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)

Several cases arise concerning the payroll which is often as a result of improper coordination between the human resource and the payroll department. These cases should be dealt with differently depending on which stage they are detected.

This case involving Ken and this company is common in many companies where there is no proper coordination between the human resource and the payroll department, corporate or otherwise. Even before following Ken, the company should with immediate effect put in place proper communication and coordination networks not only between these two departments but also with other departments.
 
This is important to avoid not only this kind of simple mistake which has turned out costly but also others to mention but a few missing deadlines, poor record keeping and data entry, misclassifying workers, failure to have adequate backup, miscalculating overtime payments, failure to maintain confidentiality and most importantly placing so much reliance on the software programs which are not without errors. (Nottinghum University Hospitals, June 2009)

Going back to Ken, any future payments related to him should be stopped with immediate effect. The payroll department should then consult a manager who knows Ken well, for example the line manager in the department he was working in, giving all relevant details of this case which should be supplemented with written evidence.

The manager should then make arrangements to see Ken in person upon which they should forge an agreement of how the amount should be recovered. This should be put down in the Recovery of Overpayment agreement form. The manager may need to involve other members like the heads of payroll and human resource department. (Nottingham University Hospitals, June 2009)

At this meeting the following should be discussed the reason for refusal to refund the overpayment, the amount involved, if the employee is still willing to refund this amount and if yes within which duration. Also, other relevant information that Ken has should also be listened to.

If at this meeting a solution is not arrived at, then the company should seek legal redress on this issue. This should be the last option.

Fair value accounting has been a very controversial step that has brought on by standard setting bodies. It has been at the centre of the debate surrounding the current credit crisis with banks and corporations claiming that the use of fair value leads to many problems and has been responsible to a great extent, for the losses that the companies have had top bear during the crisis. Thus it has been said to lead to volatility in earnings that does not reflect economic reality. However, proponents of fair value accounting content that it is the best representation that can provided to investors because it leads to transparency regarding assets and liabilities on the balance sheet and reflects current market conditions. The debate still rages on about this controversial piece of accounting application and the best way to apply it.

Fair value is basically the price that a business entity would realize if it were to sell an asset today in an arms length transaction or the price to be paid if a liability was fulfilled today. Thus it can be seen to be a rational and unbiased view of the potential market price of some asset or liability as the market forces provides the best estimate of price, as various buyers and sellers interact to determine the price in the market. This has assumed particular importance with regards to financial instruments. In the United States, the fair value measurements are dealt with by SFAS 157. This primarily deals with the valuation of financial assets and liabilities on a fair value basis while the application with regards to valuation of non financial assets and liabilities has been deferred until the year 2009. According to this statement, fair value is defined as price received to sell an asset or the price paid to transfer a liability in a transaction taking place in an active market.

When valuing assets or liabilities at fair value, the use of inputs required for the fair value measurement assumes tremendous importance since an estimation is being made of the current market value of the item in question which is only as good as the inputs employed. That is why under GAAP, a three level tier system is used for the estimation of fair value. Under Level One, the inputs to be used are price quotes from active markets for the assets or liabilities that are alike. There is however the requirement that the entity in question has access to these particular markets. This is the best case available since existing markets provide accurate prices which are not based on evaluations. If quotations from such markets are not present then an evaluation should be based on the most convenient bit of information that is available. If there are multiple existing markets, then price quote should be used from the market that is most advantageous to the entity. This however also requires consideration of the costs of the transaction incurred in availing the prices.

Level two makes use of market observables for the purpose of assigning a value to an asset or a liability. This level has been created because, looking from a practical point of view, active markets do not exist for all items under consideration and even when they do exist, they may not provide the extent of reliable information that is required for the particular item being valued. This level is applicable under three events. Number one is for a situation where there is absence of an active market for the related assets and liabilities. Number two applies when in comparison to items traded in the market, the assets or liabilities being evaluated are similar to but not exactly same as the ones being traded. Number three comes into effect when market trading is absent or comparatively inactive but market data can still be utilized to allow fair value to be calculated. This level makes use of valuation models such as Black Scholes model for option pricing which brings into use variable inputs from observable market data to calculate fair value.

Under Level three, any sort of inputs that can be used for price evaluation are non existent. The use of different valuation techniques thus comes into play in the evaluation process. The relevant inputs at this level have to be collected assuming they are used by market participants in putting a value to the item under consideration because they are non observable inputs. This brings in a lot of subjectivity as now the reporting entity as opposed to buyers and sellers in the market are choosing the inputs. The idea behind the use of this third level however is that provided the inputs that are used are gathered on a best efforts basis and with a desire to represent economic reality rather than with a bias, a significant amount of useful information can be obtained regarding the fair value of the asset or liability under consideration.

There is room for misrepresenting in all the three levels, although with varying degrees. One type of fraud that could be conducted relates to the drawing of conclusions about asset or liability fair value that are not appropriate given the range of price quotes that are available. This could be when there is doubt about whether the asset with an active market is actually similar to the item under consideration, which if it is not, will taint the results that are obtained to be represented on the financial statements. The second opportunity relates to the use of valuation techniques for estimating fair value. Since such techniques are primarily based on future cash flows to be estimated, variations in fair value arise due to changes in estimations regarding the amount of cash flow, timing of the cash flows and the risks linked with the cash flows. If any of these are manipulated to some degree, it changes the value obtained and this is frequently exploited by companies to get over value assets or under valued liabilities. The cost approach to fair value measurement also poses similar risks. Since it is based on the assessment of the cost required to replace the asset which is adjusted for any obsolescence of the asset, any irregularity in coming up with an estimate of either would alter the estimate for the fair value of the asset. Another misrepresentation risk concerns the internal or external estimation of fair value. When fair value has to be determined internally, there is a need for the personnel determining the value to have the required level of expertise in performing the task. With external assessments however, there is also a continuing risk whereby the results of the evaluator can be influenced. This can be carried out through bribery, a sham specialist being utilized or perhaps some conflict of interest existing between the evaluator and the entity that employs it. This subjectivity in the case of non existing active markets provides a lot of room for fraud. Enron exploited this by over valuing its assets through mark to market accounting, using complex, and internally generated models to get fair values for items that were in reality, not worth that much.
There are some differences between the approach to fair value between GAAP and IFRS. The former identifies fair value as price to sell an asset at the time of evaluation between market participants.

While this is appropriate with regards to intangible instruments, it does not work for tangible assets very easily. IFRS takes care of this by identifying fair value as price at which the asset or liability can be exchanged between willing parties who are knowledgeable, in an arms length transaction. If this difference is analyzed to a deeper extent, GAAP relies on market participants to generate a price where the item in question can be sold. However, there is frequent case of no such market existing or no willing participant to buy or sell the asset or liability. This was exemplified in the case of the recent credit crisis where market activity dropped suddenly. GAAP addresses this through its three tiered structure ranging from Level one to Level three. However, it still presents significant problems compared to the approach of the IFRS which takes into account both the buyer of the item as well as the seller. Similarly in case of brand names, it is valued according to GAAP on the basis of the evaluated price another party would be willing to pay for the brand. This makes an important assumption that the third party being considered will actually make use of the brand, which even if it is used, may go down in value significantly in the wake of a drop in marketing of the brand. This would translate into impairment. IFRS takes care of this by valuing brands through their use which does not suffer from such problems or irregularities. Another important difference arises in terms of the revaluation with regards to fair value that are allowed with some assets. GAAP does not allow upward revaluations, while IFRS does. This is particularly important in the case of liabilities with regards to financial institutions. As an example, if the credit rating of a particular firm is dropped, an equivalent and offsetting gain can also be recognized in the accounts against the loss on investments.

The drawbacks with regards to some application of the fair value concept have been aimed to be addresses by the standard setting bodies while other recommendations are in the pipeline to quell misrepresentation that might creep in when measuring at fair value. First, FASB took a measure in the wake of the current financial crisis that saw banks having to make significant write offs by easing the stringent rules surrounding fair value evaluation by allowing them to use significant judgment in gauging prices. This allowed the write offs to be less steep. Although concerns were addresses, many others argued it was not in line with economic reality as the accounting rules had not led to the fall in value but the market forces had which are the best indicators. This has had further impact in that the measure is applicable retroactively. The SEC itself has been fairly active with regards to fair value accounting. Its division of corporate finance has constantly been pushing companies to increase disclosures with regards to fair value application as well as regular letters to public companies about fair value issues. The Chief Accountants office has been active in spurring debate about the issues surrounding fair value accounting and as well as providing clarifications about the rules where there may be room for ambiguity. Actions in this regard included settlement on auction rate securities with the large institutions ranging from Citigroup to the Bank of America as well as against hedge fund managers at Bear Stearns who were able to manipulate the price offered and misrepresent performance as a result. As these steps show, there is a significant need to address the loopholes that abound regarding application of the fair value concept. Furthermore, GAAP could move towards an acceptance of some of the IFRS principles which make less problems when defining fair value and its application. However, it is generally accepted that fair value is the best measure of representation of economic reality to the investors compared to others.

1 Introduction
The essential functions of external auditor and accounting practice in the contemporary business environment are to build the public confidences that the business organizations are free of corruption, and their annual financial records are free of financial abnormalities. Essentially, in the present global business uncertainty, external auditors serve as external and objective checks and balances on an organizational financial records. Thus, the external auditors and accountants are required to provide sound financial and reassuring records to the stakeholders because many stakeholders may particularly have interest in the financial records of  a company. Typically, the essential functional role of an accountant is to employ his expertise to mediate uncertainty by constructing true, objectives and fair accounts to corporate organizations. (Sikka, 2009).

However, the recent international financial crisis that have emanated around the world in the banking sectors have revealed several loopholes in the accounting profession. With present international crisis, several big banks across the world have collapsed due to the financial turmoil that these banks are facing. For example, the collapse of Northern rock in 2007, which was the fifth largest mortgage bank in the UK. Moreover, in 2008, Lehman Brothers, which was one of the biggest financial institutions in the United States, went bankrupt with recorded debt of 613 billion, and bonds debt valued 155 billion. (Mamudi, 2008). The results of the banking financial crisis had made United States government to close 22 banks. In the UK, the Bank of England had issue 750 billion to rescue failed banks. The United States government had also issued 8.5 trillion from the public funds to rescue failed financial institutions. (Sikka, 2009).

The question is where are the accountants before the emancipation of the international financial crisis
The objective of this paper is to examine whether the accounting profession bear any blame in the current financial crisis.

1.1 Argument on whether the accounting profession bears any of the blame for the current financial crisis

Several scholars have provided the arguments on whether accounting professionals should bear any blame on the current financial crisis.

Arnold (2009) argued that the accounting profession is deeply to blame in the current financial crisis. The author argued that there were loopholes in the financial reports provided by the accounting firms to many financial institutions. Although, many major accounting firms in the US and the UK offer the advise to many investment banks in US and in Europe about the securitization of their finance. Despite the financial advice offered to baking sectors, many accounting firms lacked the skill to identify the troubles signed that was emanating in the financial institutions.  Typically, the loopholes of accounting profession come from their strong attachment to the accounting theory that fails to restore the financial stability and allocating capital efficiency.

Inanga and Schneider (2005) there is no known theory that can guide the accounting practice. However, the accounting theory that has recently emanated to guide accounting profession to enhance financial reporting is pragmatic in nature. This accounting theory is authoritative in nature on which its opinion must be accepted. This known accounting theory has been a guiding principle of accounting profession over the years, and this has influenced the practice of accounting profession.
For example, Sikka (2009) argued that different countries have accounting standard which accounting profession should follow. For example, the UK audit standard is in line with international accounting standard, and states the audit procedures that should be followed in the UK. Despite the rules about the audit procedures, many banks received unqualified audit report from top audit firms in the UK and USA. For example, shortly before the financial crisis, Northern Rock received unqualified audit report in February 2007 from PricewaterhouseCoopers (PWC) who provided the clean health bills to the bank. However, in the same year, Northern rock recorded the biggest financial turmoil that has ever been recorded in the UK. Moreover, Lehman Brothers received unqualified audit report from Ernst and Young in February 2008, and the Lehman Brother received a clean bill record that the banks financial situation was healthy. However, in the same year Lehman Brother faced financial turmoil, which was the biggest financial crisis that United States has ever recorded after 1930.  Other financial institutions received unqualified audit reports from different accounting firms. Bear Stream received unqualified audit report in January 2008, and by March 2008 in the same years, Bear Stream faced financial crisis. Meanwhile, the list of the financial institutions that received unqualified report from accounting firms across the world barely few months before the international financial crisis are uncountable. The examples mentioned in this paper are just the tip of the iceberg. The numbers are uncountable.

Humphrey, Loft, and Wood (2009) also supported the argument that the present global financial crisis come from the perspective of auditing firms. For example, many auditing firms are incapacitated to supply objective auditing report to the clients. Added to this, the international financial regulators add to the present financial turmoil.  The author argued that both private and public owned international financial regulators are also to blame for the present international financial crisis. For example, there are several international financial regulators such as international accounting (IASB) standard, US Public Company Accounting Oversight Board (PCAOB), international for enhancing auditing standard (IAASB). Other international financial regulators are International Federation of Accountants (IFAC), International Organisation of Securities Commissions (IOSCO), and other international financial regulators. These bodies are to protect the interest of the public and see that that the private accounting firms do not exploit the public by providing the unqualified audit report that can influence the interest of the public. Thus, where are they when the Big Four (KPMG, PricewaterhouseCoopers, Ernst and Young, and Deloitte) are providing the unqualified audit reports to many of the biggest financial institutions in the world.

Despite the contributions of these literatures reviewed, some group of scholars has taken different dimensions in providing the pictures of recent international financial crisis. For example, Sikka (2006) argued that states laws of most developed countries do not protect the stakeholders from the exploitative attitude of financial institutions and accounting profession. Typically, many states laws easily accommodate the demand of corporate organizations at the expenses of the stakeholders.  For example, many financial institutions have conducted contrary to the law of the states. It should be noted that many financial institutions conduct in the manner that they do not provide transparency of their financial records. Sikka (2009) pointed out that
     an early estimate suggested that despite a raft of accounting standards, banks had around
      US5000 billion of assets and liabilities off balance sheet  though this figure is being
      constantly revised. Citigroup alone has some US1.23 trillion of assets in entities which
      are not shown on its balance sheet.(p.869). Thus, many financial institutions only support laws that can aid them to achieve tax avoidance, reduction of employees rights and subsidies. Many corporate institutions also have habits of evading taxes. For example in the UK, the government is forced to shift the tax burden on the income earners. In the UK, the income tax on the income earners increases from 48.8 billion in 1990 to 114 billion in 2004. While corporate income tax barely increased from 21.5 to 28.1 billion between 1990 and 2004.

The inability of the states laws to regulate the conduct of financial institutions has also contributed to the present financial crisis. For example, the report provided by the Treasury Committee (2009) revealed that the UK Financial Services Authority has failed to provide effective supervisory role on the financial sectors, and its inability to provide effective role contribute to the present financial turmoil.

2 Conclusion
The paper reveals provide the argumentative essay on whether the accounting profession is to be blame for the present financial crisis. The paper reveals that while that while the accounting profession   have some contribution in the present financial crisis, it should be noted that the blame should be not centered only on the accounting professions. Other international financial institutions need to be blamed for the present financial turmoil. Typically, there are bodies such as international auditing standards (IAASB) and international accounting (IASB) that need to regulate the conduct of accounting professions. These bodies have also failed to provide their supervisory role. In addition, the states regulations have also failed to curb the excess of the accounting and banking sectors. For example, public financial bodies such as UK Financial Services Authority and Public Company Accounting Oversight Board (PCAOB) have not shown their incapacities to provide the regulatory role. Thus, it is impossible to put an accusing finger to a particular body as the contributor to the present global crisis. This paper argues that the causes of present financial crisis are the network of factors such as global mismanagement on the part of private financial institutions, corrupt practices of accounting professions, and inefficiency of state regulatory forces.

Paying taxes is not a choice, it is an obligation and what the law demands. Tax is a fee levied by the government on products, incomes or activities within the scope of its authority as a means to funding governments operating costs. Failure to pay taxes is a crime under the law and can lead to a jail term.
Generally, taxes can either be avoided or evaded. Tax evasion involves unlawfully avoiding paying the mandatory taxes due or unlawfully escaping liability for the tax.(Pennsylvania Department of Revenue, 2008). On the other hand, tax avoidance is lawful elusion of taxes by different means known to the taxpayer. Although this act is considered amoral, it is not illegal.

Keeping a log of business expenses is tax avoidance. As tax is deducted from profit after expenditure, keeping a log of business expenses makes the taxpayer account for every penny spent in the business thereby reducing the amount of tax that will be paid by the business. On the other hand, ignoring earnings from lawn mowing is tax evasion. This is because the money earned from lawn mowing is part of the taxpayers personal earnings and thus should be calculated as part of the income that will be taxed. Like the latter example, not reporting interest earned on savings account is tax evasion. As mentioned before, the interest earned on savings account is part of personal income and should be taxed by the government.

However, keeping a log of contributions to charity is tax avoidance. This is because charity donations are recorded as being deductible from personal income before the money is being taxed. On the contrary, not reporting tips is tax evasion. Tips are regarded as part of the taxpayers personal income under the law. Thus, not reporting tips to the IRS is a crime. Finally, claiming your dependents as tax deductions is tax avoidance. Claiming your dependents as tax deductions is part of what is called tax loopholes that can be used to reduce tax legally.

Enterprise Resource Planning (ERP) systems have become the uniform standard for most medium to large companies predominantly playing a major role in functional and process operations. These systems mostly consist of software functional designed programs that are integrated in all business process systems to include vast amounts of data and information for customers, employees, services and products. (Pelask, 2006)

The most common applications are used in marketing, accounting, purchasing, manufacturing, inventory, human resource, logistics and sales. One of the advantages of ERP is that it provides easy access to data that is integrated into valuable seamless information covering across the entire spectrum of business functions. (Pelask, 2006)

The ERP also eliminates information asymmetry by putting all the information into the same underlying database. The implication of this is that it increases control of activities and processes it also opens up access to information to all those who need it, thus providing improved decision-making information. And above all, it flattens an organization since information is widely available, theres no need for non-value adding workers whose primary activity is to prepare is to prepare information for upward or downward dissemination. (OLeary, 2000)

Far from that, an ERP system permits organizational standardization across different locations. As a result, those locations with substandard processes can be bought in line with other more efficient processes. More over, the firm can show a single image to the outside world. Rather than receiving different documents when a firm deals with different branches or plants, a single common view can be presented to the world, one that puts forth the best image. (OLeary, 2000)

Reported Drawbacks of ERP System
The ERP systems do not have a terrific track record of success in organizations where ERP has been implemented. A recent survey conducted on suggested that 50 percent of ERP implementations are failures and estimated the unsuccessful rate of the system to be as high as 90. Another research suggested that the current demand to implement the ERP system is growing fast, even though there are currently few success stories (Palesk, 2006). This is largely due to the fact that the ERP system has been focused mainly on e-commerce and customer relations management (CRM), thereby failing to tap into the competitive advantage of generating growth and boosting profitability.

 Application of ERP in Unilever Australia
Working with Unilever Australia for seven years, I was exposed to various implementations of ERP. Unilever Australia is one of the worlds leading FMCG manufacturers and marketers of consumer brand products such as Dove, Persil, and Magnum amongst many others. Due to this we were in dire need of a dramatic restructuring to keep up with the ever changing consumer market environment and increasing operation margins, which were a continuous battle for us as we had to cut and consolidate our brands portfolio from 1650 brands down to 350 in 2004.

The management and maintenance of the 1, 600 brands across eight regional business groups created major headaches in operations and placed extensive burden and pressure on our IT system. ERP played a major role in dramatically consolidating our extensive product portfolio and also improving margins through the provision of timely information form our supply chains. It also buoyed all business processes across all functions within the company around the world. (httpwww.uk.businessobjects.com)

Impact of Internet-based Communication on ERP Application Benefits. The internet-based communication might further impact these benefits by providing efficient data integration, hereby allowing the access to a vast number of data information resources in the process of gaining the in-depth analysis of information to quicken up both decision making and implementation of actionable strategy in the market place. (httpwww.uk.businessobjects.com)

Through internet-based communication, the ERP system also improves a companys business performance by automating the tasks involved in performing a business process such as fulfillment of customer order, which involves taking an order from a customer, shipping it and billing for it. With ERP, when a customer service representative takes an order from a customer, they have all the information necessary to complete the order the customers credit rating and order history, the companys inventor levels and the shipping dock trucking schedule. . (httpwww.netessence.com.)
Everyone else in the company sees the same computer screen and has access to the single data base that holds the customers new order. When one department finishes with the order it is automatically routed through the ERP system to the next department. To find out where an order is at a particular point, one only needs to log into the ERP system and track it down. Customer orders are therefore processed faster and with fewer errors than before. The ERP system can apply the same usefulness to other major business processes, such as employee benefits or financial reporting. (httpwww.netessence.com.)

Conclusion
Enterprise Resource Planning is a robust system of combining business strategic objective and software tools provided the ultimate objective of the whole process is to gain the right balance between generating growth, improving profitability and customer satisfaction.