Accounting

The United States Army Corps of Engineers is one of the largest public engineering, design and construction management agencies in the World. Although, it is a branch of US Federal Government but several public and private organizations take their guidance from the data and preliminary cost allocation studies from the projects undertaken by this agency. Since the Corp is mainly associated with building dams, canal and flood protection, its planners are in a position to collaborate with Federal agencies such as Federal Power Commission (FDC) to implement cost allocation strategies. It is important that costs are allocated appropriately because it helps administrators to identify the entity that is responsible for repayments with respect to cost recovery and cost sharing in most Federal multipurpose projects having reimbursable purposes. Moreover, reformulation of major relocation projects require agencies to devise a well coordinated cost allocation study as these feasibility reports are evaluated by Congress to grant final approval on various projects.

City of Seattle
Cost allocation is primarily used to measure the total cost that a certain department or project is likely to incur in its payment cycle or lifetime. The City of Seattle is itself an administrative body that needs to keep track of all the development projects undertaken by its departments. In order to make sense of the costs incurred, the City administration has to come out with certain measurable factors that can unanimously be applied to all departments. The worksheet of Central Service Departments and Commissions for cost allocating factors highlights these factors and relevant policies. Usually cost allocating factors consist of selecting the object of costing, choosing the costs related to the object of costing and selecting a method to interlink these two.

I agree with the cost drivers for the City of Seattle cost allocation factors guidelines as it succulently identifies the different departments and sub-categories for cost allocation, classifies the costing methodology and the unit of measurement. It is often very difficult to identify one single method of allocating costs therefore it is mostly a good decision to recognize individual costs as well as drivers and then define each by allocating a certain standard. For example, deciding between rates and cost allocation charges, the City of Seattles Finance, Budget and Economic Development committee clarifies that cost allocation is feasible where, an immediate price signal is not important to moderate demand for a particular service, if usage is stable or fixed, if the cost of the service is stable or fixed, if the dollar amount of the service is minimal, or if the service is in a transition period where demand is difficult to predict (Seattle Municipal Archives). Cost allocation is used in all major service and production companies and is not only limited to manufacturing industry. Without cost allocation, the City Government will not be able to track its capital expenditures that are needed for sound planning and budgeting purposes.

US Department of Health and Human Services
The US Department of Health and Human Services is responsible for protecting the health of all Americans and offering sustenance in the form of Federal Aid to those who need them. It reviews and determines the appropriate funding for related Federal assistance programs to public organizations providing these programs. The division of cost allocation implements cost allocation plans so that nearly 2,600 grantee organizations are able to take guidance from the rules and charge the Federal government indirect costs associated with facility and administration, accordingly. There are many areas in which cost allocation to Hospitals, non-for-profit institutions and educational organizations takes place. Some of these are indirect cost rates, fringe benefits rates, research patient care rates, among others. For example, a non-for-profit organization can refer to the cost allocating guidelines when providing accrued annual leave to employees. Furthermore, the salaries and wages of people working to build proposals, bids or applications to specific tasks are also covered under these guidelines. In an academic environment, the cost allocation guidelines may help in determining on-campus and off-campus rates where an off campus rate would be developed for activities that do not take place in the facilities owned by the institutions but are directly incurred by the institution.

The Need for Cost Allocation
Cost allocation is not necessarily restricted to Government agencies as it is widely used in almost every industry that incurs cost. Whenever an entity utilizes its resources to deliver units of product or services, it incurs expense in undertaking these activities. Usually large companies have several production and administrative departments therefore, without proper planning it is impossible to appropriately divide the allocation of resources to these departments. This is precisely where cost allocation comes into play. When incurred, these costs are evaluated and accumulated into different cost pools. Similar types of costs are then accumulated in one specific cost pool. The purpose of this classification system is to make it easier for administrator to define cost allocation techniques.

Service industries use cost allocation techniques to calculate costs associated with labor or indirect costs in support of labor. Manufacturing industry use cost allocation methods to calculate, production costs and machine hours, among others. In manufacturing, many products share a joint production process therefore making it necessary to allocate costing measures at the split-off point. Nevertheless, cost allocation techniques are widely implemented in almost all large public and private organizations.

Cost refers to the amount spend in producing a good or even a service. This is the money spend in all departmentsfields in order to provide a commodityservice. This includes a summation of operational, general expenses and overhead expenditure. All direct and indirect costs are summed up to come up with the total cost of production.

Price is the money reward in producing a productservice. Price constitutes the sales in an organization s Income statement. This is what a commodity retails at. Value is a customer s worth of the product or service. This is what a customer believes he should pay on acquisition of a commodity or after getting a service.

I agree with the notion of value costing in the twenty first century organizations. An example an Electrician s cost to fix a music system at a client s residence is, 10 for travel, 5 for materials and two hours labor at 20. The value of the service to the client, who has not been able to listen to radio broadcasts, is greater than 35, the cost. Therefore the electrician may settle at charging a price of 100.
The price charged should match the value that the customerclient gains from the organization s productservice. A consideration should also be made on what other organizations in the same industry are charging, due to competition. An organization should therefore consider other players in the industry so that it does not loose its customers and maintains its market value.

Profit maximization by twenty first century organizations should be subject to
Benefits  this is the advantage that the customer gains by consuming the productservice. When customers are satisfied, they may be willing to pay more. This caters for the material costs, labor costs and gainprofit for the organization.

Criteria this is how a commodityservice is reliable and how first the customer receives the servicegood.

Value this is how much the organization s customersclients appreciates its benefits to them. The main objective of any organization is profit maximization at low cost. So if customers can pay more for goodsservices provided considering what other organizations are charging, the better for the firmorganization.

(Krishan, Gunasekaran. 2005 vol.20, Iss 4 337-354)
TYPES OF SITUATIONS APPROPRIATE FOR APPLICATION OF SOME OF THE  TRIED AND TRUE  COSTING METHODS, OF THE TWENTIETH CENTURY
Tried and true  costing methods are firm specific, but a consideration has to be made on the prices that other firms in the same industry are charging. This ensures that a firm maintains its market value because it does not loose its customers to its competitors. Some of the situations for their application include

A new firm in the industry will charge a slightly lower price than the rest, in order to attract customers. Existing companies have large customer base than new ones. A new firm may be forced to charge a slightly lower price than the cost incurred. This however may lead to supernormal losses in the Income statement. A firm therefore maintains its competitiveness in the industry.

Fixed costs are expenditures on large volumes of output. They may not be directly attributable to single units. A rough estimate of cost may therefore be calculated, which is based on reality.
Marketing strategy a firm may introduce a new commodity in the industry and want to market it by selling it at low cost price first, in order to gain some customer base. A little profit margin may be added to the cost of production, after customers have been used to the new productproduct. The criteria used by customers in their buying decisions may call for the  tried and true  costing methods. The speed of delivering a product may neither be reliable nor convenient a customer will therefore want to pay less for the commodity or service.

If the value that the customers attach to the commodityservice is less, then the costing method should reflect this. This at times helps in maintaining the existing customers due to high competition.
(Mark, 2004 p.12-34)

RELEVANCE OF COST-VOLUME-PROFIT ANAYSIS IN THE TWENTY FIRST CENTURY BUSINESS ORGANIZATION

Cost-volume-profit analysis is Cost Accounting techniques used by Management EconomistsAccountants. The analysis can be applied to make short-term decisions. These short-term decisions assist the firmorganization in achieving its objectives. The model is applicable in sub-optimization in the twenty first century for an organization to be inline with its Mission statement. It utilizes information available from break even analysis that is when total costs are equal to total revenue. At this point an organization is operating at no profit or loss. Management accountants therefore need to make adjustments, so that profit is maximized at low cost. The main object in any business is, profit maximization and maintaining the market value. Organizations work on the volume bought and sold because, cost-volume-profit analysis assumes that units produced equals units that are sold.

Cost-volume-profit analysis gives us the unit contribution, which is a good assessment of an organization s progress. If the contribution per unit is negative, a company has to work on lowering its variable costs, in order to achieve the long term objective of being a market leader in the industry. A company can set a target income from sales and work on its variable and fixed costs. Operational costs are therefore simplified because the cost of producing every single unit has got to be minimized.
Management accountants use cost-volume-profit analysis to plan for the number of units sold in order to avoid losses, which may be due to the huge costs of production. When more units are boughtproduced then sales will be high this covers the total costs which include both the fixed and the variable costs. Cost accountants come up with elementary instructions that assist in both the short run and long run decision making as per the organization s goals.

The word culture is composed of various aspects. The concepts included in the definition of the word are beliefs, values, customs and ideas of a person that are derived from ethnic background, family, community and social components of an individual. Culture is dynamic and changes with time. Culture is inherited from one generation to another. Parents pass some values and customs to their children (Potrac, Jones,  Cassidy, 2004).

Ways in which culture had an impact on my life
My community has great value for the family. People without family backgrounds are valued less and are sometimes seen as outcasts (Smyth, Krahn,  Boehm, 1999). The success of any man or woman is pegged on how successful hisher family is. Having been born in a poor family, we had nothing or nowhere to call our own. Although we have lived in severe poverty, my family has remained united and we focus on success in the future. We have a strong believe that the culture of our community is to value the family as the foundation of everything in a persons life. Though not written, there are specific duties, roles, rules and regulations that govern each one of us in our family. My father has the role to cater for the financial needs and to act as a leader of the entire family members. My mother acts like a deputy and her role is to maintain the house in good order as well as support my father in daily activities. Being the first borne and the eldest son, I have many responsibilities. I have the obligation of being a role model to my younger brothers and sisters. My family expects me to lead the family when my parents are absent. My siblings have a role to ensure they perform the duties assigned to them. As children, our parents expect us to respect them and to have love for each other. My parents have emphasized about the unity in our family. Conflicts are solved amicably and all factors that may divide the family members are eliminated as soon as they are realized.

Education has a great value in my culture. People believe that education increases opportunities for success and that it earns a person respect from other people in the society (Wallach, 2005).  My parents were unable to acquire adequate education due to poverty and the ignorance of their parents. They were denied the opportunity to acquire education and this remained a great challenge to them. I have put pressure to myself to achieve the highest level of education so that I can compensate what my parents have lacked in their life. This culture of education has made me to belief that I will achieve the highest possible academic achievement. My parents have supported and encouraged me to continue pursuing my academic goals. My family has a great value for education and all my siblings have attended school.

What I have learned about myself and society as a result.
The family is the foundation of every human activity (Wallach, 2005). The success or failure of an individual is much determined by hisher family set up. I have come to appreciate the fact that the family is composed of several units and all these units must be united for the success of the family. An individual cannot run the family alone and it requires the support from all members. Parents should act as leaders in the family so that their children can learn good values from them (Potrac, Jones,  Cassidy, 2004).

My parents effort to educate me has encouraged me to appreciate education. Though they were not educated, my parents have had the zeal to educate me to the highest academic level possible. This has encouraged me to study hard to achieve the best possible academic pursuit. The society has a great value for education. The educated people are appreciated by the society and are believed to be great assets in the community (Wallach, 2005).

How my own cultural history has enriched andor challenged me
The responsibilities bestowed upon me as a first borne and the eldest son in the family have challenged me to become more accurate with my actions. I have acquired the skills of feeling about the needs of other people. This involves provision of love, support, finances and any other form of help that I can afford to people in need.

Through the emphasis of education that my parents and the culture in general have had on me, I have managed to achieve a bachelors degree and planning to attend my masters degree. The culture of appreciating education has enriched me and has given me the drive to excel in my academics. In my high school studies, I faced a lot of challenges. I became sick while my second year exam was in progress. This caused me to repeat the entire second years studies. After joining third year my father was transferred from his place of job. This forced me to attend another school which had fewer resources. Despite all these challenges, I put a lot effort to achieve the best grade in my final exams. When I joined the university, strikes by students and lecturers affected my studies but I never gave up on my desire to get my degree. I finally graduated with a first degree. It is the culture of valuing education that compelled me to bear the problems that I encountered.

Conclusion
People should value their families since it is only through the family that an individual can be able to succeed in the outside world. The family unit is the basic unit of the society. People should appreciate their families and much effort should be put to ensure that family members are united. All members of the family should have common goals since divisions within the family leads to breakdown of the family. Children should respect their parents at all times. The parents should provide love and the other needs to their children. Fathers should act as leaders of the family since in any organization, there must be a leader. Mothers should support their husbands as well as managing the entire family activities.

Education is the key to success. Eradication of poverty and ignorance can be achieved through education. People ought to put a lot of effort to achieve their academic dreams. Determination in education helps a person to pass through many challenges in the academic journey. The society has recognized education as the mainstay of survival. The educated people are recognized by the society due to the great value for education.

The recent accounting scandals have generated a closer look on the unfavorable publicity for people who are in the accounting profession. Deciding on what is right or wrong can be different among those involved in the accounting profession especially since what may look as being unethical does not necessarily make it illegal.

It is apparent, therefore, that ethical values provide the foundation which civilized society function. Civilization collapses when this foundation is weak. (Smith  Smith). Each individual needs to answer the question on what his aspiration is because if integrity is secondary, then, it will be sacrificed especially in situation where a choice must be made. (Smith  Smith).

G.K. Chesterton, an English writer said that America was the only nation in the world founded on a creed. This was set with dogmatic and even theological lucidity in the Declaration of Independence. He actually referred to the second paragraph of Americas founding document We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights,  that among these are life, liberty and the pursuit of happiness. (Smith  Smith).

Among all the virtues that can lead to political prosperity, the one that is a true pillar of strength for the company is its ethical practices and integrity. John Adams, the second U.S. President addressed the Massachusetts militia in 1789 stating in no uncertain terms that We have no government armed with power capable of contending with human passions unbridled by morality and religion. Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other. (Smith  Smith).

Enron, one of Americas largest companies, collapsed in 2001 which led to massive investigations of a range of criminal activities perpetrated by some of Enrons top executives. The scandal developed into a case study of corporate fraud, poor management decisions, and faulty accounting practices (The Enron Affair).

The Enron Scandal
Enron had built itself into the seventh largest company in the United States, with annual revenues of 100 billion. (American Law Encyclopedia Vol. 3, 2009) In December 2000, the companys stock sold for as much as 84.87 per share. However, stock prices fell throughout much of 2001. In October, the company announced that it had overstated its revenues, claiming losses of 638 million during the third quarter of 2001 alone. Stock prices then plunged, hurting investors and employees with retirement plans that were tied into company stock. By the beginning of December, Enrons stock prices had fallen to below 1 per share. Enron filed for Chapter 11 bankruptcy protection on December 2, 2001. To date, the event constituted the largest bankruptcy in U.S. history.

Initial investigations into the Enron case focused on fraud. Fraud is defined as a false representation of a matter of factwhether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosedthat deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury. (American Law Encyclopedia Vol. 4, 2009)

Rules of Conduct and Ethics
In the Chapter 1 of his book, Ethical Issues in the Practice of Accounting Michael Josephson, enumerates  Ten Universal Values. They are honesty, integrity, promise-keeping, fidelity, fairness, caring, respect for others, responsible citizenship, pursuit of excellence, and accountability. Ethical values in the accounting profession are definitely a virtue as Chuck Colson  also remarked
Societies are tragically vulnerable when the men and women who compose them lack character. A nation or a culture cannot endure for long unless it is undergirded by common values such as valor, public-spiritedness, respect for others and for the law it cannot stand unless it is populated by people who will act on motives superior to their own immediate interest. Keeping the law, respecting human life and property, loving ones family, fighting to defend national goals, helping the unfortunate, paying taxes--all these depend on the individual virtues of courage, loyalty, charity, compassion, civility, and duty. (Smith  Smith)

In the U.S. legal system, fraud is a specific offense with certain features. Fraud must be proven by showing that the defendants actions involved five separate elements (1) a false statement of a material fact,(2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result. (American Law Encyclopedia Vol. 4, 2009)
Fraud is commonly understood as dishonesty calculated for advantage. A person who is dishonest may be called a fraud. Enron executives committed corporate fraud. Corporate fraud cases are largely governed by the Securities Exchange Act of 1934 along with other rules and regulations propagated by the Securities and Exchange Commission. (American Law Encyclopedia Vol. 4, 2009). Enron committed corporate fraud through the companys financial reporting practices. Though the company followed generally accepted accounting principles (GAAP), these practices gave the false impression that the company was more profitable and more secure than it really was. The company reported revenues that were actually funds flowing through transitional transactions with related companies. Moreover, the company hid its losses and debts in partnerships that did not appear on Enrons financial statements. (American Law Encyclopedia Vol. 4, 2009)
 
Overstating profits
Enron officials have acknowledged that the company has overstated its profits by more than US580 million since 1997. Also, in the four years between 1996 and 1999, Enron told shareholders that it has made US2.3 billion profit, while it reported 3 billion losses to tax authorities. (Khasawneh, 2005). Several of Enrons senior executives reportedly had personal interests in certain risky transactions. These executives even sold Enron stock while at the same time convincing employees to hold their stock. The board of directors of the company also allegedly failed to provide significant oversight regarding the auditing and reporting by the company. (American Law Encyclopedia Vol. 4, 2009)
The first major criminal charges involving an Enron executive were brought against Michael Kopper, who had served as an aide to chief financial officer Andrew Fastow. Kopper pleaded guilty to charges of money laundering and conspiracy to commit fraud in August 2002. Kopper implicated Fastow, claiming that Fastow had conducted transactions on behalf of Enron for the benefit of third-party partnerships owned by Fastow. (American Law Encyclopedia, 2009)

In November 2002, the Justice Department indicted Fastow on 78 counts, including fraud, money laundering, and obstruction of justice. The criminal indictment did not include former CEO Kenneth Lay, former CEO Jeffrey Skilling, or any other top executives. The Justice Department also announced that it could file a superseding indictment with additional charges. This superseding indictment might name additional defendants as well. (American Law Encyclopedia, 2009).

Lynn Brewer, a former Enron executive and currently founding chairman of The Integrity Institute Inc., said that while former Enron Chief Executive Jeffrey Skilling never told company employees to cook the books, he said, find me the revenue. That pressure, she said, led to unethical company decisions to hide accounting practices and poor business operations. (Tom, 2006). Brewer said when she initially noticed fraud at Enron, she was complacent because of fear. She eventually became comfortable with the payoff, making 2,000 on stock options. Other executives who knew about fraud kept quiet as they made financial gains through stock options. However, they were equally guilty as those who committed the fraud. (Tom, 2006). Often, the decisions that we make at the time seem like the lesser of two evils. Many times, business decisions are made quickly, and risk managers are involved in decisions when its too late, Brewer said. (Tom, 2006).

Indeed, greed in the accounting profession, as well as in any field of work, can result in the ruin of that company. Although the objective of any firm is to increase its profits, this requires public trust. It is important to always remember that ethics in the accounting profession depends on trust that is rooted on ethical business practices.

Manelcom, Inc.
Statement for Cash flows for
The Year Ended December 31, 2008
Cash Flows from operating activitiesNet Income After Taxes44,220 Depreciation 20,000 Change in Accounts Receivable(50,800) Change in Inventories120,800 Change in Accounts Payable 29,600 Change in Accruals 4,000 Cash Provided By Operating Activities 167,820Cash Flow from Investment Activities Increase in Gross Fixed Assets  (36,000) Cash Provided by Investment Activities        (36,000)Cash Flow from Financing Activities Change in Notes Payable 25,000 Change in Long Term Debt               101,180 Change In Stockholders Equity 0 Dividends Paid (22,000) Cash Provided by Financing Activities104,180Net Increase in Cash and Marketable Securities 236,000The operation side of company is not performing very well as we can see that the difference between the last years Net Income and this years Net Income is 43,740. This dramatic decline must impact negatively on companys future plans of extension because company didnt get what it desires to achieve it future goals. There is a significant change in Accounts Receivable and it was increased by 50,800 which impact negatively on cash reserves of the company and company must wait a little longer to get cash owed by customers. We use a big amount of cash for purchasing inventories this year, management should monitor inventory to minimize the amount keep on hand to avoid purchasing of extra inventories. We should use accounts payable and accruals as a tool to increase our cash reserves, but our purchases must not be greater than total sales due. We must pay our bills on due dates unless there is a discount for early payments. We use 36,000 to increase our gross fixed assets, if company would plan to open an office in Miami, management must avoid purchases unless until necessary. Company must apply to acquire new debt from bank to improve its debt ratio and increase the leverage. There is no change in Stock holders equity, management must think about issuance of new shares to get cash and to stabilize the condition of company. The net increase in cash and marketable securities is not well enough that of last year, management must take serious steps to improve the operating performance of company to stabilize the financial condition.

2) Earnings per Share

Earning per Share for 2007
87,960100,000  0.8796share

Earning per Share for 2008
44,220100,000  0.4422share

The EPS in 2007 is 0.8796share but in 2008 it declines to almost half of it that is 0.4422share. This dramatic decline in EPS may harass the shareholders and in result they may selling out there shares because of poor performance of company. Company must improve its performance to avoid any type of misunderstanding between company and share holders.

3) Liquidity Ratio
Current Ratio 1650800540200 3.05X
Quick Ratio 1650800-836000540200 1.50X
Activity Ratio
Inventory Turnover 3250000540200 6.01X
Average Age of Inventory 3656.01 60.73 days
Average Collection Period 402000385000036538.11 days
Average Payment Period 1752000.833250000365 24 days
Fixed Asset Turnover 3850000360800 10.67X
Total Asset Turnover 385000016508002.33X
Financial Leverage Ratio
Debt Ratio 5402001650800 32.72
Time Interest Earned Ratio 149700760001.96X
Fixed charge Coverage Ratio 1497004000040000760001.63
Profitability Ratio
Gross Profit Margin 6000003850000 15.58
Operating Profit Margin 1497003850000 3.88
Net Profit Margin 442203850000  1.14
Earning per Share 44220100000  0.4422
Return on Total Assets 442201650800 2.67
Return on Total Equity 44220685988 6.44
Market Ratios
PriceEarning 60.4422 13.56X
Market to Book Ratio Book Value share 460000100000 4.6
64.6 1.30X

EvaluationYearIndustry AverageCross-
SectionalTime-
SeriesRatio20072008200820082007-2008OverallLiquidityCurrent2.33X3.05X2.7XGoodGoodGoodQuick0.84X1.50X1.0XGoodGoodGoodActivityInventory Turnover4.00X6.01X6.0XGoodGoodGoodAverage Collection Period37.35 days38.11 days32.0 daysPoorPoorPoorFixed Asset Turnover9.95X10.67X10.7XOkOkOkTotal Asset Turnover2.33X2.33X2.6XOkOkOkDebtDebt Ratio32.7832.7250PoorOkOkTimes Interest Earned3.34X1.96X2.5XGoodOkOkFixed Charge Coverage2.431.632.1GoodOkOkProfitabilityGross Profit Margin16.5515.58NANAOkOkOperating Profit Margin6.093.88NANAPoorPoorNet Profit Margin2.561.143.5PoorPoorPoorEarnings per Share0.87960.4422NANAPoorPoorReturn on Total Assets5.982.679.1PoorPoorPoorReturn on total

Equity13.256.4418.2PoorPoorPoorMarketPriceearning9.66X13.56X14.2XOkGoodOkMarketbook1.84X1.30X1.4XOkOkOkCurrent ratio of company is comparatively good enough from last years ratio and industry average Ratio. Companys liquidity position is very good. Companys quick ratio is also good in comparison with last years ratio and industry average ratio. Company is able to pay its current liabilities if the accounts receivable can be collected. The inventory turnover ratio shows that company holds not much inventory in hand and it is productive and it represents investment with high rate of return. The ACP is very much poor and the delay in collecting receivables is well above then industry average. Fixed asset turnover is improved and company is using its fixed assets as intensively as other firms do. Companys total asset turnover ratio is somewhat low, indicating that the company is not generating a sufficient volume of business. Debt ratio shows that the financing provided by shareholders is much more then from long term debts and the industry trend is half financing from debt and half from shareholders. TIE ratio shows that company is covering its interest by a moderate margin of safety company would face difficulties if it attempted to borrow additional funds. Companys fixed charge coverage ratio is well below the industry average it seems that the company is relatively high level of debt. The net profit margin is below the industry average and its just because company must have to pay around 50 of its income as interest. ROA is very low and its just because of companys low basic earning power and high interest costs. ROE is also very much lower than last year and industry average it shows that the stockholders didnt sufficient return on their investment. PE is below the average shows that company is somewhat riskier than most. MB ratio is below the average it shows that investors are not willing to pay more for a dollar of companys book value.  

4) DuPont Analysis
ROA 1.142.33 2.65
Manelcom Inc. made 2.65, or 2.65 cents on each dollar of sales, and its assets were turned over 2.40 times during the year. Therefore, the company earned a return of 2.65 on its Assets.
FLM 1650800685988 2.40X
ROE 2.652.40 6.36

The return on equity is 6.36, or 6.36cents on each common stock share. Therefore, the company earned a 6.36 return on its equity. The biggest weakness of the company is hike in expenses even though their sales have increased the rise in expenses has almost halved their income. Another weakness is that the stock prices of the company is fallen, which means they cant rely on raising more equity to finance the opening of the new office. Also their average days to recover receivables are much higher as compared to the average days for payables. The good thing is that the company is highly liquid and the turnover is pretty good.

5) Through the year 2008 the cash inflows are pretty much lower than the previous year. Opening office in Miami, Florida, to promote sales to Caribbean and Latin American markets would cost 85,000 more to cover the expenses of that office per year. The financial position of company is not in that condition to afford that expense because of dramatic decline in companys yearly profit and EPS. There is no guarantee that the marketing development plan would succeed. During 2-3 years of marketing development plan, company must bear all the expenses which may also affect its performance in coming years. To improve the companys overall performance management must take steps and consider the key issues which are affecting the financial condition of the company. First of all company should establish good credit policies for sales on credit. Age accounts receivable monthly and follow well defined collection methods. Company should lease equipments instead of purchasing them and monitor inventory to avoid excessive purchasing. Sell out some assets to improve total assets turnover. Company must control its expenses specially COGS. Even though sales has increased, the rise in expenses affect badly on their income. Company must control its expenses to increase its profit. These higher expenses will result in low net profit margin and as a result EPS falls down. Company should raise its funds by borrowing, management must avoid raising funds through equity because the share prices is already fallen and if they issue new shares, this will bring down the share prices in the market. Company should increase its sales and prices to improve its financial condition. Company must review its financial policies to stabilize the financial condition of the company.

WPP group is a group based in London, England and is one of the worlds largest media and communications group. Wire and Plastic Products (WPP) started in 1971 making plastic products but was purchased by Martin Sorrell in 1985 who was looking for a listed company to start its marketing services. WPP group is an umbrella to several media, advertising and PR giants such as JWT, Grey Global and Mindshare. It employs more than 130,000 employees in around 100 countries. WPP Group posted a profit of almost 7.5 billion in 2008. The company is listed on the London Stock Exchange and presents its annual statements in a consolidated form (Funding Universe, 2009).

Business Strategy
The company operates in the following business segments
Agency Networks
Media Investment Management
Information, Insight and Consultancy
Public Relations and Public Affairs
Branding  Identity
Healthcare Communications
Specialist Communications
WPP Digital
(WPP, 2009)

Section A
The financial statements section of the annual report starts off with discussing the accounting policies of the company. Then it shows the consolidated form of the income statement, cashflow statement and balance sheet.

The accounting policies start off with clarifying that the statements have been prepared under the IFRS which the company adopted in 2005. The policies section clearly explains the basis of preparation and consolidation for the readers. The policies are not in too much technical jargon. The goodwill is explained in detail also. A reason for giving detailed explanation for goodwill is that it is one intangible asset which can be manipulated by the management to window dress the statements to their liking. It would be helpful for the reader if they would have given the basis for classifying a brand as an indefinite intangible asset or a definite tangible asset. The depreciation policy on the fixed assets is clearly defined and the life of each asset is also mentioned in the accounting policy.
Since WPP is a truly global company, its financial statement will have a significant impact on fluctuation of foreign exchange rates. The paragraph also talks about the interest rate hedging that the company indulges in, to reduce their exposure. The policy also points out where to find the fair values of the derivates used for hedging and the derivates used for other purposes. This makes it easier for an average reason to understand the policy.

One of the important accounting policies is the revenue recognition policies of a company. This policy has assumed even more importance since the Enron scandal. The revenue recognition policy is separately defined for both business units. The advertising and media management recognizes revenue when the service has been performed and the quantitative targets have been met. The information, insight and consultancy unit recognizes revenue on the proportional basis where the input costs are used as the criteria for calculation of proportion.

The policies also list down the accounting policies which have come into effect through the enforcement of IFRS but have not been applied in these statements. This helps in avoiding confusion as to which standard has been applied and which of them have not been applied.

The accounting policies section concludes with the responsibility statement of the directors which adds credibility to the transparency of the financial statements.

Income Statement
The income statement starts off with the figure for the total gross billing made by the company. Since this is a new terminology for the new readers, it is difficult to understand as the revenue line is shown separately. The income statement shows the figures in two currencies, namely, dollar and pounds. However, the currencies should be highlighted more clearly since it can lead to a confusion and misinterpretation by the user. Other than that, the income statement is in a summarized form and easy to comprehend.

 EMBED Excel.Sheet.12  (Investor Centre, 2009)
The above table shows the gross and net profit margins for the company in the concluded fiscal year and the last two years. The company has seen an increase of approximately 20 increase in sales during 2008. But the company has failed to translate higher sales into higher profits. The net profit in absolute terms has remained the same while the margin has fallen from 8.33 in 2007 to 6.87 in 2008 (Stockopedia, 2009). The gross profit margin has remained stable throughout the period of three years. Just as the PBIT margin has been clearly shown in the income statement, the margin for net profit after tax should also be shown below the net income in the income statement.

The drop in the net profit margin can be attributed to the extraordinary increase in the finance costs of the company. The finance costs have seen a hefty increase of almost 30 from last year, which has eaten away the operating profits.

The company has clearly shown its headline earnings for investors to interpret the true performance of the company. But there is also a need for the management to clearly define headline earnings in the annual report. A reader who is unaware of this terminology may not be able to understand the use of it and might be misled by the figure.

Balance Sheet
The consolidated balance sheet of WPP is shown in a summarized form which gives a comprehensive snapshot of the financial position of the company. The balance sheet is shown in a vertical format with the net assets (assets less liabilities) on one side and the equity on the other. The noncurrent assets are heavily tilted towards intangibles in the form of goodwill. The goodwill has increased by 3 billion from last year. This increase is attributable to acquisitions made by WPP during 2008. The company has posted negative net current assets during 2008 and 2007. The major reason has been the huge amount of trade payables for the company. The current ratio has been 0.9 and 0.86 in 2008 and 2007 respectively which indicate a cause of concern for the management of the company.

The format of the balance sheet makes it a little difficult to compare the equity and the debt section of the balance sheet in order to calculate the debt-to-equity ratio. The capital structure of WPP in 2008 was 24 equity and 76 debt the major financing coming from trade payables. The breakup of long term liabilities is also clearly shown in terms of its sub components where bank loans are the biggest form of long term liabilities. Another notable change is a substantial increase in the merger reserve resulting from mergers and acquisition of subsidiaries and associate companies.

Although the balance sheet looks in fine form, but a couple of changes will increase its effectiveness. The management should consider giving sub totals for each sub components such as current assets and current liabilities in order to make the balance sheet easier to comprehend for new readers. The figures should be shown two years in retrospect and also in dollar terms just as the income statement to ensure consistency.

Cash flow statement
The corporate report uses an indirect cash flow approach for the calculation of net cash flow from operating activities. The calculation is shown in the notes to the financial statements. The operating profit has been adjusted for the non cash transactions and the changes in working capital from the last balance sheet. The taxes paid, interest and dividend income received have all been classified under operating activities.  Under IFRS, the company has the choice to classify interest income and dividend income as either operating or investing activity.

The net cash flow from operating activities has increased over the last two years which is a positive sign. Overall, the cash has increased in 2008 while it registered a decrease in the previous two years. Net debt has been on a decrease which shows that the company has been repaying its debt and reducing its interest expenses also in the process.

Notes to the financial statement
The notes to the financial statements also show the breakup of the sales and PBIT according to the business segments and geographical regions. The notes also show the balance sheet position of each business segment and geographical region.

The break up for the operating sectors shows that the highest revenue has been posted by the Advertising and Media Investment Management Segment which posted revenue of 3.3 billion which is almost 45 of the total revenue for 2008. Furthermore, the share of Advertising and Media Investment Management increases to more than 50 in the total profit before interest and tax.
The management should also add a column to show the revenue of each segment as a percentage of total revenue.  This will help the reader interpret this data much more effectively since so many numbers tend to confuse people.

Revenues by Geographical Region
Since WPP is a global company with operations in more than 100 countries, the readers of the financial statement want to know which geographical region is generating the most revenue for the company. Analysis of the breakup shows that the revenue share is 35, 28 and 24 for North America, Continental Europe and Asia Pacific respectively during 2008. The revenue from UK contributed only 13 of the total revenue of the company. This shows the global nature of the company. These percentages should be clearly mentioned in the statement to give the users of the statement an idea of the revenue stream. Further analysis shows that the PBIT margin is highest for North America while it is the lowest for the UK region.

Finally, the basic EPS and diluted EPS for the company in 2008 has been calculated to stand at 38.4p and 37.6p respectively. (Investor Chronicle, 2009)

To round it off, it can be said that the statements are fairly well presented and give an accurate representation of the financial position of the company. The shortcomings that were seen have been identified at appropriate places in the above paragraphs. These include showing more statistics to summarize data, more graphs to show performance trends and ensuring consistency among the income statement and balance sheet formats in terms of retrospective data.

SECTION B
The annual report starts off with a detailed table of contents which gives a snapshot of what the readers can expect to find in the annual report. The sub headings in the table of contents carry an unconventional touch as the media company has attempted to add their streak of creativity to their annual report. The headings such as Who we are and How we behave might be really creative for the marketing professional, but may not appeal too much to a conservative stock investor sifting through the report.

The first section is the fast read which summarizes the whole report in only a few pages. This is a very attractive feature which allows the reader to skim through the important information. It also gives a snapshot of the financial position and future prospects of the company in just 2 pages. An investor who is short on time and sifting through the report can find these two pages extremely useful to make a split second decision whether to invest in the company or not.

 The Who we are section talks about the nature of business of WPP and the different business segments in which it operates. The report lists down 8 business segments in total, but the lions share of the revenue is generated through Advertising, Media Investment Management and Public Relations. The WPP group is an umbrella to more than 150 companies across the globe and employs around 135,000 people globally and it is important to summarize its operations in such a way that the reader can grasp the magnitude and scale of the operations of WPP group and its subsidiaries.

As a stepping stone into the WPP world, the report defines the mission of the organizations existence. A very good part of the report is that they have included a section by the title How we are doing which the section under Who runs WPP introduces the top management of the company to the reader. The management and the editorial team have made a wise decision by not adding photos of the top management in this section which beefs up the report unnecessarily.

The next section under How we behave talks about the corporate governance and corporate social responsibility. The writer believes that this section deserves a bit more detail and space in the annual report. The corporate governance has become a serious issue in this age and the investors are more than concerned about the credibility and transparency of the financial statements of the company being scrutinized. Therefore, being the umbrella company, WPP should talk in detail about the corporate governance and the value it shares with its subsidiaries and associate companies. The section on share ownership explains the distribution of ownership in very colorful and easy to understand charts which show the breakup by geographical region and type.

Following all this, is shown a list of all the companies under WPP. The list contains the names and website of each company. If a reader requires further details about a particular company, he or she can access the website for it.

Another very interesting section in the report is What we think, where the management gives their subjective opinion of the prior and future events and their effect on the operations and profitability of the company. However, the report fails to disclose that this note is more of an unofficial nature and should not be taken as a substitute for the directors report. This section talks about the overall economic growth globally, opportunities popping up, and WPPs position among the top companies of the world.

The letter to the shareholders, which is supposed to be an extension of the directors report, talks about the decline in share price despite increase in sales. The letter seeks to address the concerns that a common shareholder might have in his mind. The letter tries to give a brief explanation to changes in important variables such as revenues, billing, Headline profit etc. The letter also seeks to explain the effect of fluctuation in the foreign currency exchange rates on the profits of the company. The management does a fair job in allaying the concerns of the shareholders and giving them hope for the future. Therefore, we can say that the management has been fairly successful in communicating their message to the shareholders.

The letter also talks about the industry prospects in the upcoming years. It is stated that the advertising industry grew only by 2-3 globally in 2008. WPP expects a surge in the industry figures from 2010. The letter discusses the financial crisis and the opportunities that lie ahead of the crisis. Even in the directors report, the directors have tried to give tried to satisfy the shareholders that the company is in safe hands and they should expect better results in the future.

All the information mentioned above help potential investors and current shareholders to understand where WPP stands in the future, how have the current events affected it, how did WPP overcome them and what does future hold in store for WPP and its shareholders All these questions have to be answered through this medium to eliminate any uncertainty the investors might have in their minds about the WPPs performance and its future potential.

When the management talks about its key priorities, it clearly outlines its short term, medium term and long term plans. The management is looking to weather the financial crisis in the short term. In the medium term, their strategy is to build upon the base they have built through acquisitions and organic growth both.  Finally, in the long term, the management plans to increase its revenue from the emerging markets of Asia Pacific, Middle East and Latin America

Overall, the graphs and figures used in the narratives have been made more attractive in terms of colors and graphics to make them more appealing to the reader and give it a flavor of creativity. However, it would be better if they used clearer and distinct scales and larger graphs for readers convenience. Also, when discussing the operating brands, the report only highlights its star subsidiaries. It gives a slightly false impression about the future prospects of the rest of the subsidiaries which may not be expected to do so well. The directors remuneration has also been presented in a very user friendly manner which makes it very easy for the readers to comprehend the information which has been presented in the form of tables and charts.

Since WPP is a marketing and communication firm, it has done an impressive job in communicating its performance and results to the potential and existing shareholders. It has made sure that the data is well presented and understandable to an average reader who does identify with financial terms. The use of graphs can be, however, increased. Other than that, the narrative non financial information section of the annual report is highly impressive and can be recommended to other companies for guidance. Another improvement which can be made in the report is that the headings according to the legal requirements of the IFRS should be mentioned more clearly. The report tends to use innovation and unconventional headings which might make life difficult for someone looking for specific information according to the conventional titles. For example, a reader looking for the auditors report might miss the heading. If some these changes are incorporated, the annual report will become a brilliant combination of artistic creativity and financial expertise exhibited by a team consisting of marketing and finance professionals.

The surge of the global financial crisis since 2008 is one phenomenon deserving a long overdue in-depth explanation. Not so much for the sectors primarily considered as the direct  hits of the crisis but for the drivers that spawned the global economic downturn, things are indeed interesting, going into the next possible wave of crisis yet unknown. Here, a clarification is therefore demanded from the sectors which are, by their affiliation with the industry, happens to be situated near the epicenter of the crisis  and this is the accounting profession.

Accountants are trained not only to identify, record, report and control financial transactions which comprise their traditional scope of responsibilities, but likewise to look into the entire economic environment for every financial and non-financial driver that may likely affect the recording, reporting and control of every business transaction. The accounting profession recognizes the theoretical framework of principles that support treatment of business transactions and how they impact key business decisions.    
       
Henceforth, the varying differences between the United States Generally Accepted Accounting Principles (US GAAP) and the IASC-based International Financial Reporting Standards (IFRS) are admitted by most experts as due to adherence to the principle-based accounting standards of the IFRS versus the regulatory-oriented US GAAP. Thus, the variances in concepts and practices adopted along the wide accounting divide remains to be reconciled. Meanwhile, multinational firms with global reporting responsibilities had to contend with new pronouncements of accounting standards as fast as they are officially announced. But with all the regulatory reportorial requirements, the benchmark and alternative treatments available to accountants, the vast opportunities for manipulations and creative accounting become an open game. Here, seasoned accountants from the government and private sectors bring their extreme expertise wherever they go and this allows them to practice innovative accounting whenever they can, and apparently cunningly believing it will take time before these are discovered by less-intelligent auditors-regulators. (Houck, 2003)
         
Further, whether acting as controllers, auditors, tax specialist or management consultants, the accountant is at the forefront of determining what is supposed to be conservative, generally-acceptable and substantive financial reporting system. However, the fast-changing economic environment is putting the accounting profession to a defensive stance more than ever. Here, the role of the accountant is further exacerbated by the surging technology and they are caught in the economic bubble they are tasked to guard against but are likely to join the fray. (Luttwak,1999)

Issues Raised vis--vis the Accounting Profession
The issues therefore are brought into the open (1) Does the accounting profession bear any blame for the financial crisis (2) What critical areas do the accounting profession may have been culpable to some degree And, (3) What redirections can be suggested to the accounting profession to strengthen and balance its role as a catalyst of the economic environment            

First Critical Area The Environment of Complexities              
With the growing complexities of the global economy, the accounting profession appears to be at the receiving end of the demands for clarification on what actually does happen at the innards of the financial turmoil leading to the economic crisis. While accountants are not in full control of the economic factors that shape the economy, they are nevertheless expected to take primary responsibility for the standards and principles to base treatment of every business transactions from - including errors, risks, frauds and illegal acts that may be committed intentionally or otherwise. Thus, knowing fully-well the appurtenant risks including the unintended consequences of every financial and non-financial misinterpretation, accountants are at the forefront of this responsibility as catalysts to bridge understanding among shareholders, management, employees and the various stakeholders. Peecher, Schwartz and Solomon (2006) recommend that this attest function utilize the Strategic Systems Audit (SSA) approach to address he quality issues of audit engagements in fairness to all stakeholders.  
         
Complexities in the economic environment are expected to put the accountant on the hot seat. This includes the irreversible influx of information technology (IT) processes which have greatly impacted the recording, reporting and control of financial and non-financial transactions. With financial information promptly becoming available in terms of volume, accuracy, distance and even strategic character, the opportunities as well as threats made possible under an IT environment has become palpable. Thus, electronic fund transfers are made possible to and from anywhere in the world. Similarly, investments can be as volatile as the electronic signals that bear it with the unprecedented speed of fund transfers. However, the risks include the speed at which capital repatriation can be undertaken and which may destabilize the fundamentals of any economy.

Here, the responsibility of the accounting professions in terms of timely disclosure and transparency can assuage investors from their unfounded fears.  Accountants however, become vulnerable and may share some degree of blame for any act that may question their professional allegiance  to the profession or to their clients. The virtue of auditors independence in this regard is simple yet is likely to be ignored, and in a number of instances may have been deliberately disregarded. (Windsor  Rasmussen, 2009) With the loyalty of the accountants impliedly skewed in favor of their clients, independence is likely to take the backstage in favor of the temporal character of the auditor-auditee relationship, unless there is an existing high-level negotiating power from both. (Emby  Davidson, 1998) The Enron-Andersen debacle is likely to support this contention.

Second Critical Area   The Standards Setting Environment and the Theoretical Bases
For a number of years, the accounting profession has considerably changed its recording and reportorial standards based on concepts and principles that can likely trigger confusing financial statement presentations. Among these concepts include the Fair-Value Accounting adopted by the Financial Accounting Standards Board (FASB) originally intended to make presentations clearer based on real values, but instead became the cause of the unprecedented decline in asset values and increase in instability among financial institutions. A rethinking of this standard has been sought as this has been identified to cause asset bubbles that further exacerbate the effects of their collapse. (Wallison, 2008).

Further, IAS 36, otherwise known as Impairment of Assets recognizes the vast differences between GAAP and IFRS. (DeMark, 2009) The differences in implementing these standards along the procedural computations of the amount of impairment are causing dissension among practitioners and may have likely lead to unwarranted reduction in assets value triggering fears of further decline down to a crisis level. Here, the role of regulation and the unresolved complexities of benchmark versus alternative treatments may have been overemphasized resulting in unfounded fears of another trigger mechanism  the regulatory sanctions. Thus, financial reporting is further tempered by the need to be conservative as a matter of principle all in the midst of confusing standards. Here, the conservatism principle draws the fears towards a further decline in the asset values actually triggering further reductions.

Third Critical Area The Political Environment  the Abuses of Capitalism
The clout of the accounting profession and the support role of the professional association of accountants have influenced somewhat the business trajectories of most economies shaping to some extent its political structure. Thus, in the professions desire to deliver some form of political solution to key economic problems, the pressure to instill transparency and accountability in the financial reporting system has been expressly institutionalized but pressure to withhold or deflect information remains strong. It is likely because the demand for appropriate transparency and good governance are commonly left and anchored on the initiatives, even self-interest of shareholders with the aid of corporate accountants restricted in the guise of privileged information. Nevertheless, a rule of mandatory disclosure of, say, client diversification is needed to facilitate the task of the market to achieve the optimal degree of auditor independence. (Siegers  Vandenberg, 1999)

Hence, to make sure that investors are not shielded from possible machinations of management, the United Nations Conference on Trade and Development (UNCTAD) helped formulate the guidelines on the global requirement for the qualification of professional accountants as symbols of order and transparency in the profession tasked with the highly sensitive job of risk monitoring and management of financial information. (UNCTAD, 1999) Apparently, this sensitive task of the accounting profession has not been acted upon effectively with the cyclical occurrences of global and regional stock market crashes which started in Asia in 1997 through 2008.

In more mundane terms, the 2008 global financial turmoil has been described by keen observers as capitalism being a victim of its own kind.  The following blog of the Young Conservatives (YCT) at Texas A  M University may simply be a subjective exaggeration, but the message is likely to affirm some of the fears of a number of economic managers particularly the accountants  
           
Capitalism is so effective sometimes that in virtually eradicating some problems it creates or brings to light lesser problems that were not there before or were not taken as seriously. And then the political left uses these lesser problems to indict capitalism and expand the power of government, all the while failing to mention the great scourges that capitalism has eliminated or mitigated. These lesser problems must be transformed into crises through political smoke and mirrors to make the people forget about the benefits of the market. (Wordpress.com, 2009)

Conclusion
The accounting profession, in its attempt to become more effective and relevant in safeguarding the economic interests of global stakeholders, is one sector which may be in dire need of structural and moral redirections to distinguish who it is working for and for what reasons, regardless of who underwrites the cost. Likewise, the burgeoning auditing and accounting services industry have spawned a number of non-audit services which brings the accounting profession more opportunities as well as risks of conflicts of interests. (Asare  Trompeter, 2005) Accountants may indeed be traversing on risky waters.

The past experiences of economic recovery after a stock market slump are adequate indicators that the series of financial crises are mainly due to conflicts of interests and the moral responsibility to respect a more balanced sense of perspectives in conducting global business along the various stakeholder concepts such as the balanced scorecard or the six sigma hence, these series of turmoil are in fact avoidable and at the least, manageable with accounting profession taking the lead because no one else is more competent to do so. (Lee  Jeong, 1995) (McManus, 1994)

The strengthening of the accounting profession to insulate it from blame while functioning as a catalytic intermediary, needs the strong moral and professional fiber of accountants more than the regulatory powers and teeth of the Sarbanes-Oxley Act. The collapse of more than 37 financial institutions on Wall Street has a clear common denominator the functional oversight in the accounting profession. (Reuters, 2009) Accountants hence, need to understand that this vacuum help create as well as maintain a situation where the general public has no choice but to trust the auditing profession even though auditors are more likely to breach the trust of the general public than the trust of insiders. (Neu, 1991)  

Nevertheless, only through formation of accounting professionals that understand the social reality of their attest function can the profession internally develop the professional attributes to meet the level of trust the financial community expects from them. (MacMillan, 2004)