response 6

Question 1

There has been much debate inside the company you work for as to the valuation of dilutive securities. The CEO of your company has indicated that any reduction in regular EPS sends a negative message to the financial markets that the company is not a great value for investors. Discuss why dilutive securities have a benefit to the issuer and the purchaser of convertible debt in response to the statement made by the CEO. Explain your reasoning.

Respond to this… “Convertible bonds can be changed into other corporate securities during some specified period of time after issuance. A convertible bond combines the benefits of a bond with the privilege of exchanging it for stock at the holder’s option. Investors who purchase it desire the security of a bond holding (guaranteed interest and principal) plus the added option of conversion if the value of the stock appreciates significantly.

Corporations issue convertibles for two main reasons. One is to raise equity capital without giving up more ownership control than necessary. A second reason to issue convertibles is to obtain debt financing at cheaper rates. Many companies could issue debt only at high interest rates unless they attach a convertible covenant. The conversion privilege entices the investor to accept a lower interest rate than would normally be the case on a straight debt issue.” (Kieso, Weygandt, & Warfield, 2013, pg. 884).

“Regardless of how profitable the company is, convertible bondholders receive only a fixed, limited income until conversion. This is an advantage for the company because more of the operating income is available for the common stockholders. The company only has to share operating income with the newly converted shareholders if it does well. Typically, bondholders are not entitled to vote for directors; voting control is in the hands of the common stockholders. In addition, bond interest is a deductible expense for the issuing company.” (Cloutier, 2016, para. 2).

References

 

Cloutier, R. (2016). Convertible Bonds: Pros And Cons For Companies and Investors. Investopedia. Retrieved from http://www.investopedia.com/articles/bonds/08/convertible-financing.asp

 

Kieso, D. E., Weygandt, J. J., Warfield, T. D. (2013). Intermediate Accounting, 15th Edition. [VitalSource Bookshelf Online]. Retrieved from https://ambassadored.vitalsource.com/#/books/9781118722671/

Question 2

In recent years, we have seen many European nations join together and create the European Central Bank. It was created to utilize one form of currency for many nations, thus creating stability for this currency.

As the globalization of all economic activity continues at a rapid pace, is the world ready for a unified global currency common unit? Or do you feel that the world should continue to use multiple currencies? Explain.

Respond to this… In my opinion unified global currency common unit will certainly happen one day, however it would be good if we ease into it gradually. It would be a time when there would not be converting between Dollars and Euros and Pounds, the money in our wallets and purses are our funds to live. In addition a new global currency would need not be subject to the needs and politics of one country, it would need to be a fresh start for all involved.

The standard of currency right now in the country is the US Dollar. Unified global currency might lead to devaluation of US dollar, causing some inflation in the process which could be beneficial for the manufacturing base.

It would be a tough time and transitions for most of the countries; however it is inevitable, and I believe would gradually would improve stability in the nation. Additionally, non-inflating currency for a standard would be adding pressure on governments of all countries to keep budgets in balance as it would be much harder for a country to win over the currency war.

I believe that we are also a world of traveling individuals, there would be an ease to traveling not having to convert currency with each trip to another country. And also struggling to do the math when converting and making change. I personally struggle each time I travel trying to convert my dollars to another currency.  

Question 3

Protecting the security and integrity of accounting data is part of the controller's responsibility. Because of the integration with the computer system, the IT department must be involved in this process. In your opinion, who should be making the final decision in the decision-making process regarding the security of accounting data, the controller or chief information officer? Explain.

Respond to this… Protecting the security and integrity of accounting data is part of the controller's responsibility. Because of the integration with the computer system, the IT department must also be involved in this process.

In my opinion, both the controller and the chief information officer need to be involved in this process, but they play distinct roles and bear ultimate responsibility in different areas.  For example, the controller needs to classify the data and determine the type of data it is and who should have access to it.  Depending on the organization, some data may be widely disbursed within the organization, some data might be on a need to know basis, and other data could be client approved.  The same can be said with systems within the organization.  You would not want someone in supply chain management having access to the payroll accounting system. 

From a technical perspective, the controller needs the help of the IT department.  It will be the IT department’s responsibility to make sure that data that is marked as internal use only does not leave the organization via email or thumb drives.  The financial services firm that I work for blocks any email that has data marked as internal use only, and we can no longer use thumb drives for storage.  If client information such as a social security number or investment account information email leaves the company, we must use our secure email, which encrypts the data.  As an example, emails are now being blocked if they have a social security number in them.  The employee receives notice that the email has been blocked and so does the employee’s manager.  In addition, our IT works with each department and our sign on credentials grant us access to certain databases and reporting sites within the company.

Information security must truly be a team effort where classification is owned by, in this case, the controller, but the technical systems must be managed and be the responsibility of the chief information officer.