Essay about Minority Students in Special Education Programs

The special education programs in the United States have been designed to help children with special needs learn easier and fit in better with the education program. Unfortunately, many minority students get caught up in the mix and don’t get the proper attention they deserve. Furthermore, minority students are seriously over-represented in the educational programs. Many minority students are misdiagnosed and put into special education programs when in fact; they do not have a learning disability. This has become a growing problem in this country because it is seen as the easy way out. Schools all over the U.S. are doing this in order to not have to properly test and evaluate students for learning problems. There have been†¦show more content†¦The two important court rulings were the Pennsylvania Association for Retarded Children v. The Commonwealth of Pennsylvania in 1971 and Mills vs. The Board of Education of the District of Columbia in 1972 (ERIC Clearinghouse, 1998). These court decisions showed that â€Å"the responsibility of States and local school districts to educate individuals with disabilities is derived from the equal protection law of the Fourteenth Amendment of the United States Constitution.†(ERIC Clearinghouse, 1998, n.p.) The special education programs of the United States have definitely come very far in the last 25 years, but little progress has been made about minority or sometimes considered migrant, special education students. A migrant student is one that transfers from school district to school district with his parents who are trying to find seasonal employment (Lozano-Rodriguez Costellano, 1999). It has been shown that even though these migrant students do not get the attention they deserve they are some of the most needy special education children. They suffer from poor nutrition, poverty and many health problems (Lozano-Rodriguez Costellano, 1999). The law requires that all children should be fairly evaluated in their native language and then classified into the correct disability category (Lozano-Rodriguez Costellano, 1999). As Lozano-Rodriguez and Costellano (1999) state inShow MoreRelatedMinority Groups And The Minority Group Within Special Education1698 Words   |  7 PagesDisproportionality refers to the overrepresentation or underrepresentation of a minority group within special education programs and services. The disproportionate representation of minority students in special education has been an ongoing and significant matter in education for decades. More and more minority children are being identified as disabled or having an intellectual disability or learning disability. However, in most cases the children are being misdiagnosed and consequently, are beingRead MoreAn Interview About Special Education920 Words   |  4 Pagesinterview about the disproportionality of African Americans students in special educat ion programs. In the interest of confidentiality, the interviewee’s name will not be disclosed throughout this paper. To discuss questions surrounding the aforementioned topic, it was important to gather the educator’s experiences about special education programs in general. In her third year of teaching she taught in a self-contained classroom, where students had severe and profound disabilities. She quoted seven yearsRead MoreAfrican American Students And Special Education923 Words   |  4 PagesIn education, the main goal is for all students to receive an equal and optimal opportunity for success, which also includes students with special needs. To ensure this aim is reached, schools ought to have measures in place to establish students who necessitate special education services to achieve and progress in their schooling. Contradictory to this idea, nonetheless, learners are inaccurately referred for special education placement. The process begins to become questi onable when it happensRead MoreThe Importance Of A Child s Race Essay1370 Words   |  6 Pagesmisidentified as needing special education. Disproportionality refers to the overrepresentation and under- representation of particular demographic groups in special education programs in relation to the overall student population (Disproportionality, 2008). Disproportionality can impact and have negative effects on a child throughout their entire education. This issue applies to various subgroups, but this paper will focus specifically on the overrepresentation of minority students, African AmericansRead MoreRepresentation Of Minority Groups : Special Education1693 Words   |  7 PagesTo: Arne Duncan, U.S. Secretary of Education From: Evan Sadrakula Date: April 15, 2016 Subject: Disproportionality of Minority Groups in Special Education Introduction Some students are subject to unequal representation at school, particularly those in a minority group. In the past, there were vast amounts of racial biases that spread across the United States. Unfortunately, racial bias still exists today, in the 21st century. There are those who feel that certain groups of people should notRead MoreEssay on Multicultural Education1681 Words   |  7 PagesMulticultural Education History/Past Challenges: One of the major goals of the American school system is to provide all children with equal educational opportunity. However, with regard to minority students, meeting this particular objective has presented a real challenge to educators as they have been confronted with the task of reshaping education in the multilingual, multicultural society that characterizes the United States. Many significant events contributed to the needRead MoreThe South: Educating a Growing Hispanic Population Essay1168 Words   |  5 PagesIntroduction For many years the United States minority population mostly consisted of African Americans. In 2003, the statistic changed to Hispanics becoming the largest minority population in the United Sates (Parrado Kandel, 2010). With the increase of the Hispanic population, education concerns of this population have started to arise. In some cases, Hispanics are being over referred to special education programs. This phenomenon is linked to the presence of a language barrier as well as otherRead MoreEthnic And Racial Discrimination Of Special Education1017 Words   |  5 PagesEthnic and Racial Disproportionality in Special Education Former Education Secretary Arne Duncan said The undeniable truth is that the everyday educational experience for many students of color violates the principle of equity at the heart of the American promise. It is our collective duty to change that (Ed.gov, 2012). This was in response to the U.S. Department of Education s Office for Civil Rights (OCR) findings reporting that minority students across the U.S. face tougher discipline, haveRead MoreMulticultural Education, Its Purpose, Goals, And Challenges Inclusive824 Words   |  4 Pagesbehind multicultural education, its purpose, goals, and challenges inclusive to multiculturalism. One of the challenges’ that Banks noted was the problem was with â€Å"Ideological resistance by assimilationist is a major factor that has slowed and is still slowing the development of a multicultural curriculum† (p. 244). Bank’s literature contributed to the knowledge of historical patterns associated with multicultural education and the need for more multicultural programs in education. Jia (2015) contributedRead MoreAdmissions Guidelines For The Admissions1289 Words   |  6 Pagesoverall undergraduate GPA, the GPA in Science courses, the score of the Medical College Admissions Test (MCAT), letters of recommendation, extracurricular activities and other bibliographical data is taken in to account to satisfy the admissions program. In 1973, the admissions committee was composed of 5 members that rated each candidate. The perfect â€Å"benchmark† score was 500 which mean a rating of 100 of all 5 members of the committee. In 1974, another member was added to admissions committee making

Jean Jacques Rousseau s Influence On Western Europe

The 1700s saw the waxing and waning of Enlightenment philosophies and a greater fascination in reason and logic. The individual became supremely important and the idea of selfhood was much debated by philosophers such as Jean-Jacques Rousseau. The idea of the individual also led to greater fascination with culture in many areas in Western Europe, leading to an increase in nationalism. This increase on the emphasis of individual and that individual’s relation to the state led many to begin traveling widely across Europe and record their travels. Though stories of vampires began trickling from Eastern Europe to Western Europe as early as the 1690s, vampires did not gain true traction in Western Europe until the 1700s (Nelson). For less†¦show more content†¦The Romantic era ascribed to the idea of the sublime - an idea that human emotions, all human emotions including horror, fear, and pain, produced an exhilarating thrill. In order to experience the full gamut of human emotion and the resultant high, the Romantics believed people should embrace all emotions, including the dark ones. However, experiencing horror and pain first hand were clearly detrimental, as witnessed with the mass executions of the French Revolution, but viewing these emotions from a removed setting, such as in art, poetry, and literature, allowed people to experience the thrill and complete exhilaration offered by the human experience. Often art and literature of the Romantic era depicted both horror and delight to offer a complete thrill and exploration of the human psyche. Henry Fuseli’s 1781 painting The Nightmare nicely embodies the idea of exploring both horror and sensuality. The subject of the painting is a young woman sleeping. On her chest sits a demon, gazing searchingly at the viewer as a ghostly horse looks on the scene in the background. Fuseli offers a bizarre image that so captivated his contemporaries that he painted several variations on the theme and th e imagery continues to fascinate viewers 200 years later. Instead of cringing in horror at the demon on her chest, the woman’s back is arched sensuously, her arms hanging from her sleeping couch in complete surrender, yetShow MoreRelatedThe Age Of Enlightenment And The Scientific Revolution1675 Words   |  7 Pagesdevelopment, the Age of Enlightenment delivered the greatest influence for the future American society and planted the way for cultural and humanistic enrichment. The Age of the Enlightenment raised new concepts in education, democracy, and human freedom. The new humanistic philosophy promoted the polish of the human intelligence and made education a longing that lasted in the following centuries. Names like John Locke, Montesquieu, Voltaire, Rousseau, Diderot, and many more, contributed with their ideasRead MoreThe French Revolution Was Inspired By The Ideas From The Enlightenment928 Words   |  4 Pagespromote scientific reasoning and end the injustice in the way governments were performing. The French Revolution was mainly a series of upheaving s aiming to gain social and political reforms, along with ways to govern more justly. Due to the previous era, being the Enlightenment, French Revolutionists saw that Enlightenment participants, such as Rousseau, Voltaire, Robspierre ,and Beccaria, along with works such as Declaration of the Rights of Man and multiple posters, took a step towards new reformsRead Morefactors that contributed to the rise and development of sociology1511 Words   |  7 PagesThis essay serves to outline the factors that contributed to the rise of sociology and the latter`s development. In simply terms, sociology is the scientific study of the society and human behavior. The emergence of sociology traces back to the eighteenth century up to present day. Johnson (1998) suggests that in summary, the rise and development of sociology is based on political, economic, demographic, social and scientific changes. Ritzer (2008) asserts that the immediate cause for the beginningRead MoreThe Major Turning Points Of World History2072 Words   |  9 Pagestaken place, we could still be stuck making clothes in our homes or struggling for world dominance. There are many negative turning points in world history, but there are also many beneficial ones. Some of which have happened between the 1500’s and the 2000’s. Three major turning points that had a large effect on the world are Enlightenment, the Industrial Revolution, and World War II, and one that is liable to be a turning point is the lack of privacy through technology. One major turning pointRead MoreReligious, Social, Philosophical, And Political Upheaval1394 Words   |  6 PagesReligious, social, philosophical, and political upheaval spread throughout both Europe and the Americas during over the course of the eighteenth century. In prominent Western nations such as England, France, and Spain, religious tensions persisted from power struggles between Catholicism and Protestantism throughout the 1600s. However, while governments remained entrenched in organized religion at a state level, Enlightenment ideas emphasizing human reason brought about a new epistemological ideologyRead MoreEssay about Romanticism1678 Words   |  7 Pagestragedy. This new interest in relatively unsophisticated but emotional literary expressions of the past was to be a dominant note in Romanticism. (Frenz, Horst and Stallknecht, Newton P. pgs 70-73) Romanticism in English literature began in the 1790’s was the publication of Lyrical Ballads written by Willia m Wordsworth and Samuel Taylor Cloeridge. Wordsworth’s â€Å"Preface† to the second edition (1800) of Lyrical Ballads, in which he describes poetry as â€Å" the spontaneous overflow of powerful feelingsRead MoreBranches of Philosophy8343 Words   |  34 Pageshistory. In addition, a range of academic subjects have emerged to deal with areas which would have historically been the subject of philosophy. These include psychology, anthropology and science. [edit] Western philosophy Main article: Western philosophy [edit] History Main article: History of Western philosophy The introduction of the terms philosopher and philosophy has been ascribed to the Greek thinker Pythagoras (see Diogenes Laertius: De vita et moribus philosophorum, I, 12; Cicero: TusculanaeRead MoreThe Greatest Effects Of The Enlightenment Era2374 Words   |  10 Pagesinfluential Enlightenment thinkers was a philosopher by the name of Thomas Hobbes, who also served as a teacher to the first male child of Charles I, the monarch of England. The beheading of the England’s monarch in 1649 for treason had a profound influence on Thomas Hobbes and left him extremely troubled and horrified. The beheading of England’s monarch led Tomas Hobbes to argue for the presence of absolute monarchy in his work The Leviathan in 1651, which effectively kicked off the Enlightenment.Read MoreThe Relationship Between Revolution, State Reform, And Industrialization2739 Words   |  11 PagesEnlightenment thinkers resented the persecution of religious minorities and royal censorship 2. Thinkers wanted to have freedom of expression v. Political and Legal Equality 1. All individuals would be equal before the law 2. Jean-Jacques Rousseau (1712-1778) vi. Global Influence of Enlightenment Values 1. Enlightenment ideas were slowly being used by other groups, not just men b. American Revolution i. Tightened British Control of the Colonies 1. Colonists did not like taxation without representationRead MoreHistory of Physical Education2545 Words   |  11 Pagesactivity. ANCIENT CIVILIZATIONS (2500-250 B.C.) (i) China In China, the participation of regular physical activity was encouraged by the philosophical teachings. There were no such words in the Chinese vocabulary entirely corresponding to the Western terms of sport and physical education†. Such physical exercises as wrestling, swordplay, archery, charioteering and horse-racing were all incorporated in the military training and therefore came under the general term of wuyi, or martial arts

Thermodynamic Analysis of Waste Heat Power Generation

Question: Discuss about the Thermodynamic Analysis of Waste Heat Power Generation. Answer: Solution 1 The chemical reaction for the vapor generation is as follows- Energy generated by steam- For 100% yield Total water amount will be converted into steam and thus- Now calculating the mass of water produced- Ratio of molecular weight of ethylene to water = Ratio of molecular weight of ethylene to water = Therefore mass of ethylene required = 41918*1.55 Therefore mass of ethylene required = 65205.77 kg When yield is 75% i.e. only 75% of the water is converted into steam- Ratio of molecular weight of ethylene to water = Ratio of molecular weight of ethylene to water = Therefore mass of ethylene required = 55890.66*1.55 Therefore mass of ethylene required = 86630.53 kg Solution 3 The given data are as follows- At 50 m above turbine pressure Pa = 307 kPa At 10 m below turbine pressure Pb = 110 kPa Turbine output = 0.5 MW i.e. the height of turbine from ground is 18.70 m Solution 4 The given data are as follows- Volume flow rate of milk V = 5000 liters/day Volume flow rate of milk V = 5 m3/day Initial temperature Final temperature Overall heat transfer coefficient U = 40 Mass of milk = Mass of milk = Mass of milk = Amount of heat required = Amount of heat required = Amount of heat required = The temperature of water leaving the heat exchanger can be calculated as- The required area of the heat exchanger can be calculated as- Total heat Q = UA References Guo, J., Xu, M. and Cheng, L. (2010). Thermodynamic analysis of waste heat power generation system. Energy, 35(7), pp.2824-2835. hman, H. and Lundqvist, P. (2014). Thermodynamic pre-determination of power generation potential in geothermal low-temperature applications. Geotherm Energy, 2(1). Zhang, X. and Jin, H. (2013). Thermodynamic analysis of chemical-looping hydrogen generation. Applied Energy, 112, pp.800-807.

Were the Colonists Justified free essay sample

Were the colonists justified in waging war and breaking away from Britain? After all of the hardship and violence the British imposed on the colonists, the Americans were justified in waging war and breaking away from Britain. The Colonists were justified in breaking away because the parliament passed laws that were unjustified, The British king was of tyranny, The Stamp Act of 1765, The Townshend Act and The Boston Massacre. All of this lead to the colonies joining together and rebelling against the British. The colonists despised the unlimited power of the parliament and their authority to levy taxes to raise revenue. The colonist had to fight against the tyranny. The parliament passed many unjustified laws that were unconstitutional and destructive to the liberty to the colonies. The parliament believed they had the authority to make laws to regulate the trade of all the colonies. The British made it known that the parliament had â€Å"the right to make laws to bind us in all cases whatsoever† as stated in Document 5. We will write a custom essay sample on Were the Colonists Justified? or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The colonists felt it was unfair for the British to have unlimited power over them. {Document 2 Document 5} The Stamp Act of 1765 was passed by the parliament basically to raise revenue. That led to new taxes being imposed on all American colonists. The Townshend Acts of 1767 was passed by the parliament to impose duties on the colonies. The Colonists were becoming more n more enraged. Then On March 5, 1770 The Boston â€Å"Massacre† happened. This was the big event that united the colonists and makes them go to war against the British. The Boston Massacre was when the British Soldiers began shooting at a crowd of colonists. Many people were dead and more was wounded. The picture shows how the British were violent and killers, it was sent throughout the colonies and it arouses anti-British feelings. {Document 2 Document 3}

Product Positioning and Differentiation

Product positioning and differentiation is a combination of elements of marketing that help in marketing a product. Product differentiation involves setting the product in a way that it is different from the competitors’ product in the market (Kazmi, 2008). This may include a high quality service, after sale service among others that the competitor does not offer.Advertising We will write a custom research paper sample on Product Positioning and Differentiation specifically for you for only $16.05 $11/page Learn More In product differentiation, a marker tries to answer the question of what will make the consumer purchase his product and leave the others (Kazmi, 2008). On the other hand, product positioning involves the presentation of the product image in the market (Kazmi, 2008). This occurs after product differentiation whereby a product marketer has to place his products well in order to attract customers’ attention and make them buy it. Product positioning may be in terms of quality, price, and value among others. Normally, product differentiation and positioning are also accompanied by a positioning statement. This statement tries to highlight both the differentiation and positioning of the product thus making it easy for identification of the product in the market (Kazmi, 2008). Product positioning statement is the third step after differentiation and positioning. Therefore, the three items go together in marketing of a particular. Blue Cross Blue Shield Insurance Company Blue Cross Blue Shield is an insurance company in the US. It is located in Texas and provides insurance services particularly in the healthcare sector. It began its operations in Texas and currently has a wide coverage within the state. It has been in the insurance industry for more than 80 years now. Being one of the largest health insurance companies in the country, it has won various awards due to its outstanding financial service. This has made it a leader in the health insurance industry (Plunkett, 2008). Product Differentiation Blue Cross-Blue Shield has engaged in product differentiation in the market. This is aimed at making clients able to differentiate between Blue Cross Blue Shield products from those of their competitors in the market. One way that the company has used to achieve this is through the service quality offered. The company is rated the best in terms of client service (Plunkett, 2008).Advertising Looking for research paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More This includes physical assistance and in answering calls for clients who are seeking information about the company. Blue Cross Blue Shield Insurance Company has build on this and thus, it does not majorly compete on price. Therefore, it becomes the company rated among the best in performance despite having a higher price charges for its services than their competitors. Therefore, continuing to build on this aspect will make the company grow in the insurance market at a very high rate. Another method that used in bringing about product differentiation is on its brand (Plunkett, 2008). When a customer sees a certain product with the label of a company that he knows has superior quality goods, he is well assured that even that new product is also suitable. This is the same method used by the insurance companies in product differentiation strategies in the market. Blue Cross Blue Shield Insurance Company has won various awards and some related to its strong brand in the insurance market (Plunkett, 2008). Therefore, when a client comes across the company’s product or office, he is assured of a quality service when he gets to visit the office. Hence, this has made the Blue Cross Blue Shield Insurance Company build their product differentiation on its products in the market. Customers are assured of a quality service when they visit or call seeki ng assistance. Brand image is enough to convey a message of exceptional quality service from the company. The company can now continue building on the brand image in the market that will enhance product success in the market. Product Positioning The company has a well positioned brand image in the society for the provision of healthcare. The image has made the company be successful in the provision of health insurance services within the United States of America. Every person wants to be associated with a successful company.Advertising We will write a custom research paper sample on Product Positioning and Differentiation specifically for you for only $16.05 $11/page Learn More Thus, customers are likely to transfer from other insurance agencies to Blue cross Blue shield to seek for medical cover. It was ranked as the best in health insurance in the year 2010 and 2011 (Plunkett, 2008). This gives a strong base for positioning of the company brand image. The brand image has sold the company into other countries such as Texas, Oklahoma, and New Mexico among others (Plunkett, 2008). Blue cross Blue Shield Insurance Company has a substantial financial base. This has made it succeed in various insurance products that have been presented by clients (Plunkett, 2008). It has also given it an excellent base for price competition with other insurance agencies within the economy. Many rival companies try to compete by offering low priced products, but since the company has a strong financial base, it is able to lower the price of its services but not less than that of competitors. The company also has excellent customer service program (Plunkett, 2008). This has made the customers remain loyal to the company despite its high price for some of the services. The company has a number one response to customer questions. Clients are assisted in their requests even though the phone. One paramount goal for the company on customer service is to sati sfy the customer through the assistance offered in the company (Plunkett, 2008). Health Partners Insurance Company This is an insurance company that is concerned with providing insurance services to the communities. The company has an institute of medical education that deals with training of physicians who work on various hospitals and other departments and it is also a research foundation concerned with research for the best curative medicines for various diseases.Advertising Looking for research paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The company deals with creating awareness to the community about the health tips and best ways of maintaining quality health. It also has a several number of pharmacy shops within the country that have the mandate of providing reliable drugs to the community (Hill Jones, 2009). Product Differentiation The company has also come up with the health fitness program that has both online services and offline services through their website (Hill Jones, 2009). The program is known as â€Å"silver fit program.† The program aims at making the people exercise in order to have happy, healthy lives. Members of the public are free to join the group or they can choose to do the exercises at their homes. Those who join the program should select a club that they are going to partner with and pay a monthly charge of $25 (Hill Jones, 2009). Health Partners insurance company pays the club and a person can freely visit the place for exercises. This is a new product in the insurance industry. It is aimed at providing health insurance services through prevention method from diseases (Hill Jones, 2009). The company has come up with this new product in a way of differentiating its products from other insurance companies that provide insurance covers on the treatment of diseases. This differentiation method will maintain the company in the provision of health insurance scheme. Clients will easily identify the company product as it is aimed at preventing diseases rather than providing insurance for treatment of diseases. Another method that the company has come up with in trying to differentiate its products is through the introduction of an insurance product that covers thirty diseases on a daily basis. A customer is supposed to identify a clinic that treats thirty common diseases such as cold, urinary infections, sore throat among others (Hill Jones, 2009). The insurance cover is only up to $40 per month (Hill Jones, 2009). An individual will be able visit the clinic on any day to receive medication without charges. This is also another way to look at the medical insurance scheme. Most insurance schemes provide only one time cover for illness while this cover provides a daily cover for common diseases. The new cover differentiates the company’s product from other products of its competitors. It has a guarantee of being successful in the market with these two differentiated products. Product Positioning Health Partners insurance company has also come up with an easy method of positioning these new products in the market. It has set low prices for the new product such that they are easily affordable by many people within the country (Hill Jones, 2009). Other companies within the industry are charging higher prices for their products such as Blue cross Blue Shield Company. The latest study shows that more people prefer low cost insurance products than high cost products that are in the market. These company products will be easily identified i n the market due to their differentiation and positioning. Product Positioning Statement The company has come up with a product statement for its new products in the market. This has been developed from the new products differentiation and positioning. The product positioning statement states â€Å"affordable medical, prescription drug, and dental cover from the top rated. The freedom is yours.† (Hill Jones, 2009)This statement will easily sell the new products in the market. Companies’ similarities and differences There are no similarities in the company products, product differentiation or positioning. Each company has its own method of creating product differentiation and positioning in the market. The two companies are different in the way they create product differentiation and positioning. Blue cross Blue shield insurance company differentiates its product through its services and brand. On the other hand, Health Partners differentiate their products through the creation of new products that are different from their competitors. The other difference comes in the product positioning where Health Partners position their products in the market by setting a lower price as compared to the competitors’ prices. On the other hand, Blue cross Blue shield positions its products in the market through its brand image, excellent customer service and a higher price. The last difference is on positioning statement where Health Partners have a product positioning statement. Blue cross Blue shield does not have a product positioning statement for their products. References Hill, C. Jones, G. (2009). Strategic Management Theory: An Integrated Approach. New York: Cengage Learning. Kazmi, A. (2008). Strategic Management and Business Policy. New York: Tata McGraw-Hill Education. Plunkett, J., W. (2008). Plunkett’s Health Care Industry Almanac 2009. New York: Plunkett Research, Ltd. This research paper on Product Positioning and Differentiation was written and submitted by user Deon Perez to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

Environmental Science Designing Cities for People by Lester Brown

Environmental Science Designing Cities for People by Lester Brown The Plan B given by Lester Brown reaches its climax in chapter six of the text entitled â€Å"Designing Cities for People’. In this chapter, Brown talks about the different alternatives that cities have adopted to make the environment safe and conducive for human existence. Most city designs done earlier on had adopted plans, which aimed at ensuring mobility by designing them to accommodate as many cars as possible. Advertising We will write a custom essay sample on Environmental Science: â€Å"Designing Cities for People† by Lester Brown specifically for you for only $16.05 $11/page Learn More These designs however come to fail considering the doubling fact of the ownership of cars each passing day as the population increases and the designs remaining as they are. The presence of the cars therefore contributes towards immobility rather than enhancing the expected mobility. The chapter â€Å"Designing Cities for People† explores the dif ferent alternatives employed by major city administrators to ensure that the decongestion of cities as well as the curbing of pollution and ultimately giving the health of the city residents a priority. The most innovative alternative as far as I am concerned is the use of bicycles as a means of enhancing mobility. Bicycles have helped decongest several cities considering that a number of bicycles can use a path or the space that only one vehicle can use. Another outstanding benefit of considering the bicycle as the most viable option in the quest for decongesting cities and making them conducive for human existence is that bicycles do not emit gases that can cause respiratory problems to people. To curb the obesity pandemic and the early onset of diabetes in countries such as the US, the people need to consider the biking option with seriousness since it provides a good way of exercising. The problem of settlements is another challenge that cities are facing more so those in deve loping countries. Considering that most people are leaving the rural areas in search of opportunities of good life in urban centers, the problem of rural-urban migration has greatly caught most city designers off guard. Most of the people who come to the cities do so based on economic constraints that force them to squat in risky areas such as riverbanks and steep slopes, a thing that makes it impossible for city planners to provide them with basic social amenities. The most viable solution to this problem that authorities in developing countries should adopt is a system whereby they encourage people to live in the rural areas by making their lives comfortable while there. Advertising Looking for essay on environmental studies? Let's see if we can help you! Get your first paper with 15% OFF Learn More Through making social amenities cheap and easy to access for the people as well as employment opportunities, the rates that people will move with to urban cent ers will definitely be low making it easy to deal with the problem of emerging shanties and slums. By adopting control measures such as those adopted by Enrique Peà ±alosa, the mayor of the city of Bogota, many problems that threaten the lives of innocent people in cities through pollution as well as the inconveniences caused by traffic jams can be completely dealt with. One important thing that this mayor stands out for is his insistence on the importance of parks in cities. As he says, these amenities â€Å"are important for the physical and emotional health of a city†. Many city planners are however failing to understand the magnitude of this statement in that many of them are changing the city parks into parking lots, interpreted as killing the cities emotionally as these places are important for they make the people who come to them and enjoy the tranquility feel equal as put forth by Peà ±alosa.

Peshawar Terrorists Attacks Article Example | Topics and Well Written Essays - 1000 words

Peshawar Terrorists Attacks - Article Example It has always been believed that Islam does not support the acts of terrorism. However, terrorism has been seen so much to be associated with Islam across the world. However, in many cases, in as much as Islam has been associated with the on-going terror attacks in the world, it has been lenient to its followers. Rarely will you hear that Muslims attacked other Muslims? It is because of this that the Tuesday attack in Peshawar, Pakistan, is considered an extreme act of Islamism. The fact that Taliban militia had claimed responsibility, makes it be confirmed that this was a war that was executed by Muslims against Muslims. Several Islamic world leaders have come out strongly to condemn the act of terror that took place on Tuesday at Peshawar. For instance, the Nobel Prize winner, Malala Yousafzai has condemned the cold blood killing if the innocent lives of school children (Sofia & Greg, 2014). Remembering the fact that she was also a victim of shooting in Pakistan as a school student when she was shot on her way to school, she has urged that those who are opposed to Islamic militant violence ‘will never be defeated.’ She reiterated that she was condemning such atrocious act and cowardly act and is in unity with the government and the military men of Pakistan in combating the terrorists. She also joined other millions of leaders and other people across the world to mourn the killed children, who are her brothers and sisters, as she stressed that the country will never be defeated in combating the terrorists. The British politicians and leaders also joined hands in condemning the attack that left around 131 school children dead. The British government, through the British Prime Minister, David Cameron, described the scenes that were unfolding in the city of Peshawar as horrifying and appalling as it targeted school children.  

Pepsi Generation Essay Example | Topics and Well Written Essays - 500 words

Pepsi Generation - Essay Example In this commercial there are some kids dancing Michael Jackson’s dance steps with background music â€Å"Pepsi Generation†. When they are playing the dance the leading boy accidentally runs into Michael’s back. He is obviously shocked because he just saw his super idol surprisingly. Then this boy continues to dance with Michael, holding a can of Pepsi. In the end, these kids say goodbye to Michael with satisfaction. This commercial could succeed due to several reasons. The leading role in the commercial is played by Michael Jackson. Michael was the hottest and most symbolic star at that time. His presence was already a success for Pepsi. His dance, song, and fashion were all the trends young people chased for in the 1980s. He even reworked â€Å"Billie Jean† and named â€Å"Pepsi Generation† in the ad. Michael Jackson, his friends, and street kids dancing with â€Å"Pepsi Generation†, this scene makes Michael Jackson culture more into a fitted Pepsi commercial. Compared to using â€Å"Billie Jean† directly, the reworked song was more inspiring, catchy and suitable for commercial theme. Moreover, people who were influenced by this ad at that time will remind of Pepsi even when they heard of â€Å"Billie Jean†. From a costumers’ view, Michael Jackson was closely connected with Pepsi. Due to the superstars influence, Pepsi benefited from it greatly in the long run. The story in the commercial itself was a catchy one. These kids are big fans of Michael Jackson and all they can do is mimic Michael’s dance even though they may not able to afford his concert tickets or his CDs. However, when they are drinking Pepsi coke and dancing, they met Michael Jackson in person and even started dancing with him. That was such a huge surprise for them. Personally speaking I also have a super idol. Imagine one day I meet him on the street and even dance with him. I will definitely be crazy about it and never forget it in my

Fast food restaurant Essay Example for Free

Fast food restaurant Essay Analysis on Fast Food Culture and Its Double-side Effects to the world from the Development of American Fast Food ?. Introduction Fast food is becoming more and more popular around the world these years. It is estimated that there are more than 100 branches of McDonald’s and KFC only in Beijing. The appearances of the fast-food arouse a new thing named â€Å"fast-food culture†, and also the debate about this culture by people. ?. Brief history of American fast food 1. McDonald’s two brothers named Richard and Maurice McDonald left their home in New Hampshire and seeking jobs in southern California. At first they tried opening a theater but it was not a success. Then they caught on to the new craze of eating at drive-in restaurants and they opened one in 1939, in Pasadena, California, calling it â€Å"McDonald’s Famous Hamburgers†. (http://hi. baidu. com/) 2. The Emergences and Expansion of KFC KFC, shorted from Kentucky Fried Chicken, is a chain of fast food restaurants based in Louisville, Kentucky. KFC primarily sells chicken in form of pieces, wraps, salads , sandwiches and so on. The popularity and novelty of KFC made it famous and popular throughout the world. The fast food like KFC is also developed in the whole world. (http://www. kfc. com. cn) ?. The Development of Fast Food Industry Most people think that it is the McDonald brothers who start the fast-food craze in America, but in reality, it is the White Castle hamburger chain that actually started fast food history in America. J. Walter Anderson opened the first White Castle in 1916 in Wichita, Kansas, Richard and Maurice McDonald, the two brothers who created the first McDonald’s restaurant in 1948 in San Bernardino, California. By 1953, the brothers had decided to franchise their idea, and two franchisees opened in Downey, California and Phoenix, Arizona. Today, fast food chains have spread all around the world, and have spread American culture right along with them. There are many more popular chains, like Carls Jr. , Arby’s, Dominos and Dairy Queen, indicating that fast food isn’t always about hamburgers. ?. Globalization In 2006, the global fast food market grew by 4. 8% (Linda Stradley, 2008) Globalization is that the world is moving away from self-contained national economies towards an interdependent, integrated global economic system. It refers to the shift toward a more integrated and interdependent world economy. Fast food is becoming more and more popular around the world these years. It is estimated that there are more than 100 branches of McDonald’s and KFC only in Beijing. But the fast food sell in China which crude material is always manufactures in other countries. So if something changed in China, it is sure affects other countries. Fast food is already spread into the world, it is sure increase the knowledge between countries. Conclusion Throughout the world, American fast-food chains have become symbols of Western economic development, opening everywhere from Bulgaria to Western Samoa.and attracted a large number of consumers and the economic benefits. Fast food industry is decided by the development of social progress and economic development, it improves people’s living standards and way of life. The fast food industry is an important industry of living environment and investment environment, and also an important component of the consumer leisure, tourism, consumption, shopping and spending. The competition in the fast food market is very intensely, but should be focused on one aspect: that is, to eat fast food with nutrition, health. High-calorie fast food as a high-fat food is not suitable for eating. Fast food does have double-sided effects on the development of economy and people’s life. Though fast food still have so many shortages of this or that, This kind of food culture is true developed to be part of people’s life, no matter the criticism of fast food is true or not, fast food is still to be a trend in the future. Works Cited Linda Stradley. 2008. What’s Cooking America New York: New York University Press http://hi. baidu. com/ http://www. kfc. com. cn.

Healthcare Comparison: New Zealand and South Korea

Healthcare Comparison: New Zealand and South Korea MERVIN STEVEN RECTO Write a comparative analysis about the practical barriers that exist in the healthcare provisions in New Zealand and in those of one overseas country of your choice through using the following determinants: D. SOCIOECONOMIC BARRIERS Socioecomic barriers are usually common nowadays in industrialized western countries. It has become evident within the population in those countries because it has become multi-cultural due to the fact that these countries’ market place has been internationalized and borders have opened up to invite migrants from other countries which is not new in present days. Migration has come in different forms such as labour migration and refugees seeking refuge to get away from hostilities in their own land and perhaps start a better life in a better country. But the negative side of these migrants are that they come from a country with low standards in living and in health which can be a barrier for them in health care services. (Scheppers, van Dongen, 2006) According to the American Psychological Association (2014), a barrier in socioeconomic can be related to one’s status. The socioeconomic status is based on education, income and occupation. When an individual is successful and has that entire basis then he or she will be able to garner a better access in health care compared to the people who have not met those standards. People with low levels of socioeconomic status are bound to be correlated with poor health and low quality of life. In addition, a journal written by Veugelers and Yip in 2003 stated that wealthier and highly educated people experience better health care than the poor and less educated ones. Furthermore, it was written that the inability of lower socioeconomic groups to purchase health insurance will hinder their access to health care. But since then publicly funded health care has been slowly implemented to cater to the needs of the poor and reduce inequity in the process. New Zealand as a country is known for its diverse and equal treatment to all foreign people who migrate to their land. The health care system of this country has been funded via partial fee-for-service payment from the government for consultations with physicians and medications with the patients also having being co-payees to a substantial amount. But there is still presence of inequities in the health care access especially to the poor and the MÄ ori community. They have rates that are lesser compared to the others. But the government are finding ways to lessen the inequities in New Zealand health care pertaining to socioeconomic status by changing or making new policies that are directed to alter both the funding and organisational arrangements in which primary health care will be launched. The new policy focuses on primary health care which is the key to the improvement in health services to all regardless of socioeconomic status. This policy, in collaboration with the New Zealand Health Strategy, is pursuing equal policies in health care to be implemented within the District Health Board’s framework. Although the partial fee-for-service is still in effect today and is assisted by government subsidies, patients still have to grab a small amount in their pockets since subsidies do not also fully cover the costs. (Barnett, R. and Barnett, P., 2004) South Korea, on the other hand, also has its disparities in its health care system socioeconomic-wise. Like the western countries, South Korea is no different in socioeconomic barriers. People with less income are prone to illnesses or sickness as to those who have higher income. An example that can be pointed out is an article written by Joh, Oh, Lee and Kawachi (2013) wherein obesity is said to be more prevalent among individuals who are from a lower socioeconomic party. Obesity has increased substantially in South Korea for the past two decades. This problem is patterned by an individual’s socioeconomic status. This is where health inequality in South Korea has been identified through uneven distribution of resources such as economic, social and cultural. It is also said in the article that norms, perceptions and behaviours are elements that changes social inequality to health inequality. Thus differing values, weight perception and control are the underlying causes of obes ity across socioeconomic class. They have come up with solutions in order to deal with this kind of situation. As we know that the South Korean health care system relies solely in private sectors since public hospitals comprise of a measly ten per cent in the whole nation. Because of that, in order to provide equality in health care delivery to the people, especially to the poor, they developed single payer system insurance so that those people regardless of socioeconomic status can have equal access to health care. E. ORGANISATIONAL BARRIERS Pexton (2009) stated that in a health care organisation, a system succeeds when it adapts to various strategies the management has imparted and when there are improvements in its techniques. She also stated that in order for an organisation to garner the success it wants, it has to be prepared to show improvements in its system year over year. An organisation must be prepared to make a change for the better of the organisation and its people especially in this kind of economy where everything is getting harder and harder. Other organisations find it important to transform or change culture in order to get through or around and above the competitive environment. Pexton also identified the most common organisational barriers and they are: cultural complacency or scepticism, lack of communication, lack of alignment and accountability, passive or absent leadership support, micromanagement, overloaded workforce, inadequate systems and structures, lack of control plans to measure and susta in results. New Zealand’s health care services are provided by practitioners with private business approaches for funding and the likes. Over the past decade, the primary health care providers approach to organisation and funding has become rather different. Little can be said about any organisational barrier in New Zealand health care since the country itself is diverse and equal. New Zealand easily adapts to different cultures since it has migrants from all over the world. It is open to change for it to provide fairness in health care delivery to all. New Zealand is also likely to develop a primary health organisation that will support and provide quality health care treatment to different populace. The most important matter with regards to health care in New Zealand is with the Maori people. They have organisations that fund the Maori health providers. Different health organisations have met and discussed ways to improve Maori health years back up until now without harming or disrespec ting their culture and way of life. (Barwick, 2000) South Korea, together with its enviable health care system and its rise in the technological industry, organisational barriers that were mentioned prior could be a forgone conclusion. The country is set to use the so called healthcare IT system which enables data sharing and remote monitoring and diagnosis. This system will be of greater help to the country since healthcare spending is increasing year in and year out. The population in country is not getting any smaller either. There is also a change in the country’s profile concerning diseases that are long term and costly to treat which makes it unaffordable to some individuals. These diseases, such as cancer and diabetes, which are rising rapidly within the nation needs constant and strict monitoring and will affect the individual’s quality of life. With the said technology, government organisations have acknowledged not only the cost but also the benefit that this program can give to the people of South Korea. There are still barriers that hinder the adoption of the healthcare informatics, namely, slow regulatory reform which recognises only the one to one consultations between the doctor and the patient and not by through monitors. Another barrier is the division within medical establishment; this is due to the fact that only the bigger and richer facilities can afford these types of technologies. Establish clinical buy-in through demonstrations and incentives states that the government should do more trials so as to really know that this type of technology is for the better and for the future of South Korea’s health care system. One more barrier that I would like to point out is get patients involved since they are the ones being taken care of, let them see it first-hand if it can be successful and useful in order to have a better health care system. (Economist Intelligence Unit, 2011) REFERENCES: American Psychological Association. (2014). Disability and Socioeconomic Status. 750 First St. NE, Washington, DC. Retrieved from http://www.apa.org/pi/ses/resources/publications/factsheet-disability.aspx Barnett, R. and Barnett, P. (21st March 2004). Primary Health Care in New Zealand: Problems and Policy Approaches. Ministry of Social Development. University of Canterbury, Christchurch. Retrieved from https://www.msd.govt.nz/about-msd-and-our-work/publications-resources/journals-and-magazines/social-policy-journal/spj21/21-primary-health-care-in-new-zealand-pages49-66.html Barwick, H. (December 2000). Improving access to primary care for Maori, and Pacific peoples (p. 13, 3.1). A literature review commissioned by the Health Funding Authority. Retrieved from http://www.moh.govt.nz/notebook/nbbooks.nsf/0/0ff9b7c2186f2628cc2574b2000220cf/$FILE/HFAimprovingaccess.pdf Economist Intelligence Unit. (November 2011). Connect to care: The future of healthcare IT in South Korea. Retrieved from http://www.economistinsights.com/sites/default/files/downloads/GE_SouthKorea_main_English_Nov17_FINAL_2.pdf Joh, H., Oh, J., et. al. (March 2013). Gender and Socioeconomic Status in Relation to Weight Perception and Weight Control Behavior in Korean Adults. Karger Medical and Scientific Publishers. Retrieved from http://www.karger.com/Article/FullText/346805 Pexton, C. (23rd of February 2009). Overcoming Organizational Barriers to Change in Healthcare. Financial Times Press. Retrieved from http://www.ftpress.com/articles/article.aspx?p=1327759 Scheppers, E., van Dongen, E., et. al. (13th February 2006). Family Practice: Potential barriers to the use of health services among ethnic minorities. Oxford Journals. Oxford University Press. Retrieved from http://fampra.oxfordjournals.org/content/23/3/325.full Veugelers, P. and Yip, A. (2003). Journal of Epidemiology Community Health: Socioeconomic disparities in health care use: Does universal coverage reduce inequities in health? Retrieved from http://jech.bmj.com/content/57/6/424.full Relationship Between Tourism and Economic Growth: Cyprus Relationship Between Tourism and Economic Growth: Cyprus ABSTRACT Although the relationship between international trade and economic growth has found a wide application area in the literature over the years, this can not be said about tourism and growth or trade and tourism. This study employs co-integration and Granger causality tests to examine long-run relationship between tourism, trade and growth, and the direction of causality among themselves for Cyprus. Results reveal that tourism is not co-integrated either with growth or trade whereas latter two are co-integrated and there is bidirectional causation between tourist arrivals and growth, between exports and growth and finally between exports and imports in Cyprus. Finally, results suggest unidirectional causation from tourist arrivals to export growth in Cyprus. I. INTRODUCTION International tourism and international trade are two major sources of foreign exchange for small countries as well as larger ones. Small countries, in particular small islands, have more dependency on tourism and trade than the larger ones since their economies are based on only a few sectors. For example, according to Kuznets (1966), as the country gets smaller, its dependency on international trade would increase. On the other hand, although many economists agree that small countries have similar advantages and disadvantages when compared to larger ones, there are differences in the origin of these disadvantages. Among common disadvantages are international tourism/trade dependency, vulnerability, high population growth rate, limited labor force, low labor efficiency, diseconomies of scale, low GDP (Gross Domestic Product), high dependency on imports of intermediate and consumption goods, and production of only a few basic goods/services. The small size of a country, in terms of area and population, may be economically advantageous. The smallness of a state in terms of area and population may in fact be a source of comparative advantage rather than being a constraint on economic growth and development. Specifically, smallness may be more than compensated by certain unique characteristics possessed by small states. Export-oriented services tend to represent such uniqueness and, therefore, a basis for a potential comparative advantage (Mehmet and Tahiroglu 2002). In the last few decades, some small states have been important service centers in banking, financial and trade services. Among them are Singapore, Hong Kong, Bahrain, Bermuda, Malta, Jersey and Cyprus. The tourism sector has been a locomotive industry for some small economies and the sole source providing a comparative advantage. Bermuda is a good example in the sense that it has emerged as a tourism center, successfully exploiting the ability to take advantage of a favorable climate and location. The strategic location of small states also serves as an important factor for providing banking and financial services. In the Mediterranean Sea, two examples of this category are the south of Cyprus and Malta. Bermuda, Bahrain and Jersey are among other states as studied by Bowe et al. (1998). On the other hand, in the north side of Cyprus, higher education emerged as number one sector contributing to national income of the country. Having restrictions on international trade and tourism in dustry with other countries, Turkish Cypriots living in the north of Cyprus succeeded in establishing and developing higher education institutions that attracts many foreign students from different regions of the world. Currently, there are six universities in North Cyprus where they attract students and academicians from more than 69 countries (SPO 2004). International tourism not only contributes to economic welfare of countries but also to their socio-cultural, environmental and ecological activities (Lindberg and Johnson, 1997; Bull, 1991; Ryan, 1991; Pearce, 1989). Luzzi and Flà ¼ckiger (2003) defines international tourism not as an industry but as a single, complex and differentiated product. It is complex because it includes a wide variety of goods and services, and differentiated because each destination has unique features. On the other hand, the purpose of tourism can be in different forms: Leisure tourism, business, visiting friends and relatives, education, conferences, or sports. Thus, international tourism is a major contribution to the welfare of countries in every field. As a result of these activities, tourists are likely to consume and purchase of goods/services that bring economic impact to every sector of countries such as transportation, accommodation, tour operators and shopping areas (See also Chang, 2000). There is an unverified question of whether international tourism growth actually causes economic growth or does economic growth contributes to tourism growth instead. Empirical studies of the relationship between tourism and economic growth have been less rigorous in tourism literature (Oh, 2005). International tourism receipts are a major source of foreign exchange together with export revenues that well compensate current account deficits as well due to the fact that tourism spending serves as an alternative form of exports contributing to ameliorated balance of payments in many countries (Oh, 2005). On the other hand, since international tourism contributes to every sector of the economies, budget deficits also benefits from these activities via tax revenues. As McKinnon (1964) argues international tourism brings foreign exchange that can be used to import intermediate and capital goods to produce goods and services, which in turn leads to economic growth. Balaguer and Jorda (2002 ) prove the validity of tourism-led hypothesis for the Spanish economy where the Spanish economy is the second largest recipient of international tourist earnings (5.9% of its GDP) in the world after the United States (Oh, 2005). However, there is a question if this hypothesis can be proved for other countries. Therefore, the tourism-led hypothesis deserves further attention for the other economies. On the other hand, many studies in the literature proved the importance of international trade for economic growth well. Some support export-led hypothesis while others support import-led hypothesis for particular countries. Although results on the direction of relationship between international trade and economic growth are still again inconclusive (Balaguer and Jorda, 2002), these studies prove that international trade is crucial for economic growth of many countries (Shun and Sun, 1998; Xu, 1996; Jin, 1995; Bahmani-Oskooee and Alse, 1993, Marin, 1992; Chow, 1987). Recent theoretical literature provides two main mechanisms through which international trade may affect growth. The first is its effect on the rate of innovation. The second is its effect on the adoption rate of technologies from more advanced countries that also increases the economys rate of total factor productivity growth (Proudman et al., 1998). International tourism and international trade mean greater integration into the world economy which also brings benefits to the economies such as employment creation, foreign exchange earnings, government revenues, and income and employment multipliers (See also Clancy 1999). There have been numerous studies analyzing the effects of international tourism and trade sectors on especially developing economies. However, the linkages between international tourism and international trade did not find a wide application area in the literature (See Shan and Wilson, 2001). Do international tourist arrivals promote international trade, or does international trade promote tourist arrivals, or is there feedback causality among them? When international tourism leads to international trade, there will be an increase in import demand for foreign goods/services as well as an increase in export earnings through its service account of balance of payments. Another implication of international tourism f or international trade is that it increases the image of domestic goods/services around the world which create new trade opportunities (Shan and Wilson, 2001; Kullendran ad Wilson, 1998). On the other hand, when international trade leads to international tourism, this might happen through business travel which in turn causes holiday travels at later stages as a result of greater trade opportunities. Therefore, the relationship between international tourism and international trade is another issue that deserves further attention from the researchers. Aim and Importance of the Study Having the importance of this issue that deserves further attention, this study empirically investigates the possible co integration and causal link between international tourism, international trade and economic growth in a small island, the south of Cyprus, which has become a new member to European Union (EU) apart from May 1, 2004 and is a developed country with 15.1 billion US$ GDP and 20,701 US$ per capita income as of 2004 figures (Statistical Service, 2004). There are important implications and motivations for doing this study: First, international trade plays an extremely important role amidst economic concerns, on the other hand, little mention is of international tourism, in spite of its importance among foreign expenditure items (Luzzi, 2003); and majority of empirical studies on tourism forecasting are built on tourism demand functions. As Shan and Wilson (2001) mention several areas remain incomplete in this sort of studies and hence deserve further studies. For example, first, the role of international trade as one of the determinants of tourism demand is not well recognized in these studies. Thus, this study will search the relationship of not only international tourism growth with economic growth but also with international trade growth in a small island. Second, the econometric techniques used in the previous studies of international tourism are generally poor lacking new developments in econometrics such as co integration and Granger causality concepts (Shan and Wilson 2001; Lim 1997; Song et al. 1997; Witt and Witt 1995). Additionally, this study is unique in the sense that it for the first time searches the link between international tourism, international trade and economic growth triangle at the same time by employing the latest econometric techniques in the field where previous empirical studies in the literature considered the link between any pair of them for particular countries (Oh, 2005; Shan and Wilson, 2001; Clancy, 1999; Andrew, 1997; Wagner, 1997; Zhou et al., 1997) till the moment. Third, another implication of this study is that although there have been extensive studies (Andronikou, 1987; Ioannides, 1992; Clements and Georgiou, 1998; Ayers, 2000; Cope, 2000; Ioannides and Holcomb, 2001; Sharpley and Forster, 2003; Sharpley, 2002) analyzing the development and management of tourism in Cyprus; however, none of them has considered its impact on economic growth and international trade in the literature. Furthermore, there are very few studies analyzing international trade and its effect on economic growth of Cyprus (Andrikopoulos and Loizides, 2000; Ayres, 1999; Pattichis, 1999; Asseery and Perdikis, 1991; Kamperis, 1989). Therefore, empirical studies deserve attention to be made for the South Cyprus economy. Yet, the results of this study for the first time are expected to give important implications for this island economy. And fourth, Cyprus problem has been at the agenda of world countries for more than 40 years. Now, the south of Cyprus became a member of the EU whereas the north of the island does not benefit the EU regulations. Thus, this situation will continue to deserve attention from the world countries and the results of this study are also expected to give important messages to policy makers. The paper proceeds as follows. Section II overviews the literature on international tourism, international trade and growth and gives brief summary of tourism and trade in Cyprus. Section III defines data and methodology of the study. Section IV provides results and discussions and the paper concludes with Section V. II. TOURISM, TRADE AND GROWTH Evidence from Literature This section attempts to provide a review of the literature with an emphasis on international tourism, international trade and economic growth. Exports and international tourism receipts postulate the existence of various arguments for which both exports and international tourism receipts become a main determinant of overall long run economic growth. More specifically, export revenues and international tourism receipts bring in foreign exchange which can be used to import capital goods in order to produce goods and services, leading in turn to economic growth (Balaguer and Jorda, 2002; Xu, 1998). Thus, international trade and international tourism can be thought of one within the other that together contributes to economic growth. Exports plus imports divided by GDP is a well known measure for openness of a country (See Yanitkaya, 2003). Since small economies have more trade dependency, the openness rate of these countries is also higher than larger ones. Recent theoretical literatur e provides two main mechanisms through which international openness may affect growth. The first is its effect on the rate of innovation. The second is its effect on the adoption rate of technologies from more advanced countries that also increases the economys rate of total factor productivity growth (Proudman et al. 1998). Whether export promotion leads to economic growth has been subject to considerable debate in the development and growth literature. Newly industrialized Asian countries in particular, Hong Kong, Singapore, Korea, Taiwan, Malaysia and Thailand can be cited as examples of countries experiencing export-led growth (ELG). This strategy of growth has doubled their standards of living in every ten year cycle. Many studies have tested the ELG hypothesis for economic growth to search for the relationship between export growth and economic growth. Extensive empirical studies in the literature have adopted the concept of causality proposed by Granger (1969) and Sims (1972) to detect the causal relationship between exports and output. Many of the studies in the empirical literature show conflicting results. Furthermore, although exports are a component of GDP and thus lead directly to the growth of output, while some studies found support for the export-led growth hypothesis (i.e. Chow, 1987; Bahmani-Oskee and Alse, 1993; Xu, 1996), some others have found negative relationship, even for the economies that are well known for their export promoting policies (i.e. Jung and Marshall, 1985; Darrat, 1986; Ahmed and Kwan, 1991; Dodaro, 1993). The new trade theory has contributed to the theoretical relationship between exports and growth regarding effects on technical efficiency (Doyle 2001). Rivera-Batiz and Romer (1991) show that expansion of international trade increases growth by increasing the number of specialized production inputs. However, this outcome is ambiguous when there is imperfect competition and increasing returns to scale (Doyle 2001). Krugman (1979), Dixit and Norman (1980) and Lancaster (1980) show economies of scale as a major cause of international trade, hinting the validity of the growth-led exports hypothesis. There are extensive empirical studies of the Trade-Led Growth (TLG) hypothesis which fail to produce conclusive findings (Giles and Williams 1999; Deme 2002). Some empirical studies in the literature confirmed the TLG hypothesis for some countries whereas some others rejected it for some other countries, while, on the other hand, some studies in the growth literature support the ELG hypothesi s and while some others investigate the Import-Led Growth (ILG) hypothesis (Deme 2002). In the last decade, in addition to cross-country applications, time series and causality analyses examining the export and economic growth relationship has gained importance. Additionally, the concept of the ILG hypothesis was also practically considered in addition to the ELG hypothesis having the fact that imports are mainly vital for raw materials, as well as intermediate goods and capital goods which are used in the production process of exported goods and services. This mechanism stimulates economic growth for many countries. In the work of Bahmani-Oskooee and Alsee (1993), bidirectional causality between export growth and economic growth was empirically tested. Chang (2000) added imports to the relationship between exports and GDP and founded a bidirectional relationship between income and exports, income and imports, and exports and imports in the case of Taiwan. Arize (2002) found a long run convergence and therefore a long run equilibrium relationship between exports and imports using data for 50 countries around the world. This was parallel to the findings of Fountas and Wu (1999), Granger (1986), Gould and Ruffin (1996) and Husted (1992). Howard (2002) worked on the causality between exports, imports and income (GDP) in Trinidad and Tobago, a petroleum exporting country where oil export booms raise income levels but are usually followed by a slump. He found a unidirectional Granger causation from exports to income and bidirectional causation between exports and imports, and imports and income. He also hinted to the importance of the relationship between export growth and income due to a promotion of export sector as a key to economic g rowth and development in most of the developing countries. Chow (1987) found a bi-directional causality export growth and economic growth for Hong Kong, Israel, Singapore, Taiwan and Brazil, unidirectional causality from export to economic growth for Mexico and no causality between these two for Argentina using the Sims procedure. Jung and Marshall (1985) used Granger causality tests and supported the ELG hypothesis for four out of thirty seven developing countries under consideration. They also found significant output growth and export growth relationship for three countries, an export-reducing growth relationship for six countries and a growth-reducing exports relationship for three countries. The empirical literature on ELG world wide generally shows that export growth plays an important role in economic growth, although many countries have recently adopted liberalization in their trade policies. Empirical studies also proved that developing countries with favorable export growth have experienced high economic growth rates. Therefore, th is shows that exports are one of the major sources of foreign currency for national economies. Recently, few studies have applied new developments in econometrics including co integration and Granger Causality procedures to tourism studies (Shan and Wilson 2001). The effect of international tourism on economic growth of countries has found limited application area in the literature. Balaguer and Jorda (2002) tested international tourism as a long run economic growth factor for Spain using co integration and Granger causality techniques. They confirmed the tourism-led hypothesis through co integration and causality testing for the Spanish economy. They also confirmed that economic growth in Spain has been sensible to persistent expansion of international tourism. On the other hand, Hazari and Sgro (1995) developed a model that indicated that world demand for tourism would have a positive effect on the long run economic growth of a small economy. Shan and Wilson (2001) found bidirectional causation between international travel and international trade for China. They also imply t hat trade flows do not link with tourism in China. Therefore, Shan and Wilson (2001) suggest that previous tourism studies using single equation approaches may lead to biased estimates since they fail to consider possible feedbacks between trade and tourism, because international trade (both exports and imports) and international tourism are found to reinforce each other in many countries. Tourism and Trade in Cyprus Cyprus has an open, free-market, serviced-based economy with some light manufacturing. It promotes its geographical location as a bridge between West and East, along with its educated English-speaking population, moderate local costs, good airline connections, and telecommunications. In the past 20 years, the economy has shifted from agriculture to light manufacturing and services. The service sector, including tourism, contributes 75.7% to the GDP and employs 70.7% of the labor force (Statistical Service, 2004). Over the years, the services sectors, and tourism in particular, provided the main impetus for growth. Trade is vital to the Cypriot economy the island is not self-sufficient in food and has few natural resources. Thus, as it is one of the characteristics of small islands, Cyprus has heavy dependency on foreign trade. As is typical of island nations with strong tourism sectors, Cyprus runs consistent merchandise trade deficits which are partially offset by strong surpluses in services trade with foreigners, but the net result of these two largest components of the current account balance is a current account deficit because the services surplus is smaller than the trade deficit. In 2003, Cyprus ran a current account deficit which was about 3.4 % of its GDP (Statistical Service, 2004). Cyprus enjoys a wide range of natural resources in terms of landscape, traditional folklore, gastronomy, culture and a pleasant climate. Over the last 40 years, Cyprus has emerged as a major Mediterranean summer-sun destination (Sharpley, 2002). The successful growth of international tourism underpinned a remarkable socio-economic development on the island (Sharpley, 2002; Ayers, 2000; Seekings, 1997; Kammas and Salehi-Esfahani, 1992; Ioannides, 1992). Thus, the tourist industry in Cyprus is one of the most dynamic sectors of the economy and one of the main driving forces behind economic growth. Having this fact, the Cyprus Tourist Organization has drawn up a Strategic Plan for Tourism for the 2000-2010 period. As a marketing plan, it addresses every conceivable relevant aspect (Smith and Zwart 2002). Among the targets of this plan are to increase real revenue to CYP (Cyprus pound) 1.8 billion in 2010, to increase average spending per tourist to CYP 512 in 2010, to lessen the extent of the tourism sectors dependence on the season by realizing a 33% to 40% decrease in tourist arrivals during the peak season (from July to September) and a simultaneous increase during the remaining period to a level of about 250,000 tourists per month, to increase the number of tourist arrivals to 4 million in 2010 and to increase the share of return visits to 35% in 2010. However, tourism sector has recently experienced a downturn in Cyprus largely as a result of the terrorist attacks in the U.S. and the economic slow-down in Europe. For example, total tourist arrivals showed a decline by 10.3% in 2002. Due to the events of 11 September, the year 2001 showed an increase of only 0.39%. The tourists who visit Cyprus originate mainly from Central and Northern Europe, particularly the UK (United Kingdom) and Germany. In 2004, 56.7% of total tourist arrivals (2.3 million tourists) to Cyprus were from the UK where 6.9% were from Germany and 5.7% were from Greece. International tourism receipts of Cyprus were almost 1.9 billion US$ in 2004 where these experienced a fall between 2002 and 2004 (Statistical Service, 2004).. Cyprus, due to its small domestic market and the open nature of its economy, considers access to international markets as of utmost importance. As a result, foreign trade has always been one of the main sectors of the Cypriot economy, contributing considerably to the economic growth of the island. Trade balance in Cyprus has been consistently unfavorable since before 1960. Given its large and expanding trade deficit, Cyprus was fortunate to have a large and growing surplus in its invisibles account, enough even to offset the trade deficit in 1987 and 1988. The major factors contributing to this surplus were tourist receipts, receipts from transfers, and income from other goods and services (such as foreign military expenditures in Cyprus, and foreign exchange from offshore enterprises). Trade balance was also chronically unfavorable even after 1974  [1]  . There were decline in exports of Cyprus after 2000s as well. The share of goods and services exports in GDP was 55.0% in 2000 , 51.4% in 2002 and 46.4% in 2003 (Statistical Service, 2004). The main domestic exports of Cyprus are agricultural exports, especially citrus fruits and potatoes, and manufactured products, most importantly clothing, footwear, chemicals, and machinery. The EU is the main market for the exports of Cyprus. Among the EU members in export market of Cyprus are UK (24.4% in 2003), France (11.0% in 2003), Germany (7.2% in 2003), Greece (6.4% in 2003) and Poland (3.7% in 2003). The other major block of countries to which the exports of Cyprus continued to do well is the Arab countries. On the other hand, Cyprus is dependent on imports for many raw materials, consumer goods, transportation equipment, capital goods, and fuels. The share of goods and services imports in GDP was 60.2% in 2000, 59.5% in 2002 and 57.8% in 2003. The imports of Cyprus mainly come from Russia (36.2% of total imports in 2003), Greece (6.4% of total imports in 2003), UK (5.3% of total imports in 2003), Germany (5.2% of total imports in 2003) and Italy (5.1% in 2003) (Statistical Service, 2004). III. DATA AND METHODOLOGY Data used in this paper are annual figures covering the period 1960 2003 and variables of the study are real gross domestic product (GDP), real trade volume (exports plus imports), real exports, real imports and total tourists visiting and accommodating in tourist establishments of Cyprus. Data are taken from World Bank Development Indicators CD-ROM (World Bank, 2004) and Statistical Service of Cyprus (Statistical Service, 2004) and variables are all at 1995 constant US $ prices. The Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP)  [2]  Unit Root Tests are employed to test the integration level and the possible co-integration among the variables (Dickey and Fuller 1981; Phillips and Perron 1988). The PP procedures, which compute a residual variance that is robust to auto-correlation, are applied to test for unit roots as an alternative to ADF unit root test. Unless the researcher knows the actual data generating process, there is a question concerning whether it is most appropriate to include constant term and trend factor in the unit root process (Enders 1995). It might seem reasonable to test the existence of a unit root in the series using the most general of the models. That is, (1) where y is the series; t = time (trend factor); a = constant term (drift); ÃŽÂ µt = Gaussian white noise and p = the lag order. The number of lags p in the dependent variable was chosen by the Akaike Information Criteria (AIC) to ensure that the errors are white noise. One problem with the presence of the additional estimated parameters is that it reduces degrees of freedom and the power of the test. On the other hand, the researcher may fail to reject the null hypothesis of a unit root (à ¯Ã‚ Ã‚ § = 0) because of a misspecification concerning the deterministic part of the regression. Therefore, Doldado, Jenkinson and Sosvilla-Rivero (1990) also suggest starting from the most general model to test for a unit root when the form of the data generating process is unknown. The general principle is to choose a specification that is a plausible description of the data under both the null and alternative hypotheses (Hamilton 1994). If the intercept or time trend is inappropriately omitted, the power of the test can go to zero (Campbell and Perron 1991). Reduced power means that the researcher will conclude that the process contains a unit root when, in fact, none is present (Enders 1995: 255). A linear combination of integrated variables are said to be co-integrated if the variables are stationary. Many economic models entail such co-integrating relationships (Enders 1995). On the other hand, Perron (1989, 1990) and Perron and Vogelsang (1992) suggest that a structural break in the mean of a stationary variable is more likely to bias the DF-ADF tests towards the non-rejection of the null of a unit root in the process. Perron (1990) argues that ignoring the effects of structural breaks can lead to inadequate model specifications, poor forecast, spurious unit root test results and improper policy implications. Thus, Perron (1990) proposes an integration level test for structural break, which is known as the Perron test and provides the appropriate critical values  [3]  . In this study, Perron (1990) test was employed to see if the order of integration is changed by the structural break. The use of the Perron (1990) test in this study is justified by the fact that intervention of Turkey in 1974 had significant effects on the Cypriot economy. Perron (1990) suggest two types of methods to measure the effect of structural breaks: (i) the additive outlier model, which is recommended for series exhibiting a sudden change in mean, and (ii) innovation outlier model, which is suggested for a gradual change in the series (See also Perron and Vogelsang, 1992). The additive outlier model was used in this study due to the fact that intervention of Turkey in 1974 was a sudden event. Thus, in this study it is assumed that there might be a structural break in 1974 for the variables under consideration. Perron (1990) test was carried out in two steps. First, residuals were estimated using OLS (ordinary least squares) as follows: (2) Where DUt = 1 if t > Tb and 0 otherwise. Tb is the point where the break occurs. And Second, the following modified regression models were run by using OLS. The test of negativity of à ¯Ã‚ Ã‚ § is checked by using appropriate critical values reported in the study of Rybinski (1994, 1995): (levels) (3) (first differences) (4) Where (DUTB)t = 1 if t = Tb + 1 and 0 otherwise. Tb is the break year (1974 in this study), DUTB is dummy variable for the break year, à ¯Ã‚ Ã‚ ¥t is the residual obtained from equation (2) using OLS and ut is the error term. After the order of integration is determined, co-integration between the variables should be tested to identify any long run relationship. Johansen trace test is used for the co-integration test in this paper. Cheung and Lai (1993) mention that the trace test is more robust than the maximum eigen value test for co-integration. The Johansen trace test attempts to determine the number of co-integrating vectors among variables. There should be at least one co-integrating vector for a possible co-integration. The Johansen (1988) and Johansen and Juselius (1990) approach allows the estimating of all possible co integrating vectors between the set of variables and it is the most reliable test to avoid the problems which stems from Engel and Granger (1986) procedure  [4]  . This procedure can be expressed in the following VAR model: (for t =1,à ¢Ã¢â€š ¬Ã‚ ¦T) (5) Where Xt, Xt-1, à ¢Ã¢â€š ¬Ã‚ ¦, Xt-K are vectors of current and lagged values of P variables which are I(1) in the model; à ¯Ã‚ Ã‚ 1,à ¢Ã¢â€š ¬Ã‚ ¦.,à ¯Ã‚ Ã‚ K are matrices of coefficients with (PXP) dimensions; à ¯Ã‚ Ã‚ ­ is an intercept vector  [5]  ; and et is a vector of random errors. The number of lagged values, in practice, is determined in such a way that error terms are not significantly auto-correlated. Adding Xt-1, à ¢Ã¢â€š ¬Ã‚ ¦, Xt-K and à ¯Ã‚ Ã‚ 1 Xt-2, à ¢Ã¢â€š ¬Ã‚ ¦, à ¯Ã‚ Ã‚ K-1

Audit – Solutions for Chapter 2

* Solutions for Chapter 2 * Corporate Governance Review Questions: 2-1. Corporate governance is defined as: â€Å"a process by which the owners and creditors of an organization exert control and require accountability for the resources entrusted to the organization. The owners (stockholders) elect a board of directors to provide oversight of the organization’s activities and accountability back to its stakeholders. † The key players in corporate governance are the stockholders (owners), board of directors, audit committees, management, regulatory bodies, and both internal and external auditors. -2. In the past decade, all parties failed to a certain extent. For detailed analysis, see exhibit 2. 2 in the chapter and repeated here: Corporate Governance Responsibilities and Failures Party | Overview of Responsibilities| Overview of Corporate Governance Failures| Stockholders| Broad Role: Provide effective oversight through election of Board process, approve major initiativ es, buy or sell stock. | Focused on short-term prices; failed to perform long-term growth analysis; abdicated all responsibilities to management as long as stock price increased. Board of Directors| Broad Role: the major representative of stockholders to ensure that the organization is run according to the organization charter and there is proper accountability. Specific activities include: * Selecting management. * Reviewing management performance and determining compensation. * Declaring dividends * Approving major changes, e. g. mergers * Approving corporate strategy * Overseeing accountability activities. | * Inadequate oversight of management. * Approval of management compensation plans, particularly stock options that rovided perverse incentives, including incentives to manage earnings. * Non-independent, often dominated by management. * Did not spend sufficient time or have sufficient expertise to perform duties. * Continually re-priced stock options when market price decline d. | Management| Broad Role: Operations and Accountability. Managing the organization effectively and provide accurate and timely accountability to shareholders and other stakeholders. Specific activities include: * Formulating strategy and risk appetite. * Implementing effective internal controls. * Developing financial reports. Developing other reports to meet public, stakeholder, and regulatory requirements. | * Earnings management to meet analyst expectations. * Fraudulent financial reporting. * Pushing accounting concepts to achieve reporting objective. * Viewed accounting as a tool, not a framework for accurate reporting. | Audit Committees of the Board of Directors| Broad Role: Provide oversight of the internal and external audit function and the process of preparing the annual accuracy financial statements and public reports on internal control. Specific activities include: * Selecting the external audit firm. Approving any non-audit work performed by audit firm. * Selecting and/or approving the appointment of the Chief Audit Executive (Internal Auditor), * Reviewing and approving the scope and budget of the internal audit function. * Discussing audit findings with internal auditor and external auditor and advising the Board (and management) on specific actions that should be taken. | * Similar to Board members – did not have expertise or time to provide effective oversight of audit functions. * Were not viewed by auditors as the ‘audit client’. Rather the power to hire and fire the auditors often rested with management. Self-Regulatory Organizations: AICPA, FASB| Broad Role: Setting accounting and auditing standards dictating underlying financial reporting and auditing concepts. Set the expectations of audit quality and accounting quality. Specific roles include: * Establishing accounting principles * Establishing auditing standards * Interpreting previously issued standards * Implementing quality control processes to ensure audit quality. * Educating members on audit and accounting requirements. | * AICPA: Peer reviews did not take a public perspective; rather than looked at standards that were developed and reinforced internally. AICPA: Leadership transposed the organization for a public organization to a â€Å"trade association† that looked for revenue enhancement opportunities for its members. * AICPA: Did not actively involve third parties in standard setting. * FASB: Became more rule-oriented in response to (a) complex economic transactions; and (b) an auditing profession that was more oriented to pushing the rules rather than enforcing concepts. * FASB: Pressure from Congress to develop rules that enhanced economic growth, e. g. allowing organizations to not expense stock options. Other Self-Regulatory Organizations, e. g. NYSE, NASD| Broad Role: Ensuring the efficiency of the financial markets including oversight of trading and oversight of companies that are allowed to trade on the exchange. S pecific activities include: * Establishing listing requirements – including accounting requirements, governance requirements, etc. * Overseeing trading activities,| * Pushed for improvements for better corporate governance procedures by its members, but failed to implement those same procedures for its governing board, management, and trading specialists. Regulatory Agencies: the SEC| Broad Role: Ensure the accuracy, timeliness, and fairness of public reporting of financial and other information for public companies. Specific activities include: * Reviewing all mandatory filings with the SEC, * Interacting with the FASB in setting accounting standards, * Specifying independence standards required of auditors that report on public financial statements, * Identify corporate frauds, investigate causes, and suggest remedial actions. * Identified problems but was never granted sufficient resources by Congress or the Administration to deal with the issues. | External Auditors| Broa d Role: Performing audits of company financial statements to ensure that the statements are free of material misstatements including misstatements that may be due to fraud. Specific activities include: * Audits of public company financial statements, * Audits of non-public company financial statements, * Other accounting related work such as tax or consulting. | * Pushed accounting concepts to the limit to help organizations achieve earnings objectives. Promoted personnel based on ability to sell â€Å"non-audit products†. * Replaced direct tests of accounting balances with a greater use of inquiries, risk analysis, and analytics. * Failed to uncover basic frauds in cases such as WorldCom and HealthSouth because fundamental audit procedures were not performed. | Internal Auditors| Broad Role: Perform audits of companies for compliance with company policies and laws, audits to evaluate the efficiency of operations, and audits to determine the accuracy of financial reporting pr ocesses.Specific activities include: * Reporting results and analyses to management, (including operational management), and audit committees, * Evaluating internal controls. | * Focused efforts on ‘operational audits’ and assumed that financial auditing was addressed sufficiently by the external audit function. * Reported primarily to management with little effective reporting to the audit committee. * In some instances (HealthSouth, WorldCom) did not have access to the corporate financial accounts. | 2-3.The board of directors is often at the top of the list when it comes to responsibility for corporate governance failures. Some of the problems with the board of directors included: * Inadequate oversight of management. * Approval of management compensation plans, particularly stock options that provided perverse incentives, including incentives to manage earnings. * Non-independent, often dominated by management. * Did not spend sufficient time or have sufficient expe rtise to perform duties. * Continually re-priced stock options when market price declined. 2-4.Some of the ways the auditing profession was responsible were: * Too concerned about creating â€Å"revenue enhancement† opportunities for the firm, and less concerned about their core services or talents * Were willing to â€Å"push† accounting standards to the limit to help clients achieve earnings goals * Began to use more audit â€Å"shortcuts† such as inquiry and analytical procedures instead of direct testing of account balance. * Relied on management representations instead of testing management representations. * Were too often ‘advocates’ of management rather than protectors of users. 2-5.Cookie jar reserves are essentially liabilities or contra-assets that companies have overestimated in previous years to use when times are tougher to smooth earnings. The rationale is that the funds are then used to â€Å"smooth† earnings in the years when earnings need a boost. â€Å"Smooth† earnings typically are looked upon more favorably by the stock market. An example of a cookie jar reserve would be over-estimating an allowance account, such as allowance for doubtful accounts. The allowance account is then written down (and into the income statement) in a bad year. The result is to increase earnings in the subsequent year. 2-6.Users should expect auditors to have the expertise, independence, and professional skepticism to render an unbiased and justified opinion on the financial statements. Auditors are expected to gather sufficient applicable evidence to render an independent opinion on the financial statements. 2-7. The Sarbanes-Oxley Act was designed to â€Å"clean-up† corporate America, especially in the realms of financial reporting. The overall intent was to encourage better corporate governance; to make the audit committee the auditor’s client; encourage the independence and oversight of the board, a nd improve the independence of the external audit profession.There were certainly many factors that led to the Sarbanes-Oxley Act, but the failures at Enron and WorldCom will probably be pointed to in the future as the major factors that led to the act being passed when it was. The Congress intended to develop a new reporting process that would provide just cause for the public to again trust financial statements and the audit processes leading up to the audit opinion. 2-8. The PCAOB is mandated by Congress to set standards for audits of public companies and perform quality control inspections of CPA firms that audit public companies.In order to carry out these responsibilities, the PCAOB requires all firms that audit U. S. listed (public) companies to register with it. It performs annual inspections on all audit firms that audit more than 100 public companies each year. It performs less frequent inspections, usually once every three years, for audit firms that audit less than 100 c ompanies annually. The PCAOB issues Inspection Reports for each inspection that is performed. The first part describes problems they encountered in their reviews of audits and that part is made public.The second part describes problems that the firms have with their quality control process. The second part is not issued publicly unless the firms fail to address the problems pointed out within a reasonable time frame – usually no more than a year. 2-9. Management has always been responsible for fairness, completeness, and accuracy of financial statements, but the Sarbanes-Oxley Act goes a step further by requiring the CEO and CFO to certify the accuracy of financial statements with criminal penalties as a punishment for materially misstated statements.The CEO and CFO must make public their certifications and assume responsibility for the fairness of the financial presentations. It thereby encourages organizations to improve their financial reporting functions. 2-10. Whistle bl owing enables violations of a company’s ethical code to be reported to appropriate levels in an organization, including the audit committee. Because of its presence, potential violators know that there is a real possibility and simple avenue by which inappropriate actions may be revealed.As such, it contains a preventive component that is indirectly helpful to the audit committee in fulfilling its corporate governance role. 2-11. There are a number of provisions that are designed to increase auditor independence. First, Rule 201 of the Act prohibits any registered public accounting firm from providing many non-audit services to their public audit clients. Second, the audit committee became the â€Å"client† instead of management, and only the audit committee can hire and fire auditors. Third, audit partners are required to rotate every five years.Finally, the auditors are expected to follow fundamental principles of independence that have been enacted by the SEC (more details in Chapter 3). 2-12. Management is responsible for issued financial statements. Although other parties may be sued for what is contained in the statements, management is ultimately responsible. Ownership is important because it establishes responsibility and accountability. Management must set up and monitor financial reporting systems that help it meet its reporting obligations. It cannot delegate this responsibility to the auditors. 2-13.An audit committee is a subcommittee of the board of directors that is composed of independent, outside directors. The audit committee has oversight responsibility (on behalf of the full board of directors and its stockholders) for the outside reporting of the company (including annual financial statements); risk monitoring and control processes; and both internal and external audit functions. 2-14. An outside director is not a member of management, legal counsel, a major vendor, outside service provider, former employee, or others who may have a personal relationship with management that might impair their objectivity or independence.The audit committee is responsible for assessing the independence of the external auditor and engage only auditors it believes are independent. Auditors are now hired and fired by audit committee members, not management. The intent is to make auditor accountability more congruent with stockholder and third-party needs. 2-15. The primary point of this question is for students to understand that the audit committee’s role is one of oversight rather than direct responsibility. For example, management is responsible for the fairness of the financial statements.Auditors are responsible for their audit and independent assessment of financial reporting. The audit committee is not designed to replace the responsibility of either of these functions. The audit committee’s oversight processes are to see that the management processes for financial reporting are adequate and the audito r’s carry out their responsibilities in an independent and competent manner. 2-16. The audit committee has the ability to hire and fire both the internal auditor and the external auditor.However, in the case of the internal audit function, the audit committee has the ability to hire and fire the head of internal audit as well as set the audit plan and budget. The audit committee does not control regulatory auditors, but should meet with regulatory auditors to understand the scope of their work and to discuss audit findings with them. 2-17. The Sarbanes-Oxley Act applies only to public companies. Therefore, the Act does not require non-public companies to have audit committees. That is not to say that it does not happen or is not a good idea, however.Most stakeholders want an independent party to ensure that their interests are being considered. The AICPA recommends audit committees for smaller public companies. 2-18. The external auditor should discuss any controversial accou nting choices with the audit committee and must communicate all significant adjustments made to the financial statements during the course of the audit. In addition, the processes used in making judgments and estimates as well as any disagreements with management should be communicated.Other items that need to be communicated include: * All adjustments that were not made during the course of the audit, * Difficulties in conducting the audit, * The auditor’s assessment of the accounting principles used and overall fairness of the financial presentation, * The client’s consultation with other auditors, * Any consultation with management before accepting the audit engagement, * Significant deficiencies in internal control. 2-19. The audit committee needs to ensure that the auditor is independent with respect to the annual audit.In order to ensure that independence, the audit committee must consider all other services that might be performed by the external auditor and app rove any such services, in advance. If the audit committee approves the services, they are in essence saying that the provision of the services will not impair the auditor’s independence. 2-20. Good governance is important to the external auditor for a number of reasons, including, but not limited to the following. Good governance * usually leads to better corporate performance, reflects a commitment to a high level of ethics, integrity, and sets a strong tone for the organization’s activities, * requires a commitment to financial reporting competencies and to good internal controls, * reduces the risk that the company will have materially misstated financial statements. If a client does not have good governance, there are greater risks associated with the client. For example, their poor performance may lead to financial failure and lack of payment of the audit fee.Or their poor governance may lead to improprieties in financial reporting, which puts the auditor at risk in terms of litigation (if the improprieties go undetected by the auditor). 2-21. The auditor might utilize the following procedures in determining the actual level of governance in an organization: * observe the functioning of the audit committee by participating in the meetings, noting the quality of the audit committee questions and responses, * interactions with management regarding issues related to the audit, e. g. * providing requested information on a timely basis, quality of financial personnel in making judgments, * accounting choices that tend to ‘push the limits’ towards aggressiveness or creating additional reported net income, * the quality of internal controls within the organization. * review the minutes of the board of directors meetings to determine that they are consistent with good governance, * review internal audit reports and especially determine the actions taken by management concerning the internal auditor’s findings and recommendations , * review the compensation plan for top management, review management expense reimbursements to determine (a) completeness of documentation, (b) appropriateness of requested reimbursement, and (c) extent of such requests. * review management’s statements to the financial press to determine if they are consistent with the company’s operations. 2-22. Good corporate governance is correlated with increased corporate performance as measured by return on equity, or return on capital. Generally, good corporate governance reduces audit risk as it is less likely that the organization will suffer from problems of management integrity, or would have an environment that might allow or permit fraud.Less audit risk implies that the amount of work to render an opinion on the financial statements would also be less than that required for a company with poorer corporate governance. 2-23. The three categories of audit standards are general standards, fieldwork standards, and reporting standards. General standards cover the characteristics of the auditor – technical training and proficiency, independence, and due professional care. Fieldwork standards provide guidance concerning planning and performing the audit.Reporting standards cover the essential elements of the auditor’s communication, including the opinion, the criteria against which the assertions were tested, and an explanation of the basis for the attestor’s opinion. 2-24. Due professional care is the expectation that an audit will be conducted with the skill and care of a professional. The standard of due professional care plays a role in litigation against auditors. Plaintiffs will try to show that the auditor did not do what a reasonably prudent auditor would have done.To evaluate the standard, a third-party also decides whether someone with similar skills in a similar situation would have acted in the same way. 2-25. There are three important dimensions identified in Exhibit 2. 5 : * Scope of Information on which assurance is provided, * Nature of Organizations on which assurance is provided, * Domicile of Company being audited. These three dimensions influence the identification of applicable auditing standards as follows: * A U. S. public company filing annual reports follows PCAOB standards. A U. S. non-public company issuing financial statements, follows AICPA standards, * A foreign company filing financial statements in a different country follows International Standards or the standards of that country, * U. S. companies reporting on other than financial information follows AICPA Attestation or Assurance Standards. 2-26. For the most part, the standards issued by the IAASB are quite similar to that of the two U. S. based audit standard setters. They differ in the following major ways: The auditor must assess the appropriateness of the accounting framework against which the audit opinion will be given (U. S. standards require only that the auditor commu nicate if the accounting is not consistent with U. S. GAAP. ) * IAASB utilizes a concept of Professional Skepticism rather than independence. * The IAASB utilizes a concept of ‘reasonable assurance’ compared with the U. S. evidence on sufficiency of audit evidence and due professional care, * The IAASB standards include both audit standards and assurance standards. 2-27.The IAASB Audit Standards are quite consistent with that of the PCAOB as well as that of the AICPA. Most of the concepts are the same, but are stated differently. They are very similar in the following ways: * Requirement of independence, * Gathering and evaluation of sufficient evidence, * Documentation of audit work, * Audit designed to minimize audit risk, * Due professional care vs. reasonable assurance, * Nature of the audit report The AICPA and the IAASB have announced a plan to work towards convergence of existing and future standards. The PCAOB has not yet announced a plan for convergence. 2-28.A n audit engagement applies to the development of an opinion on an organization’s financial statements. It is planned that the financial statements will be used by third parties who do not have direct access to client data. The audit engagement is a form of ‘positive assurance’ in which an opinion must be rendered. An assurance engagement differs from an audit in a number of important dimensions: * It can apply to almost any assertion that management wants to make as long as there is agreed-upon criteria by which to test management’s assertion. It is preferable that the criteria are generally accepted. An assurance engagement generally requires a third party (although assurance can also be provided to the audit client), but it is an identified third-party as opposed to a potential user of financial statements, * Assurance can be given on individual items of a company’s financial statements, rather than the full set of statements. 2-29. Assurance enga gements are designed to provide ‘positive assurance’, i. e. the item being attested to is either properly presented, or is not properly presented. For example, one of the Big 4 firms provides assurance to the audience that the votes are properly maintained and counted for the Emmy Awards.A ‘limited assurance engagement’ does not contemplate a full audit or assurance engagement such that sufficient information (evidence) is gathered to warrant a positive statement about whether the item being assured is, or is not, properly presented. Rather, based on a more limited amount of work, the auditor either states that ‘nothing came to his or her attention – based on the limited procedures – that indicates something is not fairly presented’. This is often referred to as ‘negative assurance’. An even more limited assurance engagement is one in which the accountant expresses ‘no assurance’ whatsoever on the item be ing reported. -30. * Auditing Standards apply to the auditor’s task of developing and then communicating an opinion on financial statements and, where applicable, independent opinions on the quality of an organization’s internal control over financial statements to the board, management, and outside third parties. * Assurance Standards apply the auditor’s task of developing and communicating an opinion on financial information outside of the normal financial statements, or on non-financial information to management, the board, and outside third-parties.Assurance services are engagements in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users about the outcome of the evaluation or measurement of a subject matter against criteria. * Attestation Standards is a term used by the AICPA to describe assurance services that involve gathering evidence regarding specific assertions and communicating an opinion on th e fairness of the presentation to a third party. Compilation and Review Standards refer to AICPA Standards that apply only to non-public companies where the board or a user has requested some assurance on the fairness of presentation of financial statements. These are referred to as negative assurance standards because the auditor does not gather enough evidence to support a statement as to whether the financial statements are fairly presented. 2-31. Independence means objectivity and freedom from bias. The auditor can favor neither the client nor the third party in evaluating the fairness of the financial statements The auditor must be independent in fact and in appearance.Independence in fact means the auditor is unbiased and objective. An auditor could be independent in fact if he or she owned a few shares of common stock in an audit client, but might not appear independent to a third party. Independence in appearance means that a third party with knowledge of the auditor’ s relationship with the client would consider the auditor to be independent. Professional skepticism, as used in the standards promulgated by the IAASB, has a broader meaning in that it refers to all of the factors that would affect an auditor’s ability to exercise proper skepticism in an audit engagement.The factors to be considered vary from those associated with the individual, such as objectivity, to those associated with the structure of the firm. These are similar to the independence standards that emphasize both audit firm relationships to the client as well as objectivity. However, the IAASB emphasis on professional skepticism goes a bit further: an auditor could be objective, but not necessarily exercise professional skepticism, i. e. being open to potential explanations of events that are not consistent with the auditor’s prior experiences. Professional skepticism appears to be a broader term than independence. 2-32.PCAOB – sets audit standards for the audits of all public companies that are registered with the SEC AICPA * sets audit standards for audits of non-public companies * sets attestation standards for areas other than public company reports on internal control sets standards for assurance services that are less in scope than an audit, such as reviews and compilations IAASB – sets standards for financial statement audits on an international basis. Right now, the international standards are being increasingly accepted by all political jurisdictions, but particularly in Europe and many developing countries. Harmonization with U.S. will continue to be an objective. GAO – sets the standards for financial audits of governmental entities within the U. S. and certain other organizations that receive Federal financial assistance. Goes beyond financial statement audits and also provides standards related to program audits for economy and efficiency of operations. IASB – sets standards for the professional prac tice of internal auditing around the world. Incorporates other standards by reference where applicable. 2-33. General Standards: The audit and attestation standards both require adequate technical training, expertise, and knowledge.They also both require independence and due professional care. The attestation standards differ in that they explicitly require links between assertions and reasonable criteria and a reasonably consistent estimation process; the audit standards implicitly assume this link. Fieldwork Standards: The audit and attestation standards both require planning and sufficient evidence. The audit standards go a step further in requiring an understanding of the entity and its environment. Reporting Standards: The reporting standards are completely different. Each reflects the underlying purpose of the engagement, i. . , the audit is designed to test whether the financials adhere to GAAP, whereas the attestation is designed to test a broader and more diverse set of ass ertions. 2-34. An audit program follows good corporate governance in the following way: Good governance is critical to the development of sound controls in an organization. The stronger the controls, the less risk that the financial statements will be misstated. The development of audit programs follow the standards in determining that sufficient evidence is gathered in order to evaluate the assertions being addressed in the audit engagement.Further, the gathering and evaluation of that evidence must be done by auditors who are independent of the client – in both fact and in appearance. Finally, the work must be carried out by auditors that understand the standards and exercise due professional care in the conduct of the audit engagement. 2-35. The major planning steps are: * Meeting with the audit client * Developing an understanding of the client’s business and industry * Develop an understanding of the client’s financial reporting processes and controls * Dev elop an understanding of materiality Develop a preliminary audit program that identifies the audit objectives defined in chapter 1. 2-36. Materiality is defined as the â€Å"magnitude of an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgement of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement. † Materiality guidelines usually involve applying percentages to some base, such as total assets, total revenue, or pretax income and consideration of qualitative factors such as the impact on important trends or ratios.The base should be a â€Å"stable† account however, making total assets a better choice than pretax income. 2-37. The auditor would take a sample of all additions to PP&E and verify the cost through reference to vendor invoices to determine that cost is accurately recorded and that title has passed to the company. If the company was considered high risk, the auditor might choose to physically verify the existence of the asset. Multiple Choice Questions: 2-38. d. 2-39. d. this is part of the profession’s problem, but not a cause of the failure. 2-40. a. 2-41. d. 2-42. a. 2-43. . 2-44. d. 2-45. b. 2-46. a. 2-47. f. Discussion and Research Questions: 2-48. a. The auditor might use the following approaches to determine whether a corporate code of ethics is actually followed: * observe corporate behavior in tests performed during the audit, e. g. approaches the company takes to purchasing goods, promoting personnel, and so forth, * observe criteria for promoting personnel; for example does performance always take on greater importance than how things are done, * observe corporate plans to communicate the importance of ethical behavior, e. g. ebcasts, emails, and so forth to communicate the importance of ethics, * review activity on the client’s whistleblowing website, or a summary of wh istleblowing activities reported by the internal auditor, * read a sample of self-evaluations by corporate officers, the board, and the audit committee and compare with the auditor’s observations of behavior, * examine sales transactions made during the end of quarters to determine if the sales reflect ‘performance goals’ as opposed to the company’s code of ethics. b. Are auditors equipped to make subjective judgments?This should be a great discussion question because many young people are attracted to the accounting profession because there are rules and relative certainty as to how things are done. However, as the profession is evolving, more judgments are required in both auditing and accounting. Audit personnel need to be equipped to make judgments on whether the company’s governance structure operates as intended and whether there are deficiencies in internal control when it does not operate effectively. The profession believes that auditors ca n make such judgments. . Assessing the competence of the audit committee can occur in a number of ways. Fortunately, the most persuasive evidence comes from the auditor’s direct interaction with the audit committee on a regular basis. The auditor can determine the nature of questions asked, the depth of understanding shared among audit committee members, and the depth of items included in the audit committee agenda. Many audit committees have self-assessment of their activities using criteria developed by CPA firms, or by the National Association of Corporate Directors.The auditor should also review the minutes of the audit committee meetings and determine the amount of time spent on important issues. An external auditor should be very reluctant to accept an audit engagement where the audit committee is perceived to be weak. There are a number of reasons including: * The lack of good governance most likely influences the organization’s culture and is correlated with a lack of commitment to good internal control. * The auditor has less protection from the group that is designed to assist the auditor in achieving independence. The company may be less likely to be fully forthcoming in discussions with the auditor regarding activities that the auditor might question. d. Internal auditing is an integral part of good corporate governance. It contributes to corporate governance in three distinct ways: * It assists the audit committee in its oversight role by performing requested audits and reporting to the audit committee, * It assists senior management in assessing the continuing quality of its oversight over internal control throughout the organization, * It assists operational management by providing feedback on the quality of its operations and controls. -49. a. Corporate governance is defined as: â€Å"a process by which the owners and creditors of an organization exert control and require accountability for the resources entrusted to the organiza tion. The owners (stockholders) elect a board of directors to provide oversight of the organization’s activities and its accountability to stakeholders. † The key players in corporate governance are the stockholders (owners), board of directors, audit committees, management, regulatory bodies, and auditors (both internal and external). b.In the past decade especially, all parties failed to a certain extent. For detailed analysis, see exhibit 2. 2 in the chapter and reproduced below: Corporate Governance Responsibilities and Failures Party | Overview of Responsibilities| Overview of Corporate Governance Failures| Stockholders| Broad Role: Provide effective oversight through election of Board process, approve major initiatives, buy or sell stock. | Focused on short-term prices; failed to perform long-term growth analysis; abdicated all responsibilities to management as long as stock price increased. Board of Directors| Broad Role: the major representative of stockholders to ensure that the organization is run according to the organization charter and there is proper accountability. Specific activities include: * Selecting management. * Reviewing management performance and determining compensation. * Declaring dividends * Approving major changes, e. g. mergers * Approving corporate strategy * Overseeing accountability activities. | * Inadequate oversight of management. * Approval of management compensation plans, particularly stock options that provided perverse incentives, including incentives to manage earnings. Non-independent, often dominated by management. * Did not spend sufficient time or have sufficient expertise to perform duties. * Continually re-priced stock options when market price declined. | Management| Broad Role: Operations and Accountability. Managing the organization effectively and provide accurate and timely accountability to shareholders and other stakeholders. Specific activities include: * Formulating strategy and risk appetit e. * Implementing effective internal controls. * Developing financial reports. * Developing other reports to meet public, stakeholder, and regulatory requirements. * Earnings management to meet analyst expectations. * Fraudulent financial reporting. * Pushing accounting concepts to achieve reporting objective. * Viewed accounting as a tool, not a framework for accurate reporting. | Audit Committees of the Board of Directors| Broad Role: Provide oversight of the internal and external audit function and the process of preparing the annual accuracy financial statements and public reports on internal control. Specific activities include: * Selecting the external audit firm. * Approving any non-audit work performed by audit firm. Selecting and/or approving the appointment of the Chief Audit Executive (Internal Auditor), * Reviewing and approving the scope and budget of the internal audit function. * Discussing audit findings with internal auditor and external auditor and advising the Boa rd (and management) on specific actions that should be taken. | * Similar to Board members – did not have expertise or time to provide effective oversight of audit functions. * Were not viewed by auditors as the ‘audit client’. Rather the power to hire and fire the auditors often rested with management. Self-Regulatory Organizations: AICPA, FASB| Broad Role: Setting accounting and auditing standards dictating underlying financial reporting and auditing concepts. Set the expectations of audit quality and accounting quality. Specific roles include: * Establishing accounting principles * Establishing auditing standards * Interpreting previously issued standards * Implementing quality control processes to ensure audit quality. * Educating members on audit and accounting requirements. | * AICPA: Peer reviews did not take a public perspective; rather than looked at standards that were developed and reinforced internally. AICPA: Leadership transposed the organization fo r a public organization to a â€Å"trade association† that looked for revenue enhancement opportunities for its members. * AICPA: Did not actively involve third parties in standard setting. * FASB: Became more rule-oriented in response to (a) complex economic transactions; and (b) an auditing profession that was more oriented to pushing the rules rather than enforcing concepts. * FASB: Pressure from Congress to develop rules that enhanced economic growth, e. g. allowing organizations to not expense stock options. Other Self-Regulatory Organizations, e. g. NYSE, NASD| Broad Role: Ensuring the efficiency of the financial markets including oversight of trading and oversight of companies that are allowed to trade on the exchange. Specific activities include: * Establishing listing requirements – including accounting requirements, governance requirements, etc. * Overseeing trading activities,| * Pushed for improvements for better corporate governance procedures by its membe rs, but failed to implement those same procedures for its governing board, management, and trading specialists. Regulatory Agencies: the SEC| Broad Role: Ensure the accuracy, timeliness, and fairness of public reporting of financial and other information for public companies. Specific activities include: * Reviewing all mandatory filings with the SEC, * Interacting with the FASB in setting accounting standards, * Specifying independence standards required of auditors that report on public financial statements, * Identify corporate frauds, investigate causes, and suggest remedial actions. | * Identified problems but was never granted sufficient resources by Congress or the Administration to deal with the issues. External Auditors| Broad Role: Performing audits of company financial statements to ensure that the statements are free of material misstatements including misstatements that may be due to fraud. Specific activities include: * Audits of public company financial statements, * Audits of non-public company financial statements, * Other accounting related work such as tax or consulting. | * Pushed accounting concepts to the limit to help organizations achieve earnings objectives. * Promoted personnel based on ability to sell â€Å"non-audit products†. Replaced direct tests of accounting balances with a greater use of inquiries, risk analysis, and analytics. * Failed to uncover basic frauds in cases such as WorldCom and HealthSouth because fundamental audit procedures were not performed. | Internal Auditors| Broad Role: Perform audits of companies for compliance with company policies and laws, audits to evaluate the efficiency of operations, and audits to determine the accuracy of financial reporting processes. Specific activities include: *Reporting results and analyses to management, (including operational management), and audit committees, * Evaluating internal controls. | * Focused efforts on ‘operational audits’ and assumed that fina ncial auditing was addressed sufficiently by the external audit function. * Reported primarily to management with little effective reporting to the audit committee. * In some instances (HealthSouth, WorldCom) did not have access to the corporate financial accounts. | c. There is an inverse relationship between corporate governance and risk to the auditor i. e. he better the quality of corporate governance, the lower the risk to the auditor. This relationship occurs because lower levels of corporate governance implies two things for the auditor: * There is more likelihood that the organization will have misstatements in its financial statements because the commitment to a strong organizational structure and oversight is missing, * There is greater risk to the auditor because the governance structure is not designed to prevent/detect such misstatements, and will likely not be as forthcoming when the auditor questions potential problems. -50. Element of Poor Corporate Governance| Audit Activity to Determine if Governance is actually Poor| Risk Implication of Poor Governance| The company is in the financial services sector and has a large number of consumer loans, including mortgages, outstanding. | This is not necessarily poor governance. However, the auditor needs to determine the amount of risk that is inherent in the current loan portfolio and whether the risk could have been managed through better risk management by the organization. The lack of good risk management by the organization increases the risk that the financial statements will be misstated because of the difficulty of estimating the allowance for loan losses. The auditor will have to focus increased efforts on estimating loan losses, including a comparison of how the company is doing in relation to the other companies in the financial sector. | The CEO and CFO’s compensation is based on three components: (a) base salary, (b) bonus based on growth in assets and profits, and (c) significant s tock options. This is a rather common compensation package and, by itself, is not necessarily poor corporate governance. However, in combination with other things, the use of ‘significant stock options’ may create an incentive for management to potentially manage reported earnings in order to boost the price of the company’s stock. The auditor can determine if it is poor corporate governance by determining the extent that other safeguards are in place to protect the company. In combination with other things, the use of ‘significant stock options’ may create an incentive for management to potentially manage reported earnings in order to boost the price of the company’s stock. The auditor should carefully examine if the company’s reported earnings and stock price differs broadly from companies in the same sector. If that is the case, there is a possibility of earnings manipulation and the auditor should investigate to see if such manipula tion is occurring. The audit committee meets semi-annually. It is chaired by a retired CFO who knows the company well because she had served as the CFO of a division of the firm before retirement. The other two members are local community members – one is the President of the Chamber of Commerce and the other is a retired executive from a successful local manufacturing firm. | There is a strong indicator of poor corporate governance.If the audit committee meets only twice a year, it is unlikely that it is devoting appropriate amounts of time to its oversight function, including reports from both internal and external audit. There is another problem in that the chair of the audit committee was previously employed by the company and would not meet the definition of an independent director. Finally, the problems with the other two members is that there is no indication that either of them have sufficient financial expertise. This is an example of poor governance because (1) it s ignals that the organization has not made a commitment to independent oversight by the audit committee, (2) the lack of financial expertise means that the auditor does not have someone independent that they can discuss controversial accounting or audit issues that arise during the course of the audit. If there is a disagreement with management, the audit committee does not have the expertise to make independent judgments on whether the auditor or management has the appropriate view of he accounting or audit issues. | The company has an internal auditor who reports directly to the CFO, and makes an annual report to the audit committee. | The good news is that the organization has an internal audit activity. | The bad news is that a staff of one isn’t necessarily as large or as diverse as it needs to be to cover the major risks of the organization. The external auditor will be more limited in determining the extent that his or her work can rely on the internal auditor. The CEO is a dominating personality – not unusual in this environment. He has been on the job for 6 months and has decreed that he is streamlining the organization to reduce costs and centralize authority (most of it in him). | A dominant CEO is not especially unusual, but the centralization of power in the CEO is a risk that many aspects of governance, as well as internal control could be overridden. The auditor should look at policy manuals, as well as interview other members of management and the board – especially the audit committee. The centralization of power in the CEO is a risk that many aspects of governance, as well as internal control could be overridden. This increases the amount of audit risk. | The Company has a loan committee. It meets quarterly to approve, on an ex-post basis all loans that are over $300 million (top 5% for this institution). | The auditor should observe the minutes of the loan committee to verify its meetings. The auditor should also intervie w the chairman of the loan committee to understand both its policies and its attitude towards controls and risk. There are a couple of elements in this statement that carries great risk to the audit and to the organization. First, the loan committee only meets quarterly. Economic conditions change more rapidly than once a quarter, and thus the review is not timely. Second, the only loans reviewed are (a) large loans that (b) have already been made. Thus, the loan committee does not act as a control or a check on management or the organization. The risk is that many more loans than would be expected could be delinquent, and need to be written down. The previous auditor has resigned because of a dispute regarding the accounting treatment and fair value assessment of some of the loans. | The auditor should contact the previous auditor to obtain an understanding as to the factors that led the previous auditor to either resign or be fired. The auditor is also concerned with who led the c harge to get rid of the auditor. | This is a very high risk indicator. The auditor would look extremely bad if the previous auditor resigned over a valuation issue and the new auditor failed to adequately address the same issue.Second, this is a risk factor because the organization shows that it is willing to get rid of auditors with whom they do not agree. This is a problem of auditor independence and coincides with the above identification of the weakness of the audit committee. This action confirms a generally poor quality of corporate governance. | 2-51. a. External auditors are supposed to perform audits of financial statements to ensure that the statements are free of material misstatements. They work for each of the parties to a certain extent and since they are independent, they will not favor any party over the other.The auditors are an independent and objective attestor that evaluates the quality of financial reporting and conveys an opinion to all parties involved in corp orate governance. b. Some of the ways the accounting profession was responsible were: * Were too concerned about creating â€Å"revenue enhancement† opportunities, and less concerned about their core services or talents * Were willing to â€Å"push† accounting standards to the limit to help clients achieve earnings goals * Began to use more audit â€Å"shortcuts† such as inquiry and analytical procedures instead of direct testing of account balance. Relied on management representations instead of testing management representations. c. The term â€Å"public watchdog† implies that auditors will look over the business world and stop bad things from happening. In terms of financial statements, Arthur Levitt said, â€Å"We rely on auditors to put something like the good housekeeping seal of approval on the information investors receive. † The term â€Å"public watchdog† places a great deal of responsibility on the shoulders of auditors to protect the public’s interests. 2-52. b&c. Cookie jar reserves are essentially funds that companies have â€Å"stashed away† to use when times get tough. The rationale is that the reserves are then used to â€Å"smooth† earnings in the years when earnings needs a boost. â€Å"Smooth† earnings typically are looked upon more favorably by the stock market. An example of a cookie jar reserve would be over-estimating an allowance account, such as allowance for doubtful accounts. The allowance account is then written down (and into the income statement) in a bad year.Auditors may have allowed cookie jar reserves because they are known to smooth earnings, and smooth earnings are rewarded by the market. On the flip side, fluctuating earnings are penalized, and present more risk to the company of bankruptcy or other problems. The Sarbanes-Oxley Act addressed the issue by creating an oversight body, the PCAOB, but also addressed the issue in other ways. For example, Congr ess felt that creating more effective Boards would decrease the use of earnings management. Allowing improper revenue recognition is one thing that auditors may have done in their unwillingness to say â€Å"no† to clients.For example, companies shipped out goods to customers at the end of the year for deep discounts and allowed returns at the beginning of the next year. This practice is known as channel stuffing. Since the goods had a great chance of being returned, it would be improper to recognize all as revenue. Again, auditors were unwilling to say â€Å"no† to clients. Greed is probably the reason here. If companies claim more revenue, their stock would grow in the short-term, making management richer, and making management more willing to give pay raises to their auditors.With the establishment of stronger audit committees and certification of financial statements in the Sarbanes-Oxley Act, this kind of accounting trickery will certainly decrease. Creative accoun ting for M&A included the use of the â€Å"pooling† method of accounting. Pooling allowed acquiring companies to value existing assets at historical costs and did not require the recognition of goodwill for the acquisition. Because true costs (values) were not shown on the financial statements, management was often encouraged to bid up prices for acquisitions with the result that many of them were not economic.The creative accounting also shielded the income statement from charges that would have otherwise hit income including: goodwill amortization, depreciation, and depletion expenses. Greed, the same reasons as the revenue recognition issue, was most likely the motivation for this creative accounting. Discussion between an educated audit committee and auditor plus certification of financial statements required by Sarbanes-Oxley will certainly address this issue. Assisting management to meet earnings.Too often, auditors confused ‘financial engineering’ with val ue-adding. In other words, auditors often sought to add value to their clients by finding ways to push accounting to achieve earnings objectives sought by management. These earnings objectives then played a major role in escalating stock prices – all desired because of the heavy emphasis of management compensation on stock options. Incentives were misaligned. Most of management compensation came in the form of stock options.Better audit committees, increased auditor responsibility, identification of users as the client of the auditor, and management certification of statements will address the issue via requirements of the Sarbanes-Oxley Act. 2-53. a. Some ways that the impact of the Sarbanes-Oxley Act affects the external audit profession: * The creation of the PCAOB puts a watchful eye on the accounting industry. * Reporting on internal controls is required by the external auditor, adding to their workload but also strengthening their value to organizations and giving them more assurance when giving an audit opinion. Auditors can now feel more comfortable taking issues to the audit committee * Audit partners must rotate off every five years. This will create a difficult transition at every client every five years. * With the cooling off period, audit partners or managers cannot take jobs with clients as easily. b. The Sarbanes-Oxley Act encourages effective internal audit functions for all public companies. The internal audit profession has been active in assisting companies in complying with the internal control provisions of the Act. c. This could be argued either way.On one side, the legislation clearly creates a â€Å"watchdog† of the accounting industry, which decreases the power and prestige as the profession is no longer self-regulated. On the other hand, the Act and recent business press has brought a lot of attention to the accounting industry, which has educated the world about the role of accountants in the economy, and possibly incr eased their power and prestige. Now, there is a general feeling that the public accounting profession has reestablished itself as a watchdog for investors and see the audit committee as their primary client.Overall, the consensus seems to be that the profession has regained a great deal of its prestige. 2-54. a. The Sarbanes-Oxley Act changed responsibilities of management in the following ways: * Requirement that CEO and CFO certify the financial statements and disclosures * Requirement that companies provide a comprehensive report on internal controls over financial reporting * Requirement to describe whether they have implemented a Corporate Code of Conduct, including provisions for whistleblowing, and processes to ensure hat corporate actions are consistent with the Code of Conduct. b. Under The Sarbanes-Oxley Act, management is no longer the â€Å"client. † The auditor reports to the audit committee, who is independent of management. With these changes, the auditor shoul d be able to be â€Å"tougher† on management because the audit committee will be demanding it. However, the auditor still has to work with management to gain access to needed information, as well as understanding management intent as management intent drives some accounting treatments. . The CEO and CFO, as members of management, are ultimately responsible for the financial statements. The chair of the audit committee and the external auditor are then responsible to a certain extent, probably more in the minds of the public than in reality. Finally, the Director of Internal Audit is the least responsible of the group, as they are essentially employees of management and the audit committee. 2-55. a. The audit committee must be comprised of â€Å"outside† independent directors, one of whom must be a financial expert.The audit committee now has the authority to hire and fire the external auditor, and will therefore serve as the auditor’s primary contact, especially for accounting and audit related issues. In addition, the audit committee sets the scope for and hires internal auditors. They must review the work of both parties. b. The audit committee certainly takes on much more responsibility with the new standard. They will now be much more informed about the audit function and financial reporting processes within their company. The auditor must report all significant problems to the audit committee.For auditors, the reporting relationship should reinforce the need to keep the third-party users in mind in dealing with reporting choices. c. The audit committee is basically in a position of mediator, but not problem solver. One member must be a financial expert, but all members must be well versed in the field. This financial knowledge can help the audit committee to understand the disagreement. Ultimately, the auditor has to be able to give a clean audit opinion. If they believe a certain accounting treatment to be wrong, they do not have to give that clean opinion.In this way, neither the audit committee nor management can necessarily solve a dispute. d. The accounting choice is acceptable, and thus, the financial statements are fairly presented in accordance with GAAP. The fact that the auditor believes there is a better treatment should be communicated to important parties as follows: * Management – the communication should be made directly, and the rationale for the auditor’s opinion should be explained to management and documented in the working papers. The working papers should also include the client’s rationale for the chosen accounting treatment. Audit Committee – Both management’s chosen treatment and the auditor’s preferred treatment should be communicated to the audit committee. Preferably the communication would include both verbal communication and written communication. The rationale for accepting management’s accounting treatment should also be communicate d. * Users of the Financial Statement – There is no required communication to the outside users of the financial statements as long as the auditor has concluded that the financial statements are fairly presented in accordance with GAAP. 2-56. . An audit committee is a subcommittee of the board of directors; it is responsible for monitoring audit activities and serves as a surrogate for the interests of shareholders. Audit committees should preferably be composed of outside members of the board, that is, members who do not hold company management positions or are closely associated with management. b. The following information should be discussed with the audit committee: * A summary of the auditor's responsibilities under GAAS. Auditor responsibilities change over time as new standards are issued.The audit committee should always be aware of the nature of the audit function within the organization. * Initial selection or major changes in significant accounting policies that c ould have a material affect on financial statement presentation. The audit committee needs to know how the choice may affect both current reports and future financial reports as well as the rationale for the choice because it is presumed that companies select the accounting principles that best reflect the economic substance of their transactions and are thus changed only when dictated by standard-setting bodies or when the economics of the situation change. The process utilized by management to make significant estimates and other management judgments such as loan loss reserves in banks and savings and loans and insurance reserves in insurance companies. * Significant audit adjustments that may reflect on the stewardship and accountability of management, even if management agreed to make the adjustments. * The auditor's review of and responsibility for other information contained in an annual report (outside of the audited financial statements). * All major accounting disagreements with management, even if such disagreements are eventually resolved to the auditor's satisfaction. The auditor's knowledge of management's consultation with other auditors regarding accounting or auditing issues. * Any significant accounting or auditing issues discussed with management prior to the acceptance of the audit engagement – in particular, any positions taken regarding the proper accounting of controversial areas should be disclosed. * Any difficulties encountered in performing the audit, especially any activities undertaken by management that might be considered an impairment of the audit function. * Internal audit plans and reports and management’s responses to those reports. The extent to which the client has implemented a comprehensive plan of risk assessment and the organization’s plans to mitigate, share, control, or otherwise address those risks. * Any known internal control weaknesses that could significantly affect the financial reporting pro cess. The rationale for this communication is that the board of directors through