Financial Plan Case Study Example | Topics and Well Written Essays - 1250 words

Financial Plan - Case Study Example The following three partners and their responsibilities are - CEO - Miss Josefa Calfoforo; responsibility includes: Managing customer database Contacting and dealing with client Financial aspect of the business, such as: budgets, profit & loss statement etc. Finalizes fix cost Co-operate with Chief Sales Executive and Chief Designer Chief Sales Executive - Miss Elizabeth Carter; responsibility includes: Generating sales through marketing and sales campaign In charge of orders Public Relation Chief Designer - Miss Yu-Een Eav; responsibility includes: Programming website Designing of diaries Source materials from suppliers Manufacturer Updating technology Also, two employees are to be inducted for the day to day operations of the business in the first year. Performance Monitoring of Plan edesignerdiary will measure performance by looking at number of units (diary) sold in a month. edesignerdiary will measure the satisfaction of the e-commerce business operation by conducting online surveys after each purchase. edesignerdiary will measure quality of diary against competitors every 6months. Critical Success factors Offer a clear description of the goods on offer Provide a total price for the goods (including any taxes payable and freight cost) Have a refund and return policy Clearly explain how privacy issues will be handled Customers acceptance of privacy issues Have reliability, trust or privacy seals Have clear delivery dates Customers who make a purchase from another electronic site or mail house do so without physically, seeing or touching the product they are buying. Therefore customers will be more likely to purchase items from electronic retailers who adopt these critical success factors as a minimum. Time required for raising...A total of $30,000 is personal investment. According to the Rate if Return on Owners Investment Ratio each partner will individually receive 3.59% return in 2006, 2.44% return in 2007 and 8.64% in 2008. Finance options which the partners have already decided to adopt is the government grant for small business and the Export Market Development Grant. Combined the business will be able to receive finances of up to $15,000 Customers who make a purchase from another electronic site or mail house do so without physically, seeing or touching the product they are buying. Therefore customers will be more likely to purchase items from electronic retailers who adopt these critical success factors as a minimum. Establishing and operating edesignerdiary is a great personal and financial investment however, accidents and problems do arise; these can be minimized by taking out insurance. The business has decided to get insurance through Allianz as they are able to tailor the insurance policy to meet business requirements. edesignerdiary differentiates its custom diary making through strategic edge such as gathering information from the individual to compose a custom made diary that contains special features selected by the individual. Hence it is a hand made diary that is of high quality produced in Melbourne - Australia. Edesignerdiary will win by having a unique

The role of the IMF in helping poor and debt-troubled countries Essay

The role of the IMF in helping poor and debt-troubled countries - Essay Example ionality, the reasons why the IMF indulges itself into helping poor and debt troubled countries, the ethical issues involves, and the effects of IMF loans on a country’s economy. The IMF seeks to help poor and debt troubled countries so to stabilize the countries’ recovery from balance of payment deficits, and to stabilize exchange rates. The IMF also performs evaluation and compilation of its member countries’ economies, and in the case of financial crisis, the IMF intervenes by providing loans on conditions for restructuring economies to avoid future crisis. The IMF lends itself to developing countries so to ensure the â€Å"revolving character† of the Fund whereby, the funds given to a certain country can be made available to another country in need. The policies’ structure and corrective measures are designed in such a manner that ensures the funds will be repaid, and availed to other members of the Fund in future. According to the IMF, conditionality refers to the policies that a member country should follow in order to gain access to the Fund. That is the conditions that the members are supposed to abide by, so to access the financial resources of the International Monetary Fund. Some of the conditions that the IMF implements is that a country must change its financial policies to get support; the bigger the country, the bigger the financial need, therefore, the more stringent the policy formulations. In a loan approved for Niger in 2005, the fund asked for an â€Å"extension in VAT on processed foods including; sugar, milk, wheat, flour†, a reduction in tax exemption on necessities such as water and electricity, and an increase in excise tax on sodas and other soft drinks. The IMF closely monitors how these funds are used in a bid to ensure that the funds are used as agreed, and not for any other purpose. 1. The member country is the national owner of its political and other resources; therefore should partake in the formulation of policies for the

Effect of Color and Word Length on Memory Performance

Effect of Color and Word Length on Memory Performance Abstract The purpose of this study was to examine the effect of color and word length on memory performance. Seventy nine undergraduate  college students from Disted college, aged from 19 to 23 of both male and female genders were recruited for the study. The study  was a 32 mixed method design, There are two independent variables in this experiment which are word length and colors of words,  while the dependent variable is memory performance. Results showed that there was no significant change in colored words on  memory performance, while differences in word length showed a significant increase in memory performance. The results supported  our secondary hypothesis which claimed that participants were more able to remember shorter words than longer words. On the  contrary, our primary hypothesis was not supported. In conclusion, word length may have a positive impact on memory performance. Introduction It is common knowledge that we humans are more attracted to colorful objects like pictures or colored films than black and  white colors. It is also well known that young children, especially babies and toddlers are particularly attracted to shinny and striking  colors. Such instances may have piqued the curiosity of scholars in the old days to answer the question why people are more  attracted to colorful stimulus, sadly for the scholars the capacity to study this topic is not readily available until recent times. Since  ancient antiquity, colors on clothes not only made people look more distinct from one another, certain colors also inspire awe and  shows status and power. For example, in the east Chinese emperors have always wore gold color to signify their status as son of  heaven, while in the west Roman emperors and the aristocrats wear purple so show their status in society. In today’s society, an individual in the academic field is expected to be able to do many tasks, one of the most important skills in  our society is to be able to remember important things. For example, in college we constantly need to remember important terms  andwords, these information that we have learned is to be tested in quizzes and exams. College students that do not have good  attention focus and memory are looked down upon by their lecturers and peers because they mostly under perform in their academic  performance. Fortunately for this type of college students, as time progress more efficient methods of studying and memorizing is  being discovered or proposed. One of these methods is mind mapping, the method of mind mapping basically uses the right side  (color and creativity) together with the left side (words and logic) of the brain to increase memory performance (Astrid, n.d). As such, it can be seen that both color and words could be essential component in memory performance. Working together,  both aspects could be used to aid or test the performance of a students memory capability. Similar to mind maps, word length and  different kind of colors could affect the overall memory performance. Theoretical Framework The human mind has a very complicated way of processing and memorizing information. Among the many theories that  attempted to explain how memory works, Baddeleys working memory model seemed to provide one of the best explanations. This  model was created by Baddely and Hitch to improve upon the rather obsolete multi-store model, they argued that the multi-store  model was too simplified. Their working memory model seeks to explain that short term memory has components/subsystems that  actively manipulates information that it receives (Miyake Shah, 1999). The model has four important components which were the  Ã¢â‚¬Å"Central Executive†, â€Å"Visuo-Spatial Sketchpad†, â€Å"phonological loop† and â€Å"Episodic Buffer†. They further elaborated that working  memory was made up of the central executive which controls the operation of two subsystems: the phonological loop and the visuo-spatial sketch pad. The final component, episodic buffer was m eant to be a back up store that connects working memory with long  term memory (McLeod, 2008). The working memory model relates to color and word length due to the visuo-spatial sketchpad and the phonological loop. The  visuo-spatial sketchpad stores visual information such as word shapes and colors for a short period of time (Logie, 2002). Our  working memory was very focused on color because colored objects of an items leaves a deeper impression on our memory  (Cercone Learning, n.d). While, some people tend to recall words better when they pronounce it while memorizing, their ability to  recall is affected by the word length, which is stored in the phonological loop (Logie, 2002). Past Literature As time goes by more and more past research was made to address the issue of colored words and word length on memory  performance. Although most research only investigated on colored words and memory performance or word length on memory  performance, their contribution were highly regarded. One such study was made by Mustafar Dzulkifli (2013), their study was  focused on investigating the effect of ground color on memory performance. In their study, they invited 90 undergraduate students ,  age ranges from 19 to 22 to participate in the experiment. They conducted their experiment by using between group design, there  was three groups of participant that were given different treatments. The first group was given red colored background slides, while  the second group was given background slides with no color. The third group was be given background slides that have a  combination of color and no-color background to be shown alternately. Their research results found that most shape with colored  background will be recalled better than shape with non-color background. Another research was made by Campoy (2008) which was made to investigate the effect of word length in short-term memory.   The research invited 50 undergraduate university students. The research was conducted by using two participants in each session in  two different sound-attenuated booths. In the booths the computers shows a stimulus (five-word series study list) presented in block  letters at the rate 300 ms per word. After a delay 3,000 ms, the second sequence (test list) was shown in lower case at the same  speed. Lastly, a question mark was revealed and the participants will press key â€Å"1† or â€Å"2† when they decided the word orders in both  series were different or same. Results revealed that a list of short four-phoneme words were better remembered than a lists of long  six-phoneme words. Among the many past research, there was one research that stands out the most. Research done by Le Castillo (2009) was  meant to investigate on the effects of color and word length on verbal working memory. In this research, 61 business professionals  were invited to participate. The research was conducted by first requesting participants to memorize short words (12 seconds) and  long words (30 seconds), then participants were requested to recall short words within 24 seconds and long words within 60  seconds. Participants was then asked to do demographic questionnaires and include them together with their answer papers. The  results showed that five-syllable words were the most hard to remember, with memory performance difference much more obvious  between Caucasians and none-Caucasians. Description of Study In this study, we were much different compared to past studies because we focused on both length of words and color of words,  as stated in our ERB (refer to Appendix D) Compared to past research like the one done by Huchendorf who mainly focuses on the  effects of color on memory or the one done by Neath Naire that was focused on word length and short term memory, ours were  more complex and in-dept because we analyze both aspects. Among the many studies that was made, our experiment most  resembles the one by Le Castillo. In Le Castillo, one of the main aspects they investigated was the capacity of memory among  sixty one business professionals. Compared to their experiment, our experiment not only was focused on a different sample, which  isthe college student sample, we also have a larger amount of participants which provides us a greater variety of cultural  backgroundand memory capability. The aim of this study was to investigate the effect of color and word length on memory performance. Our experiment was  conducted by separating all our participants into two equally large sized group, then the participants were directed to the short word  or long word experiment room to do the experiment. In the rooms the participants were given one minute to attempt to memorize as  many words as they can and then given another minute to recall and write down the words they can remember, participants were  thengiven one minute to cool down and rest before starting the next treatment. In our experiment, we outlined two hypothesis that  waswritten in our ERB. Based on past research by Huchendorf (2007), Le Castillo (2009) and Neath Naire (1995), we  hypothesized that warm colored words is easier to remember than cool colored words and shorter word length is easier to be  remembered than longer word length. Practical Implication of Study An implication of this study was that the finding could be used in class rooms to assist teachers and lecturers in guiding  students. Teachers can use this knowledge to teach students on doing mind maps and teach them to use highlighters to highlight  certain words, the highlighted words will increase the capability of a students memory. Methods Design The experiment was an experimental type research design that was meant to investigate the cause and effect of the  independent and dependent variable. The research have two independent variables and three levels. The independent variables  were words length (single syllable/three syllables) and color of the words (black), warm color (red) and the cool color (green). The  dependent variable was using memory performance of number of correct words recalled. Also, the research is a 32 mixed method  design, the reason the research was using mixed method was because the design contained elements from between and within  subject. Participants There was approximately seventy nine participants that came from different races, the participants were also recruited from the  many different courses of Disted college. Their age range was between 19 and 23 years old while their gender was both male and  female. The students participated the experiment due to their own willingness and initiative. Furthermore, experimenters had  requested permission from the DISTED Student council to obtain lecture schedules to see which class was available and  permissionfrom individual lecturers to recruit students. The participants was recruited through random sampling method ; the  experimenters had approached students around DISTED college cafeteria, library and pre-selected classes. Material The experiment had used two computers and two projectors to depict the different colored and worded experiment slides,  another material was the computer software Microsoft power point, specifically the slides was made using the software. The twenty  words from each of the color worded slides (refer to Appendix B) are retrieved from MRC Psycholinguistic Database, University of  Western Australia, School of Psychology. Other materials include SPSS program to calculate the results output (refer to Appendix  C)and smart phone built in stop watches that was used to time the experiment sessions (timing one minute for memorizing words or  one minute to recall the list of words). Procedure The study was conducted in two classrooms each equipped with a projector, the experiment was conducted across several  sessions with a random amount of participants in each session. The participants were first given a brief explanation about the nature  and purpose of the experiment and then the experimenters requested the participants to sign the consent form (refer to Appendix A). Next, each participant was randomly assigned by counting one and two, it is arranged like that so that both groups would be equal in  number .The first group was asked to remain in the current room, while the second group was brought to the other room by one of the  experimenters. Also, the first group was given a list of shorter words (one syllable) with three different colored treatments ; control  color (black) ,warm color (red) and cool color (green). Similar to the first group, the second group was given the same treatment,  except that the word length was longer (three syllables). The experiment was started when participants were given one minute to remember a list of black colored words from the  projected slides on screen and another 1 minute to write it down on the paper, after that the participants were given one minute to  cool down. Once the participants were ready for the next treatment, the participants was given one minute to remember a list of red  colored words and then another minute to write it down, then the participants were given another minute to cool down before the last  treatment. Finally, the participants was given other minute to remember a list of green colored words and one minute to write it down. Once all the words that can be recalled was written down, the experimenters collected the papers from the participants and the  participants were dismissed. Discussion As seen in the results section written above, our experiments outcome concluded that color of words generally do not affect  memory performance. However, our results also showed that disregarding the length of words, colored words have significant  relationship with memory performance. On the other hand, word length has a positively significant relationship with memory  performance. Among our two hypotheses, the word length and memory performance hypothesis was highly supported by our results. More specifically, our hypothesis that mentioned short words were more easily remembered than longer words. The results of our study was consistent and supported by past literature, research findings by Campoy (2008) and Le Castillo  (2009) were two such examples. Their research results had shown that people found it easier to remember words with less syllables  or phonemes. The consensus between the two past literature and our experiment was that, lesser amount of syllables allowed  working memory to process information faster and more efficiently. However, our experiment was not supported by Mustafar   Dzulkifli (2013). Their results did not coincide with our results on color, they found that shapes with colored background was recalled  better than shape with non-color background. A possible reason on why our results was not the same as some past research was  because, we focused our experiment on both color and word length, instead of just one of it. It should be acknowledged that there was one failed manipulations in our experiment, that particular failure was our colored  wordmanipulation, it is due to this reason that our first hypothesis failed. Also, there was a few confounding variables that might have  affected the experiment. One of the confounding variable was the experiments starting time, the experimenters had noted that there  were some inaccuracies on the timing of some experiment sessions. Another reason was due to the hour we conducted our  experiment. For example, we conducted our experiment on late afternoon, it could be that most participants were weary, fatigued  andfrustrated after a long day in class, such distractions would leave the participants less capable to focus on our experiment. The  third confounding variable was due to temperature, one of the rooms was rather cold while the other was rather warm, it should be  noted that the differences in room temperature could affect the performance of the participants. In order to solve these problems, the  experimenters had taken steps such as adjusting the airconditiong of both rooms to be the same and set timers to start the  experiments simultaneously. Throughout our experiment, we realized certain important things that would prove beneficial for future studies. Experiments  made in future could be improved upon by gathering a larger amount of participants from different age, race and background, doing  so would have given the future experimenters a better represented result based on a more diverse data. Future experiments could  also be improved by using culturally neutral words, the usage of such words would have allowed certain participants to perform better  without a cultural word barrier. Another suggestion was that future experiments could have done their experiments earlier, this is  suggested so that the participants would be able to do the experiment on their peaked performance. The implication of this study was that it would benefit any individual that is in the academic world or the business world. A  studentwould have found this experiment helpful because our results would have assisted them in their academic performance. Our  experiment results would have shown them that making short notes would have made them more efficient in their studies. Teachers  and lecturers could also use our experiment results to form a more effective study materials, study materials that are shorter and  simpler would be more effective for a students studies. Another benefit was that advertising corporations could have used our  experiment results to assist them in creating an attractive and memorable advertisement in the minds of consumers. As a final conclusion, this study was conducted to investigate the relationship between word length, word color and memory  performance. The findings showed that participants found it easier to remember words that are shorter and more warm colored or  longer words with cooler color. Further studies should be conducted with a larger sample population.

Gun Control Essay -- Second Amendment The Right To Bear Arms

Gun Control Gun control is an action of the government that is supposed to reduce crime. Congress has passed many laws on this subject and there really has not been an effect. Gun control has been a controversial issue for years, but the citizens of the United States have a right to own guns and the Constitution states that. On the government's path to control guns they created the Brady Act. Handgun Control Incorporated is the major organization for lobbying, and introducing legislation on gun control. It is headed by Sarah Brady, wife of former White House Press Secretary James Brady. James Brady was shot during an attempt on President Reagan's life in 1981. Sarah is the one responsible for introducing this bill. This bill was supposed to stop criminals from obtaining guns. If an individual wants a firearm bad enough, chances are they will get one (Brennen and Polsby). All it does Is prevent honest people from being able to purchase guns. The person purchasing the gun has to wait for two week while the government performs a background check. The problem with this is it stops the average citizen from purchasing a gun on the whim, while it protects the common criminal. What if a burglar enters a house with full intention to maim or kill? The innocent victim can not get a gun to protect his family because he was arrested seven years ago for drunk driving (Larson). According to the General Accounting Office, in the first seventeen months of the law's existence only seven criminals were convicted for attempting to buy a handgun. Banning more and more guns may reduce gun violence, but it will not eliminate guns from society and will only lead to more and bigger problems. While continuing to take more freedom away from the Ame... ...Banning guns will not solve the crime problem it will only change the method. If guns are not available then another weapon will be used or an older gun. Simple laws will not stop a person who is determined to cause someone harm. This is why people should be allowed to own and carry guns. This allows them to protect themselves from those kinds of people. Proper education in school and other places to teach how to use a gun and to respect guns as a dangerous weapon is what is needed to reduce gun violence in the future. If we allow the government to ban guns the American people will be defenseless and powerless to stop the government from taking over or to stop an outside invasion if either were to occur. This country was born because the citizens were armed and could fight for themselves. How can we remove the very object that helped give our country its freedom?

Senior Geography Project

I have chosen to pick Broadmeadow for the area, as whilst I got robbed, many other community members got robbed on the same day, by the same person. This area seems relevant to my investigation and should provide some interesting results. The area is also very close to home, so I wouldn’t need to go out of my way to get to the place needed for investigating. The three aims that I have chosen all relate back to the robbery that took place in my home. I want to investigate if this was just coincidence or if this is happening across the whole board.I also want to investigate the security measures people have put into place to counter this criminal aactivity. Aims of the topic: 1. To investigate the trends in Crime Rate over the last 5 years 2. To investigate the security measures people have put into place 3. To identify major types of crime Hypotheses: 1. Over the last 5 years, I think that the crime rate has slowly increased, to its peak. On the radio/tv/computer I hear about d ifferent robberies daily. I think this trend will have an affect across all of NSW and Australia. 2. In Broadmeadow, I think that people will have ssimilar security measures as one another.I think this would be because of council regulation and what other people in the neighborhood have recommended. 3. I think that the most common form of crime in the Broadmeadow area would be either theft or break and enter. Due to the large amount of criminal aactivity in the area. Plan of Investigation/Methodology Steps for Research: 1. Find topic – research if applicable in area 2. Find aims, hypothesize the aims 3. Rationale of the topic 4. Finding of ways to collect and provide examples 5. Walk around Broadmeadow area and recording security measures 6.Interview police on crime rates/ major types of crime in Broadmeadow 7. Research on the internet the verify findings 8. Analyse information 9. Evaluate findings 10. Does this support or refute the hypotheses? 11. What are the implications of the findings Explanations: 1. Whilst walking around the Broadmeadow area, I will record what security measures owiners have on their houses into a table. This will include 50 houses from 3 roads – Everton Street, Dumaresq Street and Blackall Street. Next I will gather all this data and find the ppercentage of each security measure.Next I will analyse these findings and compare them to findings on the internet and make an appropriate conclusion either supporting or refuting the hypothesis made. 2. I will create an interview based on the findings of the previous research. These questions will involve finding statistics on crime rates/major types which I can then relate back to the previous research found. Once the data has been recorded, I will separate these findings into two graphs; One graph will show the deviation in in crime rates, the other will show major types of crime and the security measure most affected by this.

Fair Value Accounting: Its Impacts on Financial Reporting and How It Can Be Enhanced to Provide More Clarity and Reliability of Information for Users of Financial Statements

International Journal of Business and Social Science Vol. 2 No. 20; November 2011 Fair Value Accounting: Its Impacts on Financial Reporting and How It Can Be Enhanced to Provide More Clarity and Reliability of Information for Users of Financial Statements Ashford C. Chea School of Business, Kentucky Wesleyan College 4721 Covert Avenue, Evansville IN 47714 USA Abstract The author begins the paper with a brief historical development of the Statement of Financial Accounting Standards (FAS 157) and its impact on fair value accounting.This is followed by the methodology employed in the research. Next, he reviews the literature on major issues in fair value accounting and financial reporting, and presents his findings from the study. The researcher ends the paper with recommendations to enhance the usefulness of fair value accounting and draws implications for financial reporting and users of financial statements.Keywords: Fair Value, Measurement, Financial Instruments, Market 1. INTRODUCT ION In December of 2001, accounting standard-setters around the world published a consultation paper (Financial instruments and similar items) that proposes fundamental changes to the way financial instruments are reported in the accounts of companies.In particular, the paper proposes, inter alia, that all financial instruments should be measured at fair value. The banking sector has long argued that such an approach is not appropriate for banks and that, to the extent that there are weaknesses in the way that banks currently account for their financial instruments, those ills are better addressed through incremental, than fundamental , change (Ebling, 2001).The Financial Instruments Joint Working Party of standard setters (JWP) main proposal are that: (a) all types of entity should measure all their financial instruments at fair value, and should recognize all changes in those fair values immediately in the profit and loss account; (b) the fair value of an instrument should be its estimated market exit price; (c) no exceptions should be made for financial instruments used in hedging arrangements (i. e. there should be no hedge accounting for financial instruments( Bies, 2005)).In other words, a financial asset for which an active market exists should be carried in the balance sheet at its market bid price and changes in that bid price should be recognized immediately in the profit and loss account. This would be the case regardless of the reason why the instrument is being held –for example, even if it is being held as a hedging instrument or being held until it matures—and regardless of the cause or nature of the market price change involved (Ebling, 2001). FAS 157 – Statement of Financial Accounting Standards No. 57, Fair Value Measurements—defines fair value and establishes a frame work for measuring fair value in generally accepted accounting principles (GAAP). While previous pronouncements involving valuation focused on what t o measure at fair value, FAS 157—issued by the Financial Accounting Standards Board (FASB) on September 15, 2006—focuses on how to measure fair value (Sinnett, 2007). What is fair value? FAS 157 are quite prescriptive, defining it as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants at the measurement dates (Chambers, 2008).FAS 157 put in place a framework for fair value measurement and disclosure. Perhaps the most important feature in FAS 157 is the requirement to set out financial statements in three levels that describe the reliability of the inputs used to establish fair value. Fitch describes it as the fair value hierarchy. So Level 1 is quite straightforward, as the price used are identical to the input and discovered in something like a public exchange. It gets quite complicated for Level 2 assets and liabilities, because the prices used might be inferred from an index or another secu rity with similar attributes to the one being measured.Fair value measurement in Level 3 assets are purely model-driven, consisting of unobservable inputs, and have understandably swollen as markets have grown increasingly illiquid and disorderly (Chambers, 2008). For many years, users of financial statements have sought relevant and timely information about financial instruments and off-balance sheet items and activities. It is believe that fair value measurements and recognition of these values in the financial statements, along with adequate disclosures, will provide necessary information to evaluate properly an enterprise’s exposures to financial risks, as well as rewards (Anonymous, 2002). 2  © Centre for Promoting Ideas, USA www. ijbssnet. com This is because fair value reporting reflects the economic reality by showing the volatility inherent in the values of financial instruments given changes in market conditions and operations of the enterprise. Historic cost-base d accounting smoothes these effects, thus, obscuring this volatility and masking the economic impact of various positions held in financial instruments (Anonymous, 2007). 2. METHODOLOGY This paper relies on the literature review of current relevant articles focusing on accounting for fair value.Except where a source was needed specifically for its perspective on broad issues relating to fair value accounting, the author screened by ? fair value accounting? and by numerous variants of keywords, focusing specifically on fair value accounting and financial reporting in firms. Source papers included refereed research studies, empirical reports, and articles from professional journals. Since the literature relating to fair value accounting is voluminous, the author used several decision rules in choosing articles.First, because the accounting profession is changing fast in today’s environment, especially for financial instruments, the author used mostly sources published 2002-2010 , except where papers were needed specifically for their historical perspectives. Second, given the author’s aim to provide a practical understanding of the main issues in fair value accounting, he included, in order of priority: refereed empirical research papers, reports, and other relevant literature on current firms’ fair value reporting practices.To get some perspective on the current state of fair value accounting, the author begins with a literature review of some of the most important issues relating to the concept. 3. LITERATURE REVIEW 3. 1. Statement of Financial Accounting Standards (FAS 157) FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This definition abandons a longstanding practice of using the transaction price for an asset or liability as its initial fair value.In other words, fair value will no longer be base d on what you pay for something; it will now be based on what you can sell it for, also known as its ? exit price.? Just as important, this definition emphasizes that fair value is market based— requiring the consideration of what other market participants might pay for something—and is no longer entityspecific. Valuation will now be determined by a skeptical, rather than optimistic, buyer. In turn, the level of data available to measure fair value will determine how the valuation of an asset or liability is determined.Common valuation techniques identified by FAS 157 are the market approach, income approach and/or cost approach. These models require inputs that reflect assumptions that market participants would use for pricing an asset or liability. Observable inputs would be based on market data obtained from independent sources, such as stock exchange prices. Meanwhile, in the absence of an active market for an asset or liability, unobservable inputs reflect the rep orting entity’s own assumptions.The standard provides a fair value hierarchy that gives highest priority to quoted prices in active markets (defined as level 1) and lowest priority to unobservable inputs (level 3) (Sinnett, 2007). 3. 2. Mark to Market Mark-to-market accounting refers to the accounting standards of assigning a value to a position held in a financial instrument based on the current fair market price, rather than its original cost or book value, for the instrument or similar instruments. Fair value has been part of U. S. generally accepted accounting principles (GAAP) since the early 1990s.Investors demand the use of fair value when estimating the value of assets and liabilities. This has been influenced by investors’ desire for a more realistic appraisal of an institution’s or a company’s current financial position. Mark to market is a measure of the fair value of accounts that can change over time, such as assets and liabilities. For examp le, financial instruments traded on a futures exchange, such as commodity contracts, are marked to market on a daily basis at the market close (Metzger, 2010). When banks mark to market, they follow two steps.First, they estimate the net realizable value of their portfolio of asset-backed securities. This involves discounting the cash flows of these assets. Then under fair value accounting, they have to take a haircut on these values that takes into account the price at which they could sell the assets. When the market is not functioning, of course, this haircut is very large. This is important because it suggests that the huge decline in the value of bank assets is not due to a decline that has certainly occurred—but rather to the market’s judgment about the risk of resale by a purchaser.It is this risks that—when combined with fair value accounting—has forced the write-downs in bank assets (Wallison, 2009). 3. 3. Relevance 13 International Journal of Bu siness and Social Science Vol. 2 No. 20; November 2011 The debate of fair value accounting basically revolves around the issues of relevance and reliability. Before discussing the issues of relevance of fair value, the author looks briefly at how fair value and relevance are generally defined.Fair value is defined in the FASB’s Preliminary View documents as an estimate of the price an entity would realized if it has sold an asset or paid if it had been relieved of a liability on the reporting date in an arm’s –length exchange motivated by normal business consideration. Relevance is defined in the glossary of the FASB Statement of Financial Accounting Concepts No. 2 as the capacity of information to make a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct expectation (Poon, 2004). 3. 4.Reliability and Measurements Reliability is defined in the glossary to the FASB Statemen t of Financial Accounting Concepts No. 2 as the quality of information that assures that information is reasonably free from error and bias and faithfully represented what it purports to represent. Fair value as an estimate of exit value under normal market condition is well defined and noncontroversial when there are well-established liquid markets. What if there is no liquid market? This is the situation in which an estimation of fair value will inevitably involve prediction of future cash flows and selection of appropriate discount rates.These estimates depend on management’s assumptions and measurement error. This has the potential to mask deliberate miscalculation and manipulation of the numbers. Both the FASB and the JWG acknowledge that some significant measurement issues must be resolved and they are working on developing more guidance regarding estimating fair value and establishing appropriate controls. However, it should be noted that the use of estimate is an esse ntial part of preparation of financial statements, e. g. the ubiquitous use of estimates in pension accounting (Poon, 2004).If markets were liquid and transparent for all assets and liabilities, fair value accounting clearly would be reliable information useful in the decision-making process. However, because many assets and liabilities do not have an active market, the inputs and methods for estimating their fair value are more subjective and, therefore, the valuations less reliable (Bies, 2005). 3. 5. Verification As the variety and complexity of financial instruments increases, so does the need for independent verification of fair value estimates.However, verification of valuations that are not based on observable market prices is very challenging. Many of the values will be on inputs and methods selected by management. Estimates based on these judgments will likely be difficult to verify. Both auditors and users of financial statements, including credit portfolio managers, will need to place greater emphasis on understanding how assets and liabilities are measured and how reliable these valuations are when making decision based on them (Bies, 2005). 3. 6.Disclosure The FASB states that the proposed update would change the wording used to describe the principles and requirements in U. S. GAAP for measuring fair value and for disclosing information about fair value measurements. Specifically, the proposed update would include amendments to (a) clarify FASB intent about fair value application of existing fair value measurement and disclosure requirements, and (b) change a particular principle or requirement for measuring fair value or disclosing information about fair value measurements (Elifoglu et al. 2010). 3. 7.Financial Instruments Financial instruments versus nonfinancial instruments—many see fundamental inconsistency between measuring financial instruments at fair value and nonfinancial items largely on historic cost basis. Standard-setters reco gnize that whenever a boundary is drawn between financial statement items with different measurement attributes some inconsistencies and complexities often results. It is argued that there is economic logic in drawing a line between financial instruments and nonfinancial items, and more so than drawing a line including some inancial instruments but not others (Hague, 2002). Conceptually, the periodic returns on financial instruments can be separated into three components with distinct sustainability or certainty. The first two components—amortized cost interest and the difference between fair value interest and amortized cost interest-sum to fair value interest. It is useful to distinguish these two components of fair value interest because amortized cost interest is both sustainable and certain, whereas the difference between fair value interest and amortized cost interest is sustainable but uncertain.The difference between fair value interest and amortized cost interest is sustainable because unexpected changes in interest rates and the resulting unexpected changes in fair values affect fair value interest calculations throughout the remaining lives of financial instruments. 14  © Centre for Promoting Ideas, USA www. ijbssnet. com For example, an unexpected gain on a financial asset due to a decrease in interest rates in the current period reduces expected fair value interest revenue on the asset throughout its remaining life.This third component of the periodic returns to financial instruments is the unexpected change in their fair values during the period. Unexpected changes in the fair values of financial instruments are both unsustainable and uncertain (Ryan & et, al. , 2002). 3. 8. Financial Reporting The reporting of financial assets and liabilities is an election on a contract-by-contract basis and not mandatory. Therefore, not all instruments will necessarily be reported at fair value.In order to distinguish instruments that are reported at fair value from those that employ some other measurement, firms will have one of two reporting options on the statement of financial position. A firm may display the two classifications, fair-value and non-fairvalue carrying amounts, as separate line items on the statement of financial position. The second option for reporting is parenthical disclosure where the firm presents the aggregate of the two classifications and discloses the amount of the fair value parenthically (Schneider & McCarthy, 2007). . 9. Critics of Fair Value Critics argue that fair value accounting has created a false short-term visibility in the case of pension funding and hastened the demise of defined benefit schemes. More generally, critics argue that the financial crisis demonstrates the pro-cyclicality of fair values when accounting is tightly coupled to prudential regulatory systems, and the unreliability of marking to model in less than liquid asset markets, especially for assets which are being held for the long term (Power, 2010).They also add that the impact of fair value accounting (FVA) is likely to be more restrictive lending policies, and more demanding loan covenants, than are necessary for sound risk management, together with pricing which will be higher than is economically necessary (Allatt, 2001). Moreover, several commentators remarked on the fictional and imaginary nature of fair value and bemoaned their subjectivity and potential for manipulation and bias.Regardless of whether these criticisms have substance, it is also the case that if enough people believe in fictions, then they can play a role in constituting markets (Power, 2010). Many are comfortable with historic cost/realization accounting on the grounds that it is familiar and provide a more stable basis for prediction of future accounting than fair values. They argue that fair value based earnings cannot be predicted in the same way because of the effects of uncertain future events and see this as a significa nt drawback in being able to prepare budgets, forecasts, etc. nd to manage analysts’ expectations (Hague, 2002). Nevertheless, many critics of the subjectivity of fair value miss the real point. The very idea of reliability is being reconstructed in front of their eyes by shifting the focus from transactions to economic valuation methods, and by giving these methods a firmer institutional footing. Deep down the fair value debate seems to hinge on fundamentally different conceptions of the basis for reliability in accounting, making it less of a technical dispute and more of the politics of acceptability (Power, 2010). . 10. Proponents of Fair Value Few will question the relevance of information based on market prices as historical cost information is based on market prices at which assets were initially acquired and liabilities were initially incurred whereas fair value are based on current market prices. Fair value reflects the effects of changes in market conditions and cha nges in fair value reflect the effect of changes in market conditions when they take place. In contrast, historical ost information reflects only the effects of conditions that existed when the transaction took place, and the effects of price changes are reflected only when they are realized. As fair value incorporate current information about current market conditions and expectations, they are expected to provide a superior basis for prediction than outdated cost figures can since these outdated cost figures reflect an outdated market conditions and expectations (Poon, 2004).Proponents of fair value in accounting often appeal to notions of telling things as they are and of improving transparency. They point to areas such as pension accounting or the savings and loans industry in North America where fair values would have made problems (deficits, poor performing loans) visible much earlier, thereby enabling corrective action. An often heard trope is that one should not shoot the me ssenger of poor asset quality (Ebling, 2001). 4. FINDINGSWhile there is a large number of assets and liabilities reported or disclosed in financial statements, the percentage of these items and the dollar impact on earnings may not have been exorbitant for most companies, except for financial institutions. 15 International Journal of Business and Social Science Vol. 2 No. 20; November 2011 In 2008, only 27% of the total assets of the S&P 500 companies that had adopted FAS 157 were actually reported at fair value (Zion et al. , 2009). While this represents about $6. 6 trillion in assets, it is still a relatively small percentage of the assets.Because of the mixed attribute model used in U. S. Generally Accepted Accounting Principles (GAAP), some assets are measured using fair value while others—even very similar assets are measured at cost, or amortized cost, or by some other measure. The nature of the assets held by these companies determined, to a large extent, their exposur e to risk in the credit crisis. Companies in the financial sector had a much larger number of fair valued assets (39%) then did, for instance, companies in consumer staples (2%).Even within the financial sector, investment banks and insurance companies, most of whose assets are reported at fair value, were impacted more than commercial banks, whose largest assets is generally loans, which are not reported at fair value (Casabona & Shoaf, 2010). In addition, there is ample empirical evidence to support the relevance of fair value information of financial instruments. For example, Barth (2006) finds that fair valuation of investment securities influences the share price indicating that it provides extra information to investors.Additional discussion of findings of research on accounting for fair value of financial instruments can be found in FASC 1998 study (Poon, 2004). 5. ANALYSIS AND DISCUSSION While most people agree that fair values are the most relevant measure for financial ass ets and liabilities that an entity actively trades, some (most notably, those in the banking industry) argue that historical cost is the more appropriate measure if management intends to hold an asset or to owe a liability until maturity.The rationale for accounting on a historical cost basis is that it better reflects the economic substance of the transactions and the actual cash flow over time. They argue that fair value information, on the other hand, would reflect the effects of transactions and events in which the entity would not participate and thus is often irrelevant. The question here is whether management’s decision to hold assets or to continue to owe liabilities in light of changed market condition is relevant in evaluating the entity’s financial position and performance (Poon, 2004).Some also argue that the outcome of fair value accounting on entity’s financial liabilities is counterintuitive if its credit risks changes. The fair value of a financi al liability will decrease when the issuing entity’s credit risk deteriorates because the interest rate on the initial issue date would now be lower than what it would be if the liability was issued today. Conversely, if an entity’s credit rating improves, an increase in the fair value of its financial liability will result.However, as explained in Barth and Landsman (1995), changes in the credit rating represent wealth transfers between creditors and stockholders. It is not counterintuitive to see a decrease (an increase) in the value of a financial liability when there is a wealth transfer from creditor (stockholders) to stockholders (creditors) corresponding to the deterioration (improvement) of the credit rating of the issuing entity. Therefore, the outcome of fair value accounting is not readily counterintuitive.But as illustrated in Lipe (2002), financial statement users must be better educated about the impact of fair value accounting on financial liabilities. I n particular, a decrease (an increase) in the fair value of financial liabilities should not be interpreted as positive (negative) if it is due to deteriorating (improving) credit quality. In addition, loan covenants have to be revised and financial ratios involving financial liabilities have to be analyzed accordingly (Lipe, 2002).Still another argument against fair value accounting is the induced volatility of earnings if changes in fair values are reported in earnings. Some believe that this volatility of earnings may not correlate to management’s performance and that this would make it more difficult for users to predict future performance. First, this is not a reliability issue since fair values can be reliably measured but still vary a great deal from one period to another.Second, the requirement of fair value reporting does not have to go hand in hand with the requirement of recognizing changes in fair values in reporting earnings (Poon, 2004). For this reason changes in fair value should be separately reported based on causes such as the passage of time, changes in market conditions, changes in the entity’s financial health, changes in estimate, and changes in valuation techniques.Requiring fair value information as supplemental disclosures instead of financial statement recognition also addresses some of the concerns (e. g. , volatility of reported assets, liabilities, and earnings) of the opponents of fair value accounting. In addition, this will allow financial statement users to decide on their own how much reliance they will put on and how to use fair value information (Poon, 2004).FSP FAS 175-4 provides application guidance to assess whether the volume and level of activity for asset or liability have significantly decreased when compared with normal market conditions. However, this assessment should consider whether there are factors present that indicate that the market for the asset is not active at the measurement date, such as : (a) there are few recent transactions based on volume and level of activity in the market, (b) price quotations are not based on current information , 16  © Centre for Promoting Ideas, USA www. ijbssnet. com c) price quotations vary significantly either over time or among market makers , (d) there is a significant increase in implied liquidity risk premiums, yields, or performance indicators (such as delinquency rates or loss severities) (e) There is a significant decline or absence of a market for new issuances (Casabona & Shoaf, 2010). Research by Federal Reserve staff shows that fair value estimates for bank loan can vary greatly, depending on the valuation inputs and methodology used. For example, observed market rates for corporate bonds and syndicated loans with lower-rated categories have varied by much as 200 to 500 basis points.Such wide ranges occur even in the case of senior bonds and loans when obligors are matched. Moreover, the FASB statement on the proposed fair v alue standards that reliability can be significantly enhanced if market inputs are used in valuation. However, because management uses significant judgment in selecting market inputs when market prices are not available, reliability will continue to be an issue (Bies, 2005) 6. RECOMMENDATIONS In order to provide more relevant information to financial statement users, fair value information should be reported for all financial assets and liabilities.Given that there are still some important conceptual and practical issues relating to the reliable determination of fair value, it is better to first require full fair value disclosures before contemplating a shift to full fair value recognition in financial statements. That would enable investors, creditor, preparer, auditors, and regulators to learn from experience. When the issues relating to the reliable determination of fair values are resolved, they will be ready for full fair value recognition in financial statements (Poon, 2004).T he author concords with the SEC recommendations, which are expected to impact the FASB’s future activities, including (a) improve fair value accounting standards (b) improve the application of existing fair value requirements (c) readdress the accounting for financial asset impairment s (d) establish formal measures to address the operation of existing accounting standards in practice (e) implement further guidance to foster the use of sound judgment of practitioners (f) address the need to simplify the accounting for investments in financial asset (Casabona & Shoaf, 2010).The first priority seems to be to work in close co-operation with users and preparers of financial statements to further consider the practicality of the proposals and to demonstrate or refute the relative merits of fair value and historic cost based reporting of financial statements for users’ analysis purposes. Such work should involve rigorous testing to consider how fair value information would b e used in decision models, as well as to stimulate the preparation of fair value information to understand better the extent of many of the practical concerns (Hague, 2002).Second, implementation of the proposals would provide more useful, relevant and transparent information about an enterprise’s use of financial instruments than is available today. The full benefits, however, will only be understood with careful study and education about how to use the new information. A somewhat different mindset and base of expertise (from that appropriate to traditional recognition and historical cost-based accounting for financial instruments) is also necessary. This includes integrating knowledge of certain finance and capital-markets concepts and practices with financial accounting objectives and concepts (Hague, 2001).Third, financial instruments should be grouped and displayed on the balance sheet based on the underlying characteristics of the instruments, such as unconditional righ ts to receive or obligations to deliver, and by major classes within these groups. Detailed, descriptive information about the nature and terms of these financial instruments, as well as management’s policies pertaining to them, should be disclosed in the notes to the financial statements in a manner consistent with the balance sheet (Anonymous, 2002). Fourth, fair values reflect point estimates and by themselves do not result in transparent financial statements.Hence, additional disclosures are necessary to bring meaning to these fair value estimates. FASB’s proposal take a first step toward enhancing fair value disclosures related to the reliability of fair value estimates. Additional types of disclosures should be considered to give users of financial statements a better understanding of the relative reliability of fair value estimates. These disclosures might include key drivers affecting valuations, fairvalue-range estimates, and confidence level (Yonetani & Katsu o, 1998). Finally, another important disclosure consideration relates to changes in fair value amounts.For example, changes in fair value of securities portfolio can arise from movements in interest rates, foreign-currency rates, and credit quality, as well as purchases and sales from the portfolio. For users to understand fair value estimates, they must be given adequate disclosures about what factors caused the changes in fair value (Bies, 2005). 7. IMPLICATIONS FOR FINANCIAL REPORTING AND MANAGERIAL DECISION-MAKING Several implications are drawn from this paper. 17 International Journal of Business and Social Science Vol. 2 No. 20; November 2011First, standard-setters and regulators would be required to provide more specific guidance on how to determine fair value for financial statements. Perhaps, they can list some common valuation techniques and indicate their appropriateness in various circumstances. Disclosure requirements would include disclosure of fair value of all financ ial instruments along with method adopted to determine fair values, any significant assumptions used in their estimation, some indications of the sensitivity of the estimated fair value to these assumptions, and discussion of risk exposure and issues associated with the estimation of fair value (Poon, 2004).Second, the role of external financial reporting is to portray an enterprise as if seen through the eyes of management—that is, that financial reporting should be consistent with internal management practices. It is, obviously, desirable that there be as much compatibility between the two as possible. However, it is difficult to see how accounting that is driven by the manner in which an enterprise chooses to manage its financial instruments and risks can provide information to financial statement users that are consistent and comparable between enterprises (Hague, 2002).Third, the objectives of financial analysis are to discern and assess the effects to an enterprise†™s performance and financial condition, including those that result from its risk management policies and decisions that involve financial instruments. In addition, financial statement users want to assess how well an enterprise effectively applies these policies in managing the risks of the enterprise. Therefore accounting and disclosure requirements related to financial instruments must be designed to explain (a) risks inherent in a given business (b) hedging strategies employed and (c) outcome(s) of such hedging activities.In other words, financial and nonfinancial disclosures should provide sufficient information for users of this information to discern and answer question, such as these: (a) what are management’s policies and procedures for using certain financial instruments? (b) How extensively does the enterprise use these financial instruments as part of its risk management? (c) What are the timing and the magnitude of the effects of the instruments on fair values in the balance sheet and changes in these values reflected in the income statement? d) How effective, or ineffective, are the position in these financial instruments as hedges in managing the risk exposure of the enterprise? And (e) what portion of the gains and losses reported in the balance sheet and income statement is realized and unrealized? (Anonymous, 2002). Fourth, the fact that management use significant judgment in the valuation process, particularly for level 3 estimates, add to the concern about reliability. Management bias, whether intentional or unintentional, may result in inappropriate fair value measurements and misstatements of earnings and equity capital.This was the case in the overvaluation of certain residual trenches in securitizations in recent years, when there was no active market for these assets. Significant write-downs of overstated asset valuations have resulted in the failure of a number of finance companies and depository institutions. Similar problem s have occurred due to overvaluations in nonbank trading portfolios that resulted in overstatements of income and equity. The possibility of management bias exists today. There continue to be new stories about charges of earnings manipulation, even under the historical cost accounting framework.It is believe that, without reliable fair value estimates, the potential for misstatements in financial statements prepared using fair value measurements will be even greater (Bies, 2005). Fifth, three fundamental goals of accounting that are likely to have influenced the choice of fair value accounting for all financial firms. One of these objectives is to minimize what is called management bias. Management has an obvious incentive to inflate the value of a company’s assets, and many ways to do it. Marking a company’s assets to market is an effective way of taking his element of financial statement manipulation out of management’s hands (Wallison, 2009). Finally, the opt ion to use fair value for certain assets and liabilities will provide more relevant information to the users of financial statements. However, since the fair value usage can be elected for some financial assets and financial liabilities and avoided for others, there is a loss of consistency in the financial statements between entities and even within a single entity. Also the new standard imposes additional disclosure requirements (Schneider & McCarthy, 2007). 8. CONCLUDING REMARKSCurrent methods of accounting for financial instruments have been of concern to accounting standard-setters around the world for some time now. These concerns about financial instruments start from the observation that markets now exists for either the instruments themselves or the various financial risks that arise from the instruments, and the availability of those markets enables entities to actively manage the financial risks and, thereby, to realize some or all of the market value of their financial i nstruments with ease. (Ebling, 2001). 18  © Centre for Promoting Ideas, USA www. ijbssnet. comIt has been argued that different conceptions of what is for an accounting estimate to be reliable underlie the fair value debate as it has taken shape in the last decade. The language of subjectivity and objectivity is unhelpful in characterizing what is at stake; it is more useful to focus on the question of how certain valuation technologies do or don’t become institutionally accepted as producing facts (Power, 2010). However, the shift in accounting principles will not come without some additional effort by all capital market participants, including preparers, auditors, regulators, and users of this information.It is realized that accounting and reporting based on fair value principles, in comparison with historical cost-based principles, require more extensive and detailed analysis of the methods and assumptions used to determine values recognized in the financial statements. This in turn, will require market participants to redesign the current financial reporting model and to educate themselves in the application of these new principles. Nonetheless, transparency of the true economic consequences, i. e. isks and rewards, resulting from the use of financial instruments justifies the movement to a fair value based model for financial reporting (Anonymous, 2002). Certainly, mark-to-market reporting has its drawbacks, especially for derivatives. First, fair value based on market prices can be difficult to determine for complex and lightly traded instruments. These types of derivatives are the level 3 type mentioned above. These derivatives are usually measured using a mark-to-model process, which can be arbitrary at best and fraudulent at worst.Next, there is the theoretical issue, as banks successfully argued, as to whether market price does indeed represent fair value. Also, the relevance of market prices can be challenged with respect to intent. Some ob servers challenge the relevance of market prices because they believe that, if government officials do not intend to trade derivatives but rather hold them to maturity, as is usually the case with derivatives used for hedging, then the time and expense of determining fair value may not be worthwhile.Still, using fair value accounting is proper for derivative reporting because it enhances the following qualities or objectives of financial measurement and reporting: accountability, transparency, consistency, inter-period equity, and risk management (Metzger, 2010). REFERENCES Allatt, G. (2001). Fair value accounting: Examining the consequences. Balance Sheet, 9, 22-26. Anonymous (2007). Statement of financial accounting standards No. 159: The fair value option for financial assets and financial liabilities. Journal of Accountancy, 203, 96-101. Anonymous (2002). Financial instruments: Fair values and disclosure.Balance Sheet, 10, 12-20. Bath, M. (2006). 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