Week5 Discussion Responses
Week 5 Discussion Responses – Financial Accounting
Discussion Response 1
BY: E,S
The CFO has more oversight and needs to make sure areas of ethics, integrity are not questioned “He or she is the last line defense in terms of the moral compass of the company and the accuracy of the financial statements” (John Draut, 2017). These are tried and true and keep lawlessness away! With that said there are laws that allow some room to move numbers such as depreciation, and the GAAP allows equipment to be one of those areas. In my company we use this method both on a District and Regional level but with rules of engagement. To me accounting calls for more ethics and integrity and honesty than most fields. Most fields have honest people but in the Business world the CFO in my eyes is a very important and upstanding person. I believe many organizations have CFO as their CEO because of the skill set and complexities that exist today.
“Depreciation begins when a taxpayer places property in service for use in a trade or business or for the production of income. The property ceases to be depreciable when the taxpayer has fully recovered the property’s cost or other basis or when the taxpayer retires it from service, whichever happens first” (IRS Gov).
“Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property” (IRS Gov.). So in reference to changing asset life does occur occasionally, the question is if it has always been five years and the CFO wants seven years for bonus reasons I do not feel this is appropriate and feel it takes a clear cut situation to a grey area I would not feel comfortable with. Would the IRS look the other way? Could be so for legal reason you may get by, then again there are rules for equipment and if you went from seven years to five you would have to explain the reasoning and tie it to the industry potentially.. What would I do? I would find other areas to generate the $750K they are looking for. The grey area doesn’t make me comfortable and there has to be other areas to generate revenue to gain the bonuses such as safety, turnover, overtime, double shifting, hiring etc. Not knowing the company or the business there generally are cost cutting initiatives that can help offset cost.
Side note: Last two weeks we have discussed Fraud and Ethics----Have you heard about the FBI investigation of NCAA Basketball programs tied to shoe manufactures? Do you think anyone in the accounting departments knew about the large sums being paid out? College sports are big business, and the corruption continues to amaze me.
References:
John Draut
https://www.irs.gov/.../a-brief-overview-of-depreciation
Discussion Response 2
BY: B,R
Ethics is typically not a black and white decision, it often lies in the gray area in between. In general, making an ethical decision requires one to know and understand good values accepted by society and individual. “Ethical behavior tends to be good for business and involves demonstrating respect for key moral principles that include honesty, fairness, equality, dignity, diversity, and individual rights” (Business Dictionary, n.d.).
In this case regarding changing the depreciation of capital equipment can be a tough call to make. While it may not be specifically prohibited making a poor decision has the potential to cost a person one’s job and may even lead to harsher punishment from the government. This example can be linked to discussions that we have had in previous weeks about fraud. Changing the way equipment depreciates could easily lead to a person in the company benefiting in ways such has greater bonuses. Unfortunately, greed and corruption are likely to always play a role in human history. There are several ways that this case can be handled to ensure that one is making both the correct ethical and legal choice.
For starters, it should not be a single person that is making the final decision on proceeding with changing the depreciation from five to seven years. This should be a plan that is discussed with people in the company and with independent people or organizations outside of the company. Having a system of checks will help to ensure that one person is not making decisions that have the potential to effect the entire company. Secondly, it would be prudent to research the ways in which it is completely legal to change the way an item depreciates. For instance, an item may depreciate at a slower rate if it is regularly serviced. Another possibility that an item may last longer is if it is not being used often. Both of these would be legal ways that would allow an individual to extent depreciation for a few years while being able to keep a clean conscience.
References
Business Dictionary. (n.d.). Ethical Behavior. Retrieved on September 27, 2017 from http://www.businessdictionary.com/definition/ethical-behavior.html
Kimmel, Wygandt, & Kieso. (2013). Financial Accounting: Tools for Business Decision Making (7th ed.). John Willey & Sons, Hoboken, New Jersey.
Week 5 Discussion Responses – International Business
Discussion Response 1
BY: A,W
IMF has made great strides to help developing countries have access to necessary funds that could enhance their economy. There are many challenges that developing countries face especially when that country is greatly dependent on commodity exports. To keep the flow of money running, countries can borrow funds from IMF with great terms.
Tony Killik (August 1993) wrote an article about the effectiveness of IMF’s loan programs with developing countries in the 1990s. Early on, there was much criticism about IMF’s programs. He writes there program imposed large costs on the borrowing country and caused losses of output which raised unemployment. Incentives such as credit to the borrowing country were too small to be of any help and the interest rates on borrowed funds were too high.
In September 1999, the IMF created the Poverty Reduction and Growth Trust with hopes to centralize lending options for developing countries and help reduce poverty. In 2005, a review was published over the lending program and it concluded that the macroeconomics in low-income countries had improved but the gross domestic product per capita (resources available per resident based on the nation’s output) remained low (imf.org). Along with strengthening available funds for countries to borrow from, IMF’s goal was to strengthen governance and assist countries in designing financial strategies and prioritize that country’s spending. IMF began working with the World Bank to help countries design these strategies as well.
Made effective on August 30, 2017, the Swiss National Bank agreed to lend $712.4 million dollars (in USD) to the Poverty Reduction and Growth Trust. Currently, IMF is operating a fund-raising campaign to increase resources available concessional lending. Concessional lending is defined as loans extended from a lender to a lendee with terms that are more generous than market or conventional loans. This type of loan either has a lower interest rate below the current market rate, longer grace periods, or a combination of both (OECD). Switzerland is one of the 14 member countries that have contributed loan resources to the trust. IMF’s goal is to raise $11 billion in loan resources made available to its members.
References
IMF and the Swiss National Bank Sign SDR 500 million Borrowing Agreement to Support Lending to Low-Income Countries. (September 20, 2017.). Retrieved September 23, 2017, from http://www.imf.org/en/News/Articles/2017/09/20/pr17361
Killik, T. (1993, April). Does IMF Really Help Developing Countries? https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/6784.pdf
OECD. (n.d.). Retrieved September 24, 2017, from https://stats.oecd.org/glossary/detail.asp?ID=5901
Discussion Response 2
BY: V,S
The International Monetary Fund (IMF) is an international organization of 188 member countries established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment. The International Monetary Fund is involved in various projects to make an impact globally. In September 1999, the Poverty Reduction and Growth Facility (PRGF) was established for the poorest member countries (IMF, 2009). PRGF-supported programs are framed around comprehensive, country-owned Poverty Reduction Strategy Papers (PRSPs). PRSPs are prepared by governments with the active participation of civil society and other development partners (IMF, 2009). PRSPs are then considered by the Executive Boards of the IMF and World Bank as the basis for concessional lending from each institution and debt relief under the joint Heavily Indebted Poor Countries (HIPC) Initiative. The targets and policy conditions in a PRGF-supported program are drawn from the country's PRSP.
An important outcome of the new approach is that more attention is being given to the economic aspects of governance than in the past. At the same time, more attention is being given to the social impact of major reforms under the program. It is expected to be major reforms, analysis of the impact on the poor has to be conducted (normally by the World Bank where governments lack the capacity to do this work themselves), and countervailing measures incorporated in the PRGF-supported program. With improved country ownership, PRGF conditionality can and should be more selective, focusing on measures central to the success of the country's strategy, particularly in the macroeconomic and financial areas (IMF, 2009). In the short run, these changes will be hard to demonstrate in a rigorous way. The counterfactual problem will make comparisons difficult and the broad scope of programs to accelerate growth and reduce poverty raises definitional questions of what constitutes a pro-poor or pro-growth budget (Fabrizio, Kpodar & Lane, 2017). Improvements in expenditure data and monitoring will also be needed to track some of the envisaged changes. These difficulties are evidence of improvements in the level, composition, or efficiency of social spending will be an important element in assessing the change in a country’s budget strategy. In addition, the documentation for PRGF programs will need to show how the staff (with the World Bank generally in the lead) has considered the above issues in the design and review of public expenditures and revenue generation.
The importance of helping countries develops budgets that are more pro-poor and pro-growth has been stressed by both the Board and by other development partners in commenting on the PRSP/PRGF approach (Fabrizio, Kpodar & Lane, 2017). According to IMF, this will entail in practice will vary from country to country, but concretely programs could be expected to exhibit one or more of the following features: a reorientation of government spending towards the social sectors, basic infrastructure, or other activities that demonstrably benefit the poor, directly or indirectly (this is likely to imply an increase in the level of such spending in most countries, but not necessarily in all—the transition countries, for instance, may be exceptions); improvements in the efficiency and targeting of spending in key sectors relevant to growth and poverty reduction; tax reforms that simultaneously improve efficiency and equity—for instance, the removal of regressive exemptions or loopholes for the better off—and thereby generate more resources for the poverty reduction strategy.
References:
Fabrizio, S., Kpodar, R., & Lane, C. (2017). IMF Support for the United Nations’ Sustainable Development Goals. Retrieved from https://blogs.imf.org/2017/07/19/imf-support-for-the-united-nations-sustainable-development-goals/
Hill, C. W., & Hult, T. M. (2016). Global Business Today. New York, NY: McGraw-Hill Education.
International Monetary Fund (IMF). (2009). The Poverty Reduction and Growth Facility (PRGF). Retrieved from https://www.imf.org/external/np/exr/facts/prgf.htm