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Saturday, February 12, 2011

Introduction to Gender differences

Gender differences are mostly determined by social behaviors. Men and women are different; therefore, they are treated differently by society. The gaps become more apparent as we grow up, in the way children are raised today. Later, boys and girls start to think and speak differently, because of the influence of the environment. Finally, the impact of society shapes the behavior of individuals, widening the gap between both sexes.
            The gender differences start to appear early in the way the children are raised. Those can be as simple as dressing girls in pink as opposed to boys wearing blue. The parents teach girls to be nice and gentle, when boys are taught to be tough and never to cry. The differences deepen, when as teenagers, girls try to be the most popular among friends, using their appearance to attract attention. Boys want to be popular too. But they do not try to be nice to each other or mingle with other boys. They try to imitate adults. To be popular, they need to show leadership and toughness. They get involved in contact sports and anything that shapes their endurance. Parents and school are the most influential tools in shaping young lives in which differences between genders broaden in time.

            One of the differences existing between genders and created by society is the way men and women speak. From the youngest age, the girls are taught to “temper what they say so as not to sound too aggressive” (Tannen, Women and men talking on the job, 442). Because of that, their self confidence is not as strong as men. Girls do not think of themselves as strong leaders, simply because they are taught to think this way. In contrary, men are taught to speak their mind, not to be shy and fight the obstacles. They think of themselves as born leaders, therefore, they are more prepared to speak firmly, which gives an “impression of confidence” (Tannen, 445). That firm and confident way of speaking give men the advantage over women in the current business world.

            Men and women behave differently, because society demands it. The effects of that are easy to observe in the current and aggressive business world. Women tend to “phrase their ideas as suggestions rather then orders” (Tannen, 444). They do not want to be perceived as bossy, because they want to be likable. They use their feelings in every aspect of life, whereas men can easily separate feelings from business. The impression of power and superiority is highly admirable among men. They are expected to “give orders” (Tannen, 445) and push others around. As oppose to women, they do not need to be likable. Such a behavior would be perceived as weakness, a lack of leadership. The society and stereotypes demand from men to be strong and aggressive. The demand of society toward men and women are different, which create two different ways of behavior.

It is claimed that differences between genders are the result of surrounding society. From an early age, boys and girls are treated differently by their parents. The influence of the environment can also be observed in the way boys and girls think and speak when they become teenagers. As they become adults, the impact of society on the behavioral differences becomes vivid and result in widening the gap between both genders.

Wednesday, February 9, 2011

What we understand by Country Risk Analysis?

Country risk analysis (CRA) attempts to identify imbalances that increase the risk of a shortfall in the expected return of a cross-border investment. This paper describes the general process used to create risk measures and discusses some of the weaknesses of this process. It then examines the degree of association of six measures and analyzes the ability of these measures to predict returns for a manufacturing investment. The paper concludes that company analysts may improve the performance of risk measures available from commercial services by adjusting risk measurement to fit the company's specific type of foreign direct investment.
All business transactions involve some degree of risk. When business transactions occur across international borders, they carry additional risks not present in domestic transactions. These additional risks, called country risks, typically include risks arising from a variety of national differences in economic structures, policies, socio-political institutions, geography, and currencies. Country risk analysis (CRA) attempts to identify the potential for these risks to decrease the expected return of a cross-border investment.
Risk" implies that an analyst can identify a well-defined event drawn from a large sample of observations. A large sample contains enough observations to develop a statistical function amenable to probability analysis. An event that lacks these requirements moves toward uncertainty on the continuum between pure risk and pure uncertainty. For example, the probability of death from an auto accident classifies as a risk; the probability of death from a nuclear meltdown falls into uncertainty, given a lack of nuclear meltdown observations. Many of the individual events investigated by country risk analysis fall closer to uncertainties than well-defined statistical risks. This forces analysts to construct risk measures from theoretical or judgmental, rather than probabilistic, foundations.
Uncertainty makes CRA more similar to a soft art than a hard science. Analysts deal with the soft nature of CRA in different ways, which can result in widely varying views of the risk level of a country. For this reason, users of risk measures developed from commercial country-risk services must understand analysts' construction methods if they wish to analyze a company investment risk appropriately. As demonstrated in the sections below, company analysts should be able to improve upon outside measures by adapting risk systems to their specific company investments.
Theory vs. Practice
Country risk analysis rests on the fundamental premise that growing imbalances in economic, social, or political factors increase the risk of a shortfall in the expected return on an investment. Imbalances in a specific risk factor map to one or more risk categories. Mapping all the factors at the appropriate level of influence creates an overall assessment of investment risk. The mapping structure differs for each type of investment, so an imbalance in a given factor produces different risks for different investments.
This fundamental premise provides a simple theoretical underpinning to CRA. Unfortunately, no comprehensive country risk theory exists to guide the mapping process.  In practice, most country-risk services create risk measures using an eclectic mix of economic or sociopolitical indicators based on selection criteria arising from their analysts' experiences and judgment. The services usually combine a variety of factors representing actual and potential imbalances into a comprehensive risk assessment that applies to a broad investment category. Most CRA literature emphasizes a number of common points, then slips into a detailed discussion of ways the respective authors enumerate risk for various investments. The best authors emphasize the necessity to adapt their analyses for a specific investment decision given the judgmental nature of their methods.
Country Risk Categories and Measurements
Analysts have tended to separate country risk into the six main categories of risk shown below. Many of these categories overlap each other, given the interrelationship of the domestic economy with the political system and with the international community. Even though many risk analysts may not agree completely with this list, these six concepts tend to show up in risk ratings from most services.
I. Economic Risk
II. Transfer Risk
III. Exchange Rate Risk
IV. Location or Neighborhood Risk
V. Sovereign Risk
VI. Political Risk
Economic Risk is the significant change in the economic structure or growth rate that produces a major change in the expected return of an investment. Risk arises from the potential for detrimental changes in fundamental economic policy goals (fiscal, monetary, international, or wealth distribution or creation) or a significant change in a country's comparative advantage (e.g., resource depletion, industry decline, demographic shift, etc.). Economic risk often overlaps with political risk in some measurement systems since both deals with policy.
Economic risk measures include traditional measures of fiscal and monetary policy, such as the size and composition of government expenditures, tax policy, the government's debt situation, and monetary policy and financial maturity. For longer-term investments, measures focus on long-run growth factors, the degree of openness of the economy, and institutional factors that might affect wealth creation.

Transfer Risk is the risk arising from a decision by a foreign government to restrict capital movements. Restrictions could make it difficult to repatriate profits, dividends, or capital. Because a government can change capital-movement rules at any time, transfer risk applies to all types of investments. It usually is analyzed as a function of a country's ability to earn foreign currency, with the implication that difficulty earning foreign currency increases the probability that some form of capital controls can emerge. Quantifying the risk remains difficult because the decision to restrict capital may be a purely political response to another problem. For example, Malaysia's decision to impose capital controls and fix the exchange rate in the midst of the Asian currency crisis was a political solution to an exchange-rate problem. Quantitative measures typically used to assess transfer risk provided little guidance to predict Malaysia's actions.

Transfer risk measures typically include the ratio of debt service payments to exports or to exports plus net foreign direct investment, the amount and structure of foreign debt relative to income, foreign currency reserves divided by various import categories, and measures related to the current account status. Trends in these quantitative measures reveal potential imbalances that could lead a country to restrict certain types of capital flows. For example, a growing current account deficit as a percent of GDP implies an ever-greater need for foreign exchange to cover that deficit. The risk of a transfer problem increases if no offsetting changes develop in the capital account.
Exchange Risk is an unexpected adverse movement in the exchange rate. Exchange risk includes an unexpected change in currency regime such as a change from a fixed to a floating exchange rate. Economic theory guides exchange rate risk analysis over longer periods of time (more than one to two years). Short-term pressures, while influenced by economic fundamentals, tend to be driven by currency trading momentum best assessed by currency traders. In the short run, risk for many currencies can be eliminated at an acceptable cost through various hedging mechanisms and futures arrangements. Currency hedging becomes impractical over the life of the plant or similar direct investment, so exchange risk rises unless natural hedges (alignment of revenues and costs in the same currency) can be developed.
Many of the quantitative measures used to identify transfer risk also identify exchange rate risk since a sharp depreciation of the currency can reduce some of the imbalances that lead to increased transfer risk. A country's exchange rate policy may help isolate exchange risk. Managed floats, where the government attempts to control the currency in a narrow trading range, tend to possess higher risk than fixed or currency board systems. Floating exchange rate systems generally sustain the lowest risk of producing an unexpected adverse exchange movement. The degree of over- or under-valuation of a currency also can help isolate exchange rate risk.
Location or Neighborhood Risk includes spillover effects caused by problems in a region, in a country's trading partner, or in countries with similar perceived characteristics. While similar country characteristics may suggest susceptibility to contagion (Latin countries in the 1980s, the Asian contagion in 1997-1998), this category provides analysts with one of the more difficult risk assessment problems.
Geographic position provides the simplest measure of location risk. Trading partners, international trading alliances (such as Mercosur, NAFTA, and EU), size, borders, and distance from economically or politically important countries or regions can also help define location risk.
Sovereign Risk concerns whether a government will be unwilling or unable to meet its loan obligations, or is likely to renege on loans it guarantees. Sovereign risk can relate to transfer risk in that a government may run out of foreign exchange due to unfavorable developments in its balance of payments. It also relates to political risk in that a government may decide not to honor its commitments for political reasons. The CRA literature designates sovereign risk as a separate category because a private lender faces a unique risk in dealing with a sovereign government. Should the government decide not to meet its obligations, the private lender realistically cannot sue the foreign government without its permission.
Sovereign-risk measures of a government's ability to pay are similar to transfer-risk measures. Measures of willingness to pay require an assessment of the history of a government's repayment performance, an analysis of the potential costs to the borrowing government of debt repudiation, and a study of the potential for debt rescheduling by consortiums of private lenders or international institutions. The international setting may further complicate sovereign risk. In a recent example, IMF guarantees to Brazil in late 1998 were designed to stop the spread of an international financial crisis. Had Brazil's imbalances developed before the Asian and Russian financial crises, Brazil probably would not have received the same level of support, and sovereign risk would have been higher.
Political Risk concerns risk of a change in political institutions stemming from a change in government control, social fabric, or other no economic factor. This category covers the potential for internal and external conflicts, expropriation risk and traditional political analysis. Risk assessment requires analysis of many factors, including the relationships of various groups in a country, the decision-making process in the government, and the history of the country. Insurance exists for some political risks, obtainable from a number of government agencies (such as the Overseas Private Investment Corporation in the United States) and international organizations (such as the World Bank's Multilateral Investment Guarantee Agency).
Few quantitative measures exist to help assess political risk. Measurement approaches range from various classification methods (such as type of political structure, range and diversity of ethnic structure, civil or external strife incidents), to surveys or analyses by political experts. Most services tend to use country experts who grade or rank multiple socio-political factors and produce a written analysis to accompany their grades or scales. Company analysts may also develop political risk estimates for their business through discussions with local country agents or visits to other companies operating similar businesses in the country. In many risk systems, analysts reduce political risk to some type of index or relative measure. Unfortunately, little theoretical guidance exists to help quantify political risk, so many "systems" prove difficult to replicate over time as various socio-political events ascend or decline in importance in the view of the individual analyst.
Country risk analysis in the 197Os and 1980s tended to focus on the risk a private lender such as a bank incurred when it made a hard currency loan to a sovereign government outside its home country. Risks were segmented to identify potential shortfalls in either the foreign currency value of the investment or in the investor's home currency (returns hold up in local currency, but decline when measured in the investor's own currency). Quantitative risk analysis generally focused on factors related to a country's ability to earn foreign currency to repay the debt. Qualitative analysis attempted to ascertain a country's willingness to repay the debt. This type of analysis tended to focus on the sovereign, transfer, and short-term exchange rate risk categories. With minor adjustments, this analytical approach also was used to assess risk in short-term investments in foreign private financial assets.
A multinational enterprise (MNE) that builds a plant in a foreign country faces different risks than a bank lending to a foreign government. The MNE must consider a longer time horizon and risks from a much broader spectrum of country characteristics. Some categories pertinent to a plant investment contain a much higher degree of risk simply because the MNE remains exposed to risk for a much longer period of time.

Tuesday, February 8, 2011

Managerial Accounting

With the continuing development of business processes, whether the change in various manufacturing processes, or the automation of most business activities, the cost accounting procedures that companies use to calculate for the unit cost of an individual product, service or activity have also become outdated. From a managerial accounting perspective, the changes in the economy, in industries and individual firms alike, must be supported by the firm's accounting and control infrastructure (Bromwich & Bhimani 1994). Accounting is, after all, a financial model of business. When changes occur in the business, accounting should change to reflect them. Managers of companies that fail to make appropriate modifications in their accounting systems will find they have inaccurate product/service/activity cost figures and lack data for making decisions. They may lose their competitive edge because they do not have the necessary information for operating in the constantly changing business environment. Systems for accounting for costs date back several centuries. Cheatham & Cheatham pointed out that cost systems were of greater concern to early merchants and craftsmen than what is now called financial accounting (1993). When there were no income taxes or regulatory government agencies to demand the preparation of financial statements, all accounting were managerial accounting -- accounting done for management to meet its information needs. One basic difficulty in costing is that an individual product, service or activity does not drive all the company expenses. Even within a factory, there are many questionable costs, not directly driven by the type, number or volume of products. In addition, there are costs that are driven by substantial material vendors and customers. This paper presents suggestions on how to go about calculating the unit cost of an individual product, service or activity, in par with the marked changes in the field of management accounting to maximise the benefits that effective costing has to offer.

At the turn of the twentieth century, the most important dimension of management control was cost control. Innovations in management accounting such as activity-based costing, capacity cost management, balanced scorecard, and target costing have emerged and, to a limited extent, they have affected the design of management accounting systems in many enterprises (Gosselin 1997; Guilding, Cravens & Tayles 2000). In all cost accounting activities that help shape management accounting decisions made by the company, identification of the components of the cost being calculated should be listed to account for all that matters to the computation. In production, such cost items as manpower, raw materials, electricity, transport, rent, water, machinery, equipment, tools, etc. should be included in the computation, in order to come up with the cost as close as the amount of resources that the firm has spent. In the management area, manpower and the entrepreneur’s salary form part of costing, as well as other costs expended for making the business run. Most companies view cost per unit as ‘labour per unit’. This can be very deceptive when each unit consumes its share of overhead, maintenance, machine wear, raw material, etc. In selling and finance, cost items as publicity, promotion, commissions, interests, etc. should form part of the costing activity. In all these business aspects, there are two kinds of mistakes that could be made in accounting costs: cost measures that should be ignored have been included; or, ignoring costs that should be included. As a rule, costs that will not vary as a result of a decision should be ignored; and all costs that will vary as a result of a decision should be included.
The advent of technology in the manufacturing industry, the recently formulated taxation policies, surfacing novel lines of expertise, new business processes, growing number of participants in the supply chain and the ever-changing rules, improved accounting systems and regulations of global trade are some of the more immediate additions that should be considered in the computation of the unit cost of an individual product, service or activity. Atrill & McLaney 1997 also observed that changes have taken place in the industry between the time the system was developed and the 1990s: (1) from direct labour-intensive and direct labour-paced to capital-intensive and machine-paced production; (2) from a low level of overheads to a high level overheads relative to direct costs; and (3) from a relatively uncompetitive to a highly competitive international market. Fixed and variable costs are affected by these marked developments in the business field, and it is only through an initial correct identification of the fixed and variable costs that a calculation of the said cost per unit of each of its products, services and activities commence.

            Job costing, as an integral part of the cost accounting system, should include the preparation of source documents (materials used to accumulate the costs for an individual job) such as the job cost sheet, entering of the information in a journal (book of initial entry) and the determination of overhead rates. According to Khan (2000), the simplest way to calculate a predetermined overhead cost is to divide the estimated overhead for, say an entire year, by an appropriate base, such as direct material hours, direct labor hours, etc. While the method is simple, there is a problem with it in that if the agency budget constitutes an unusually large (or small) fraction of the total budget, it may overestimate (or underestimate) the overhead allocation. Also, when money is frequently transferred between funds, it may misrepresent the overhead allocation by the amount of the transfer. The alternative is to remove the effects of interfund transfers before the method can be used. This costing facet should then be integrated in the computation of the cost per unit of a product, in order to more closely have an estimate of how an individual product, service or activity made use of a particular job in the firm. As there is a marked increase in the specialisation of jobs and a different rate apply to them, it is important that they, too, be included in job costing, noting the difference between the them and standard work performed for a product, a service or an activity, and taking them into consideration when making costing decisions. In process costing, an equally vital aspect of cost accounting, the weighted average method or the first-in first out (FIFO) approach can be used to determine number of equivalent units in an inventory. Once the number of equivalent units in an inventory is known, the computation of the cost of total equivalent units as well as the cost per equivalent unit for a department can ensue, more known as the cost analysis schedule. The procedures for calculating these costs are quite simple: the former is obtained by simply adding all the costs in an inventory, whereas the latter is obtained by dividing the total cost by the number of equivalent units (Khan 2000). This costing phase should also be integrated in unit costing, as the product, service or activity is, in one way or another, involved in various business processes. The drawback to including process costing in calculating for unit cost is that it complicates the whole process of unit cot computation, since a separate set of schedules will have to be prepared for each business department and the corresponding work in process will have to be reconciled in the final account. As various high technology processes have cropped up over time, adjustments for previous process costing computations should be made. As computation of the cots per unit depends on the nature of the business that one is engaged in, there are different items that need to be considered in its calculation. As such, the process costs and job costs are two integral parts of the computation.

Management accounting systems are designed to supply information to internal decision makers of a given organization, to facilitate their decision making, to motivate their actions and behaviour in a desirable direction, and to promote the efficiency of the organisation (Riahi-Belkaoui 1992). The cost accounting system of a firm largely helps shape the decisions made by management accountants. An exposure to either a proliferation of courses in the computer, quantitative, and behavioural sciences, or to an integrated multidisciplinary approach would be supportive to advocating up-to-date cost accounting procedures to cope up with the demands of the ever-changing business environment. As Walker (1999: 18) claimed that “In fact there is no single correct cost figure”. Product costs are always calculated from the financial transaction data of the cost centres of the organization. Several methods exist, and each company uses a method of its own. It should therefore be noted that a host of possible cost accounting systems can be designed from the various combinations of the already existing cost accounting systems, although not all of the alternatives are compatible. Selecting one part from each category should provide a basis for developing an operational definition of a specific cost accounting system.

            During the past decade cost accounting has come under vigorous attack on the grounds that traditional approaches to allocating costs are fraught with considerable arbitrariness and contain substantial errors which can lead to misguided decisions dealing with such matters as pricing, outsourcing, capacity planning, and profitability analysis for various product lines and other segments of business activity. The above suggestions for cost per unit calculations would be useful for decision-making processes to be made by the administration as a whole or the accounting department in itself. Recognising that there are limitations to such method, it is best that cost accounting systems be combined with one or the other in order to produce the most fitting for the organisa