is the bane of their lives. They question the usefulness of essays, make heavy weather of writing them, and generally try to put them off for as long as they can get away with it†(Rowntree,D. 1974, p.65). In this quote from Rowntree the discussion is over the initial process, the assimilation of ideas and knowledge. Most students would agree that the most difficult part of the process is to organise ideas and concepts into words on paper, especially words that they feel to convey their thoughts as Barnett, cited in Marshall and Rowland (2006, p.145).mentions. The question does need to be asked ‘Who (or what) am I writing this essay for?’Marshall and Rowland (2006, p92).argue that we write only for our tutor or lecturer as a means to assess our scholarly efforts. I disagree with this and would side with the view from Rowntree (1974, p65).that the written essay make... ...r Conclusion Essays are not an easy task, but they can be a task over which the student has the most control. Importantly, the written essay teaches a student to think by giving them skills to analyse a topic systematically and communicate their thoughts about the topic in a logical way. Essays are about learning and showing proof of the research effort, your knowledge and your depth of understanding of a topic. References Marshall, L. and Rowland,F. (2006). A Guide to Learning Independently. Malaysia: Pearson Education Australia. Orr, F. (1992). Writing essays. In Study skills for successful students. North Sydney: Allen and Unwin. Pauk, W. (1969). The research paper,Time and technique. Journal of Reading 13. Reprinted as Scholarly writing: A case study. , p.25-32. Rowntree, D. (1974). How to Write Essays. London: MacDonald.