Financing SME Essay

The definition of Small & Medium scale Enterprises (SMEs) varies from country to country. The classification can be based on the firm’s assets, number of employees, or annual turnover along with the loan amount. Central Bank of Sri Lanka defines SMEs as enterprises with less than Rs. 600 million turnover per annum and with a maximum exposure of Rs. 200 million mainly to be classified as a SME for Basel II Capital adequacy calculation and utilization of funds accumulated in the Investment Fund Account in Banks. Whatever the definition, and regardless of the size of the economy, the growth of SMEs throughout the region is crucial to growth of respective economies. Because, SMEs play a critical and important role in providing job opportunities, enhancing the quality of human resources, maximizing the use of local resources, saving foreign exchange, nurturing a culture of entrepreneurship, fostering creativity and opening up new business opportunities etc. Most corporate organizations in Sri Lanka or elsewhere are the establishments started as SMEs in its early stages. Classic examples from our own country may be Nawaloka Group, Access International, Softlogic Group of companies. In most literature, it is mentioned that access to financing has been recognized as a major impediment for many SMEs and its growth, whereas corporate business entities have the advantage over the SMEs in doing so primarily as a result of their formalization. However, according to Juliet Mckee and Kimball Dietrich (2003), most common problems for SMEs are the lack of access to market information and technology, the low quality of human resources and the lack of access to capital. Despite efforts by financial institutions and public-sector bodies to close funding gaps, SMEs continue to experience difficulty in obtaining risk capital. These funding gaps relate to firm size, risk, knowledge, and flexibility. The development literature focus a good deal of attention on issues faced by SMEs in accessing finance. Traditionally, the focus is on obstacles created by financial institutions, mainly by commercial banks or on imperfections in the broader institutional environment. However, SMEs also make decisions about financing and display attitudes that have an important bearing on financing decisions. Therefore, constraints may also appear on the â€Å"demand side† of the financing market. Objective of this article is to discuss the key challenges and issues for bankers pertaining to SME lending, of which, part of them are inherent in SMEs and for others bankers are responsible. 1. Issues of SMEs 1. 1 Lack of financial literacy or weak financial literacy In the literature, lack of financial literacy is designated as informational asymmetries where SMEs typically posses privileged information on their business that cannot be easily accessed or cannot be accessed at all by lenders or outsiders. Reasons for this may vary and also have different perspectives. SMEs are mainly driven by entrepreneurs who have nurtured in their own ways to prospective SMEs. As a result of hard ways of development, they either had no time to devote further education or do not believe in learning. This is evident from the credit applications that are submitted to banks for financing. This eventually leads to low levels of financial literacy among entrepreneurs. Financial literacy is the ability to understand how money works in the world: how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more) and how that person donates it to help others. More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resource. Though many SME owners are sound in developing business models and working out the profitability of products and services, understanding about the macro picture of the SME’s overall financial standing in terms of profit and loss account, balance sheet and cash flows is week. As a result, they sometimes opt to resort to outsiders or merely depend on themselves in preparation of financial information which may or may not reflect the actual picture of the SMEs. Because of this impediment, banks have no choice, but to depend on collateral for SME financing. At the backdrop cash flow lending is encouraged, financial institutions are struggling to project the SMEs’ sustainable bankability. This is recognized as the main obstacle for banks and financial institutions in financing SMEs. One of the options to counter this impediment is the concept of â€Å"Para accountant†. A Para accountant is an external consultant who uses finance, economics, risk management and technology skills to help organizations prepare and report financial and tax statements according to accounting principles and regulatory requirements. A Para accountant also may review a firm’s internal controls, processes and procedures to ensure that such controls are adequate. A Para accountant may work on a client’s site or remotely. They are not necessarily qualified accountants, however, might be an option. Bankers’ prime objective in this endeavor is to develop reliable sources of information so that they could project the sustainable cash flows of the business. With this objective banks could train their credit appraisal officers as Para Accountants, who will interacts with prospective SMEs and develop a set of financial information while strengthening the banking relationship over a period of time. 1. 2 Entrepreneurs’ knowledge about building a prospective banking relationship A banking relationship is about much more than just selecting a bank to handle a company’s bank accounts. If the relationship is managed well, it can help a company to thrive. SMEs that use more than one bank will need to manage multiple banking relationships. A company will first have a business account (or several) at a retail bank (or banks) for all day-to-day financial transactions. Whether it is retail, SME or corporate, the banks should have a team of business banking advisers on hand, to advise and guide a company. It’s important to ensure continuity— banks usually offer a contact with a designated person and in turn expect to deal with the same person or persons from the company. A good banking relationship depends not only on personal rapport, but also by having a solid understanding of the company and its financial needs. Over time, a banking adviser should build up a good understanding of the company’s preferred ways of doing business and incorporate that into how their banking requirements are handled. There are many advantages having a sound banking relationship for SMEs. The bank is more likely to offer loans and other lines of credit, potentially at preferential rates of interest, if the bank advisers feel there is a good relationship with the company. The bank’s advice can be tailored for the company’s needs and personal style, rather than given generically. In times of crisis, a company having its bank’s support will be crucial. Even if a company is a text-book case of insolvency, strong personal rapport with a company representative means that the bank is more likely to offer leeway if it knows that directors are doing their utmost to keep the company going. Failure to develop a strong relationship, however, means that the SME is likely to miss out on good advice and, crucially, support in times of difficulty. However, unfortunately, many SMEs are not on the right track to understand the importance of having a good banking relationship. Given that no sound financial information are available, at least, SMEs should try to maintain a healthy customer relationship with the financial institution to entice financial needs, especially in difficult periods. It is both Bankers’ and SMEs’ responsibility of developing a prospective banking relationship over a period of time without compromising risk capital. More than the credit facilities, credit plus would be reasonably appropriate to start such a relationship and then move into advanced levels of relationships along with credit facilities. 1. 3 Financial discipline of entrepreneurs As Henry Ford correctly cited, â€Å"Wealth does not come accidently. You have to plan for it. † One’s discipline explains the right behavior and ability to take decisions without emotions. Hence, financial discipline is all about right financial decisions. In order to be financially discipline one should understand concepts of accounting and financial management in SME business. Accounting in general is all about record keeping and developing summary financial reports. Most commonly available financial reports or information are the profit and loss account, balance sheet and the cash flow statement. Unless SMEs keep records of their daily activities, it is difficult to develop financial statements with regard to their businesses. With no financial statements, SMEs will always struggle in making financial decisions. More often, there is no clear distinction between the business finance and the finances of the proprietor. Therefore, it is critical that the lender examines carefully borrower’s all commitments, i. e. , those related directly to the business and those associated with the proprietor’s private life and assets. Lack of Business Planning is a result of weak financial indiscipline in SMEs where investment decisions, working capital decisions, even pricing decisions are based on the entrepreneurs’ values than on facts. The lack of proper financial discipline results in incorrect business decisions, which hampers the sustainability of the SMEs. MacRobert (2002), in his SME manual explains why SME borrowers are different to commercial and corporate borrowers. One of the common reasons is unskilled/ untrained principals. Many SME principals in the Asia-Pacific region are self-starters, often with limited formal education, and minimal training in business management skills. That is not to say that they are incompetent, but that they often lack the capacity to research information on ways to strengthen their businesses, and, indeed, to be aware that such resources even exists. Role of the bankers in this regard is to educate the importance of financial discipline through strong banking relationships. Bankers are one of the key sources, to get SMEs to believe in financial discipline. Bank officers should take the initiatives in this endeavor to educate the SME owners. Role of the Government is also a key imperative in developing required conducive environment through institutional and policy frameworks. Some universities in Sri Lanka have already started dedicated departments to teach courses related entrepreneurship. (Example: University of Sri Jayewardenepura and University of Colombo) and It is important to note that Business studies is part of the GCE A/L curriculum. Recent budget proposals in 2011, 2012 and 2013 has given enough support to encourage SMEs and SME financing and one of the very useful proposals was to direct government banks to set up dedicated SME Branches not only to facilitate SMEs with easy access to finance, but also to educate SME owners and to guide and direct them to right places and people. However, strengthening the institutional framework to develop business development support services is also an imperative. 2. Issues with Banks SMEs are not only critical to the economy, but also to the banks’ profitability. Most diversified banks maintain a substantial percentage of exposure to the SMEs as a strategic investment given the diversity within the SME portfolio itself. It is always profitable, but need to properly evaluate and closely monitor the delinquencies to avoid any credit risks. It is a perception as well as a fact sometimes, that SMEs are always highly risky as explained by many banks. It may be due to several factors including, non availability of financial information, no tax returns, no collateral, one man show, highly sensitive to economic conditions, no proper organizational structure, and many more. These are reasons given to avoid or very conservative underwriting of SME credit proposals. As a result of these reasons, credit policies of financial institutions are based on stringent credit guidelines. 2. Institutional framework with hindering process issues In the case of many developing countries, the above mentioned obstacles to SME financing are exacerbated by institutional and process factors. Most developing countries are still highly concentrated and have uncompetitive banking sectors. This reinforces the tendency to adopt conservative lending policies. Credit policies which mainly cover the credit risk and market risk, endorse a processes which covers many elements to secure exposure, while satisfying the regulator’s requirements. This eventually results in a value driven Credit culture in financial institutions. According to MacDonald and Timothy (2006), management’s credit policy determines how much risk the bank will take and in what form. A bank’s credit culture refers to the fundamental principles that drive lending activity and how management analyzes risk. There can be large differences in their lending philosophy. The three potentially different credit cultures are: values driven, current profit driven, and market share driven. The institutional framework is reflected through the credit policy in this part of the world, the tendency is to inculcate a value driven credit culture, which has the following attributes: Focus is on credit quality with strong risk management systems and controls Primary emphasis is on bank’s soundness and stability and a consistent market presence Underwriting is conservative and significant loan concentrations are not allowed. Typical outcome is lower current profits from loans with fewer loan losses It is evident with lower non- performing ratios prevailing in banks justifies that credit risk is covered with loan risk mitigation factors and discourage granting venture capital to SMEs. Eventually, SMEs need to resort to acceptable securities which hinders them from easy access to finance from financial institutions. 2. 2 Collateral syndrome (Risk avert) Strong value driven credit cultures in financial institutions always tighten the belts in covering credit risk. Unless the financial institutions develop competencies in cash flow based lending, credit officers have no choice but to cover themselves with collateral in risky SME lending. Competencies itself will not drive the business unless the risky lending is rewarded with challenging business targets. Security based lending propositions are gradually becoming unhealthy for economies as it discourages strategically important investment decisions. Government of Sri Lanka recently enacted legislations to ease the pressure on SMEs through amendment of Parate execution where normal civil procedure of debt recovery should be applied for loans below Rs. five million with security of property mortgages. 2. 3 Weak competency in building cash flow based lending propositions Strong value based credit policies encourage security oriented lending and creates knowledge gaps in credit officers. Security oriented lending does not require strict cash flow projections and credit evaluations. Developing cash flow projections is an art and requires overall knowledge about the industry, technology, external factors (external climate) and specific firms (internal climate) along with econometrics modeling to analyze the cash flows. When it comes to large projects, knowledge in project appraisals and risk analysis will help the credit officers to get exposed to project financing. At the backdrop of investor confidence and developing businesses in emerging economies, venturing into risky business propositions is in the agenda of the banking and financial intuitions. Financing SMEs are risky but at the same time profitable, so indeed banks need to develop how best they could mitigate the risk of these ventures. One of the options is to gradually develop a culture of SME financing with confidence through development of competencies in their credit officers. Competency development not only addresses econometric techniques of analyzing and evaluating the credit proposals, but also industry knowledge and exposure, experiences of sick industries and business units, world politics and world economics, knowledge in emerging markets and technologies, behaviors and issues of labor, understanding the entrepreneurship etc. Conclusion Many of the literature examine the issues of financing SMEs world over. However, there are key issues not only from the SMEs point of view, but also from the financial institutions and, government’s point of views. No one can expect the SMEs to nurture in best practices all by themselves. In this regard, the role of financial intuitions is greater, when it comes to inculcate and nurture SMEs in the right directions. The issues for SME financing discussed above are the keys, but there are many others which needs further discussions.

Economics Exchange Rates Commentary Essay

NEW YORK (Dow Jones)–The dollar continued its slide Wednesday, touching its lowest level in 12 months against the euro and flagging against the yen as rising equities battered the greenback yet again. The dollar has lost key legs of support over the past two weeks as encouraging global economic data has led investors to assume more risk and buy higher-yielding assets. With the recession receding and financial markets in recovery, investors have become more confident there’s no longer a need to hold their money in a safe-harbor currency like the dollar. Because of the Federal Reserve’s need to stimulate the economy, the dollar’s ultra-low interest rates have made it the lowest-yielding major currency. The cost of borrowing U.S. dollars in the London interbank market continued its slide Wednesday. The key three-month London interbank offered rate marked its lowest level since the British Bankers’ Association first introduced its Libor fixings in 1986. The dollar hit its lowest level against the common currency since September 2008 in New York afternoon trading, with the euro touching a 12-month high at $1.4738. If the euro is able to sustain levels above $1.4720, a key technical level, it could be on a march to $1.50, said Carl Forcheski, vice president for foreign exchange at Societe Generale in New York. The dollar’s losses were broad, sinking to new 13-month lows against the Australian and New Zealand dollars as well as lows for 2009 versus other widely traded counterparts. The U.K. pound also piggy-backed off the euro’s gains to advance on the dollar. The yen had been the so-called â€Å"carry trade† currency of choice, but with U.S. interest rates expected to remain feeble until 2010, analysts anticipate the dollar to continue funding riskier bets. A carry trade involves buying a lower-yielding currency to fund purchases of higher-yielding assets. The dollar was also burdened Wednesday by comments from Japan’s incoming finance minister, Hirohisa Fujii, who said he saw no need to intervene in currency markets to weaken the yen. In the past, the dollar had received support from the belief that Japan would intervene to prevent unwanted appreciation of its currency. â€Å"There’s no change in my thinking† that it’s not the time to consider foreign-exchange intervention, Fujii said at a news conference. Though he wouldn’t rule out intervention in what he termed â€Å"really abnormal situations,† Fujii said â€Å"the idea that the yen should be cheaper for the sake of [Japan’s] exporters is wrong.† Wednesday afternoon in New York, the euro was at $1.4729 from $1.4667 late Tuesday, according to EBS via CQG. The dollar was at Y90.78 from Y91.06. The euro was at Y133.72 from Y133.60. The U.K. pound was at $1.6506 from $1.6495, while the dollar was at CHF1.0306 from CHF1.0340. U.S. economic data released Wednesday, including as-expected August consumer price index and better-than-expected industrial production numbers, pointed to a continuing recovery, leading stocks to rally. The Dow Jones Industrial Average rose 108 points, lending support to the euro and other high-yielders. The dollar looks likely to continue its broad-based slide through the rest of the year, analysts said. As long as the buck doesn’t fall too far too fast, dollar weakness is expected in a time of loose monetary policy, said Adnan Akant, a currency specialist at money manager Fischer Francis Trees & Watts, a New York unit of BNP Paribas. Right now, the euro and other higher-yielding currencies are reaping the benefits of a global economic turnaround and stock market rallies, but within the next 12 months, the dollar should start benefitting from a recovering U.S. economy, said Wells Fargo analysts. The Canadian dollar ended higher near its strongest levels of the day Wednesday, reflecting another sustained flight into riskier assets like stocks and commodities at the expense of the slumping U.S. dollar. The U.S. dollar was trading at C$1.0666 late afternoon, from C$1.0721 late Tuesday. Strong gains for oil, gold and other commodities as well as rising North American equity markets underpinned the Canadian dollar’s gains, although the currency again failed to mount a serious challenge of its year-to-date high at C$1.0639, achieved in early August. Commentary The article refers to a depreciation of the dollar against major currencies due to â€Å"ultra-low interest rates† and increased risk by investors. The Federal Reserve has been cutting interest rates in an attempt to boost aggregate demand and stimulate the economy. High interest rates in an economy generally encourage investment in that currency as the value of the investment will increase over time. Currently US interest rates set by the Federal Reserve are around 0.25% compared to the European Central Bank’s 1%. Because of this, investors have switched to higher yielding currencies, such as the Euro, and to a lesser extent the Pound, causing a fall in the Dollar’s exchange rate. This is shown in Diagram 1. As the diagram shows, a right shift in the supply of the Dollar leads to a fall in its price relative to the Euro. In addition, the aforementioned cutting of interest rates is an expansionary monetary policy used to manipulate aggregate demand. The trade off of this policy is increased inflation. A high rate of inflation might further decrease investment in Dollar assets as the real value of the investment would decrease over time. During times of economic crisis, investors tend to invest in low risk assets such as generally strong currencies like the dollar. However with signs that the global economy is exiting the recession and in recovery, not only does the demand for safe-harbor currencies like the dollar decrease, but there is an increased demand for high risk investment due to bullish speculation. In addition, some consumers, firms, or foreign central banks might believe that despite the improving economic situation, the Dollar will continue to fall as the article mentions and sell dollar assets. This bearish speculation would further increase the supply of the dollar and perhaps lead to self-fulfilling prophecy. As shown above, the combination of the three factors leads to a sharp fall in the exchange rate. As previously mentioned, this depreciation could cause a self-fulfilling prophecy in which the initial bearish speculation leads to depreciation, which in turn causes more bearish speculation causing the exchange rate to enter a downward spiral. Initially, the Federal Reserve might not intervene but if the depreciation continued, it would be forced to buy back Dollars to counteract the increases in supply. This would slow the depreciation, discouraging people from selling dollars. It might even create bearish speculation as some might assume the dollar market will bottom out and start to appreciate. The depreciation of the Dollar should benefit the US economy by means of an improved current account deficit. Initially, the deficit will worsen as the demand for imports and exports is inelastic in the short run, but eventually the current account balance will improve as US exports become more competitive. US export revenue will increase while expenditure will fall. This improved current account situation will boost AD leading to economic growth. This is shown below in Diagram 3. Diagram 3 However, as the diagram shows, in the long run, there will be the trade off of inflation as AD rises. This might encourage Federal Reserve to strengthen the Dollar to reduce imported cost-push inflation. In addition, the increased demand for US exports will increase the demand for the Dollar causing appreciation. Foreign nations might eventually implement import controls such as tariffs on US goods in order to preserve their own current account balances. Eventually, the Dollar should regain its status as a high-yielding currency ——————————————– [ 1 ]. The value of one currency expressed in term of another [ 2 ]. A period in a business cycle following a recession, during which the GDP rises. [ 3]. Believing that a particular security, a sector, or the overall market is about to rise [ 4 ]. Revenue from the exports of goods and services and income flows is less than the expenditure on the import of goods and services and income flows in a given year

The role of women in Japanese Theatre and the portrayal of Japanese Essay

The role of women in Japanese Theatre and the portrayal of Japanese women in western theatre - Essay Example This persona has been carried forward into the Western traditions of portrayals of Japanese females in popular theater which is typified in â€Å"Madame Butterflyâ€Å". The performance of female parts in most Japanese theater is done by male actors. This tradition in both the kabuki and the bunraki is still primarily maintained today. However, the performance of the gidayu is a tradition that has included female performers since the late 16th or early 17th century (Coaldrake, 1997, pp. 13). The performance of the gidayu is similar to the oral traditions of story telling in the Western traditions. However, it is done in a chanting voice that emotes action and the furtherance of the story through a combination of this chanting and of song. The skill of the performer is measured by how well she engages her audience and helps them visualize the play without an actual visual performance. The performance is accompanied by an instrument that is played by the artist. This tradition is part of the geisha traditions and artistries as well as those who are dedicated solely to this type of performance. Traditionally, The Edo period, running from 1603 to 1868 saw a great deal of restrictions in the activities of all people, but even more so for women. During the late Edo period there were attempts to try and suppress global influences that might subvert the Japanese heritage and traditions. One of these attempts was through the suppression of extravagances in art, which included the public performances by women (Coaldrake, 1997, pp. 12). These attempts, however, were largely unsuccessful as seen through the remaining existence of this type of performance in Japan. The onnagata are male performers who portray female parts in the kabuki. The origins of the all male kabuki as the only kabuki did not occur until the early 17th century when in 1629 females were prohibited from performing. Previous to this time all female

European and international business Essay Example | Topics and Well Written Essays - 2000 words

European and international business - Essay Example Globalization has accelerated in recent years, a development that have significant implications for the regulation and governance of international business, trade and investment. International business implies no fundamental shift in the underlying principles of trading or business functions but simply more cross – border transactions .In simpler terms it includes all commercial transactions – private and governmental – between two or more countries. Private companies undertake such transactions for profit; governments may or may not do the same in their transactions International Business comprises a large and growing portion of the world’s total business. The world have seen a tremendous increase in the global transactions and foreign trade in the recent years. The main reason behind this is that now more and more countries are getting engaged in trading with each other in order to increase their profit or sales or protecting them from being eroded by co mpetition. The main objectives which are influencing the companies to engage in international business are expansion of sales, acquiring resources, minimizing competitive risk and diversification of sources of sales and supplies (Johnson & Turner, 2003). Besides these there are few other factors like economic factors, cultural factors, technological factors, and social factors which have influenced to a greater extent.Reasons for recent international business growth:-It’s hard to determine just how much international business has occurred at different times in history. ... -> Development of supporting services -> Increase in global competition Expansion of technology: In recent years, the pace of technological advances has accelerated to greater heights and the knowledge of products and services is available more quickly and widely due to communication and transportation technology. By increasing the demand for new products and services, technology has tremendous impact on international business. As the demand increases, so do the number of international business transactions. The recent technological improvement led to the production of high quality products at lower cost. As a result, the domestic countries have entered foreign countries to find market for their products. Liberalization of cross - border movements: Every country restricts the movement across its borders of goods and services and the resources, such as workers and capital to produce both .These restrictions hinder the international trade and thus the government today has imposed fewer restrictions on cross - border movements in order to facilitate trade. With the enactment of the World Trade Organizations (WTO) in 1995, the restrictions imposed on international trade are diminishing. There are many reasons as for why the government has reduced the restrictions. Few among them are: their domestic products will become more efficient as a result of foreign competition, their citizens expressing the desire for better access to a larger variety of goods and services to lower prices and so on (Rugman & Brewer, Nov 2001). Development of supporting services: Companies and governments have developed services which earn international business. For example, banks have developed efficient means for companies to receive

Search engine industry Essay Example | Topics and Well Written Essays - 750 words

Search engine industry - Essay Example Hence, might create rivalry shift due to intense rivalry and technological advances.Established or major competitors with strong product differentiation and backing like MSN, Yahoo, AOL/Netscape are already on board in this competition. Hence, it will alert potential newcomers to size up and determine if they can match these companies in terms of capital requirements and experience.This market size is just a fraction of the bigger industry if other leading internet companies like Amazon.com and Ebay are included in the analysis. Hence, the US$ 11.8 billion size can be considered as the floor or minimumThe intense competition, however, demands more improvements and more developments with shorter life cycles. This can significantly erode the profitability of the firm for companies like Google must allocate big resources in research and innovation in order to capture the general market.Convergence is the significant factor in the changing search engine industry. Providing highly relevan t search results will no longer be the best talking points. In the long run, it will be considered as standard in the industry. The emerging challenge is how to lump different services around the search engine.Case in point: MSN to incorporate search capabilities to MSN Encarta, MS Outlook, and Internet Explore. Another, Google is integrating other systems like Froogle, Gmail, and Blogger under the blanket search engine. The idea is to be a one-stop shop that will cater to majority of internet users. It means that one need to go to Google to make some

United States Border Control Problems and Solutions Thesis

United States Border Control Problems and Solutions - Thesis Example Alternative programs which help provide solutions to the border control issues in the United States should include three main points: (1) that the program must ensure sufficient control over unauthorized entry and work, or that the program must be a supplement – not a substitute – for illegal activities in the US; (2) that employers must also have sufficient incentive in the hiring of domestic workers before foreign workers are hired; (3) that the program must set forth remedies to ensure that the rights of temporary workers are protected (LoBreglio, p. 958).   The protection of immigrant workers’ rights is an important consideration and requirement in securing successful solutions to the border control issues.   Historically, illegal aliens and even guest workers have not enjoyed bargaining rights in the workplace and political rights as individuals (LoBreglio, p. 958).   Illegal aliens who are mostly economic migrants point out that they do enjoy better l ives in the US and they emphasize that the problem also lies with their own government and in the insufficient opportunities given to them in their native countries.   In order to resolve the problem of illegal aliens, the US needs to coordinate its efforts with other countries, especially with the Mexican and the Canadian government.   The Congress can do this by focusing its attention on specific populations and secure the rights of such population by â€Å"incorporating directly into immigration law the human rights and transparency elements of Canadian and European Union policy† (LoBreglio, p. 959). Congress must also further the protection of guest workers by including provisions for the allocation of funds for state or non-governmental organizations towards education programs which would teach guest workers about their rights and obligations under the US laws (LoBreglio, p. 959).   These programs must also be based on their native language and must focus on their issues and concerns as migrants.   Such programs must also not overly focus on legal terminologies which would not be understood by the migrants; instead, they must focus on giving migrants practical and relatable instructions, especially instructions they would need in order to ensure that their stay in the US would be within legal limits.   Sound education programs can successfully reduce the burden of such aliens to American society and help reintegrate them into their society upon their return to their native countries (LoBreglio, p. 959).  Programs which also attempt to educate the general public in relation to the reasons and consequences of illegal immigration can also help reduce abuse and negative stereotypical thoughts against migrant workers (LoBreglio, p. 960).   Sanctions issued against employers hiring illegal aliens can also help deter or reduce the hiring of aliens.   It is also important to educate employers about the process they can undertake in order to gain legal workers and the repercussions of illegally employing aliens (Lobreglio, p. 960).  The possible passage of a law which specifically protects the rights of illegal immigrants can also be considered by the concerned authorities.   Such law can direct the immigrants in gaining direct access to the Ombudsman or other human rights agencies.   For example, phone numbers for the Immigration Department of the Mexican National Commission for Human Rights can be posted at Mexican alien detention centers (LoBreglio, p. 960).  Ã‚  

Promotional Strategies Essay Example | Topics and Well Written Essays - 1000 words

Promotional Strategies - Essay Example Then, the next most important element of promotion is the targeting factor, which pertains to the way the business would communicate with its customers. Thus, an airline would cope up with the rivals by marketing and promoting itself in the form of both, print and television channels. In order to secure a successful position and share in the market, the organization would try to be extremely cost- efficient and avoid the excess expenditures. Besides this, most of the advertisement in the airline industry is undertaken through the word of mouth advertisements (Anon, n.d.). One of the major success factors for the positioning of the airline company is to be considerate regarding its market positioning. The term’ positioning’ refers to the unique image and the distinguishing position that the business makes of itself in the minds of the consumers. Since, airline is a service industry; it needs to put in extra efforts to provide superior quality services to its customers in order to give rise to a better word of mouth advertisement (Goizueta & Roberto C., 1990). Thus, the company needs to have with it a well-defined and sophisticated model of the business which utilizes the short hauls and single aircraft type for the purpose of positioning itself while keeping its costs low. The lowest possible fares, more routes to be flown, timely flights, excellent services in the plane, and getting the passengers to their destinations quicker are all the services which shall be helpful.... One of the major success factors for the positioning of the airline company is to be considerate regarding its market positioning. The term’ positioning’ refers to the unique image and the distinguishing position that the business makes of itself in the minds of the consumers. Since, airline is a service industry; it needs to put in extra efforts to provide superior quality services to its customers in order to give rise to a better word of mouth advertisement (Goizueta & Roberto C., 1990). Thus, the company needs to have with it a well-defined and sophisticated model of the business which utilizes the short hauls and single aircraft type for the purpose of positioning itself while keeping its costs low. The lowest possible fares, more routes to be flown, timely flights, excellent services in the plane, and getting the passengers to their destinations quicker are all the services which shall be helpful in creating the company’s positioning in front of its competi tors. Moreover, the communication of messages for the purpose of advertisement and publicity of the airline company can easily be delivered through its quality services. The provision of quick services, comfortable environment and the reasonable costs is all what forms the unique image of the company. This strategy, furthermore, assists the company build a positively reinforced image in the minds of the customers (Benady & Simonian, 2005). One of the companies following the above mentioned promotional strategies include Southwest Airlines, which has been able to generate quicker revenues at relatively lower costs. Breakfast Cereals Breakfast cereal is one of the consumer goods which is bought and

Cannabis Use Policy in the USA and Netherlands and Its Implication for Essay

Cannabis Use Policy in the USA and Netherlands and Its Implication for Policy Change in the UK - Essay Example Research studies on cannabis use policies have revealed that easing up on the penalties for using cannabis does not influence the use of other drugs nor does it change people’s outlooks towards the use of drugs. The research studies go on to illustrate that removing the penalties for cannabis use do not sway overall drug use, instead, it diminishes harm on cannabis users (Institute of Medicine 1999, p. 102). As a result, more countries are liberalizing their cannabis use policies and controlling its supply by putting structures in place to monitor drug use. Several states in the USA and Netherlands have adopted such policy changes in which marijuana use has been liberalized. Individuals who use marijuana in small no longer face criminal charges for possession and use of marijuana. Those in possession of large amounts are still liable to be prosecuted. They have, however, placed caps on the maximum amount of marijuana that an individual can possess at any given time. Cannabis is a drug produced from the Cannabis sativa plant and can be used in either of three forms; flower tops; leaves; and herbs. The three forms can then be processed into forms that make them easier to use. It is the most widely used drug globally (Villatoro 2009, p. 287). Cannabis international control was discussed in the United Nations Office of Drug and Crime 1961 single convention on Narcotics Drugs in which many governments signed the convention to make cannabis an illegal drug. It is important to note that despite cannabis possession and use being liberalized in some countries, no country has ever legalized cannabis use and possession. The only respite provided for cannabis users is that formal penalties for use of small amounts of cannabis, that are used personally, have been removed (Robin et al. 2010, p. 24; Spruit 2002, pp. 119-141).

Current Trend in Telecommunications Research Paper

Current Trend in Telecommunications - Research Paper Example One of the sectors that demonstrate this fact clearly is mobile telecommunications which has been growing tremendously over the last decade all around the world, with competitive entry and the setting up of technological standards playing a key part in dissemination of technology (Gruber 2005). The size of the mobile communications industry is growing by the day and the next set of devices that will be availed to consumers will adopt cutting edge technology for better services at even lower costs. The development and growth in technology has been steady from 1G, then 2G, to 3G and now 4G (Mobile Communications, 2007). It was inevitable that these developments would lead to 4G Long Term Evolution, as operators all over the world are tending to shift from voice-driven revenue to broadband and to an extent video (Nolle, 2010). As a result, one of the most exciting fields of study in terms of current trends in the telecommunications industry is 4G LTE wireless networks, where its history , a detailed description of the technology involved, the most probable future trends, the companies involved, the regulatory issues and finally the implications especially with relation to globalization form a good basis of study. Background of Wireless Networks It is important to first study the history of wireless technologies that finally led to the development of 4G LTE. The development of mobile communication technologies has been divided into distinct generations. To begin with there was the 1G, which describes the initial analog mobile phone technology examples of which are the NMT and AMPS technologies (Mobile Communications, 2007). 1G cellular wireless system featured analog modulation and was primarily designed to deliver voice-based services. They were the first to use a cellular system and automatically switch an on-going call (Arunabha et al, 2010). 2G technology then came about, described as the first digital mobile phone systems. 2G enabled users to access digital speech services and data capabilities from their devices, albeit to a limited extent. Examples of 2G technologies include GSM, IS95 CDMA and PDC. An enhanced version of 2G was then developed and dubbed 2.5G availing considerably higher data rates and packet data ser vices. GSM led the way in this with their EDGE and GPRS systems. This is what is mostly available to many users across the world as of now (Mobile Communications, 2007). 2G technologies brought several advantages mainly including improvement of system capacity and voice quality (Holma et al, 2007). The third generation or 3G/UMTS/W-CDMA are designed to give high speed mobile internet, quality services and video telephony (Mobile Communications, 2007). In comparison to 2G, 3G provided higher data speeds, better voice capacity and in an altogether new concept, support for advanced applications such as multimedia services. 3G technologies enabled better voice services, games, browsing and email, streaming multimedia services among others, and thus a clear improvement over 2G (Arunabha et al, 2010). After the 3G technology, operators then envisioned something beyond it; they could adopt HSPA, deploy WiMAX or deploy LTE. LTE provided an option for many operators who had not yet adopted 3 G to bypass HSPA (Arunabha et al, 2010). When it was conceptualized, it was pictured that 4G would provide never before experienced high speed internet with a high capacity, protocol based service that would be available at lower costs per bit. It was to be a combination of several existing technologies optimized for efficacy, including celluart network, wireless LAN, 3G and others, all connected together using relevant

The Bill and In Deep Essay Example for Free

The Bill and In Deep Essay The Bill, shown on ITV1 at around 8. 00, and In Deep shown on BBC1 at around 9. 00, and after the news, are both police dramas. Therefore, they both are targeted to police drama fans. However, there are differences between two. In The Bill, there are lots of different codes and conventions found in typical police dramas. For example, there is a police station, panda cars, uniformed and plain clothed police, who carry out everyday tasks, such as dealing with burglary, assault, and racial abuse. In In Deep, there are also lots of codes and conventions of police drama, but they are different to that found in The Bill. For example, the policemen are plain clothed undercover policemen, there is a secret operation, cover stories, involvement in drugs, and 24 hour surveillance on a potential bad guy, which gives the program more of a gangster police drama feel about it. In The Bill, the narrative structure is very different to that in In Deep. It has very quick scene changes, and lots of intertwining storylines, very like a soap opera, in that there are many storylines going on throughout the episode. This is probably the reason that it is put onto our screens at a primetime slot, and therefore appeals to audiences who prefer the soap genre. Because the episodes are on every week, the budget is lower, so thats why the mainly the same locations are used, and thats why it develops more of a soap formula, as they cannot do really big scenes. In Deep has the narrative structure of a film, rather than a soap. The storyline is focused around one main storyline, with lots of twists coincided with it. It also shows a lot more violence, and more brutal scenes, because it is a series, therefore has a higher budget to film and construct these scenes. The Bill and In Deep has lots of enigma codes. For example, in The Bill, whether a beaten up man will tell on the police man that beat him up, and is a suspect off work with somebody, or is she, likes she says, ill, and in In Deep, will the coppers covering as drug dealers killer the supplys wife. These enigma codes keep up the audience interest in watching to the end of the episode. There is also a fair representation of policemen in both. In The Bill, you get to see more of the policemens personal life, and the question on how much personal life should be brought into the work place. In In Deep, the question is whether them acting as criminals is any better then the actually criminals themselves. All these points keep the watcher interested, and keeps audiences coming back to watch other episodes.

Non-Audit Services (NAS) Impact on Auditor Quality

Non-Audit Services (NAS) Impact on Auditor Quality The provision of Non-Audit Services (NAS) by auditors to their audit clients reduces total costs, increases technical competence and motivates more intense competition. However, the recent corporate collapses in the US, Australia and elsewhere, was surprising our attention. The issue of Enron arouses great concerns on corporate governance revealing the audit independence problem when CPAs provide audit and NAS for the same clients. In the view of the fact, now a days because of NAS, the audit practice is questionable, whereas third parties believe that without independence, there is no value for accounting and auditing practices (Salehi, M., 2009). Therefore, regulatory has been drawn to the issues of auditor provided NAS and audit quality. In fact, these services do not necessarily damage auditor independence or the quality of NAS. Because of that, this paper contributes to seen the impact of NAS on auditor quality. INTRODUCTION OF NON-AUDIT SERVICES Traditionally, audits have provided Certified Public Accountant (CPA) firms with a large percentage of their overall revenues. However, for many years consulting services constituted a relatively minor portion of the firms revenues. In recent years, firms have expanded the scope of services they offer to audit and other clients such as NAS. Today NAS provided more than 50 percent (%) or more of the total revenues earned by the CPA firms. As Accounting Today in USA (2001, April) states, the income of accounting firms in 2000 showed that the proportion of international and national assurance service was 35%, whereas that of tax advisory service and management advisory service accounted for 21% and 44% respectively. It shows that management advisory service has become the source of total income of accounting firms. NAS generally refer to the services above or beyond the related audit services or services other than traditional CPA work. Many scholars in their studies use different terms for some relevant issues, namely Management Advisory Services (MAS) and Management Consulting Service (MCS). According to Purcell and Lifison (2003), NAS as traditional CPA works including assurance, investment assurance, commerce registration and accounting affairs, tax advisory service, management advisory service, finance and investment advisory service, public offering, mergers and acquisitions services, information technology advisory service and others. However, there are three basic principles of the prohibition of specified NAS is predicated: An auditor cannot function in the role of management; An auditor cannot audit its own work; and An auditor cannot serve in an advocacy role for its client. Most of the firms growth comes from NAS that CPAs provide for their clients when dealing with auditing affairs (Purcell and Lifison, 2003). So, what the motivation and attraction in provision of NAS to companies? Firth (1997a) contends that companies usually entrust outside consultants/firms for service in the following situation: One-off assignments Urgent problems Expert techniques Arbitrating initial disputes Seeking advise Decrease the risk overall management The economic causes for offering NAS include; Growth opportunities Personnel attraction and retention Meeting clients needs Risk diversification opportunities The Sarbanes-Oxley Act 2002 states that NAS provided to a client should not be more than 5% of the total auditors remuneration; otherwise, the client must obtain pre-approval from its audit committee, as non-audit fees paid in excess of this percentage would deem the auditor as not being independent. In Malaysia, under Malaysian Institute of Accountant (MIA) suggests that audit firms should not accept any appointment if they are also providing NAS to a client; whereby the provision of NAS would create a significant threat to their professional independence, integrity and objectivity. Effective June 1, 2001, Bursa Malaysia (previously known as Kuala Lumpur Stock Exchange or KLSE) requires all listed companies to disclose non-audit fees in their annual reports. This is to protect shareholders interests and to increase corporate transparency. Consistent with the practices in other Commonwealth countries such as Australia and the United Kingdom (UK), which also have made it a requirement that non-audit fees of listed companies to be disclosed in the annual report. THE ISSUES OF NON-AUDIT SERVICES The main question/issue that arises when auditors provide or could provide both audit and NAS is whether the auditors are able to conduct their audits impartially, without being concerned about losing or failing to gain additional services, and the subsequent economic implications for the audit firm (Lee, 1993). Auditors seek to provide NAS because of the considerable economies of scope that ensue, i.e. cost savings that arise when both types of service are provided by the same firm. However, the result from several researchers show that the joint provision of audit and non-audit services gives rise to economic rents, which create incentives for audit firms to compromise their objectivity, e.g., waive audit adjustments, to retain audit clients (Palmrose 1986; Simunic 1984). For disclosure of NAS, investors should have enough information to enable them to evaluate the independence of a companys auditors. The proposed rules would bring the benefits of sunlight to the auditor independence area by requiring companies to disclose in their annual proxy statements certain information about, among other things, the NAS provided by their auditors and the participation of leased personnel in performing the companys annual audit. Generally a company required to disclose the fee paid for each NAS performed by its auditor and the fee charged for the annual audit. An exception to these general disclosure requirements is that issuers would not have to describe a NAS, nor disclose the fee for that service. In NAS and its independence, England and Australia have asked companies to publish audit and NAS fee in their annual financial report. According to Dopuch et al (2003) found that disclosure of NAS reduced the accuracy of investors beliefs of auditors independence in fact when independence in appearance was inconsistent with independence in fact. THE EFFECT OF NON-AUDIT SERVICES The dramatic increase in the nature, number, and monetary value of NAS that accounting firms provide to audit clients seen may affect their independence. Accordingly, the proposals specify certain NAS that, if provided by an accounting firm to an audit client, impair an auditors independence. Sami and Zhang (2003) investigated the effect of non-audit services on the backdrop of SECs revised rule that stressed perceived audit independence. They suggested that investors perceive that NAS impair auditors independence. According to Defond et.al. (2000) regulators are concerned about two effects of NAS. One is a fear that NAS fees make auditors financially dependent on their clients, and hence less willing to stand up to management pressure for fear of losing their business. The other is that the consulting nature of many NAS put auditors in managerial role. From the SEC regulations mandating fee disclosures (SEC, 2000), Auditors services relationship raises two types of independence concerns. First, more the auditor has at stake in its dealing with the audit client, particularly when the NAS relationship has the potential to generate significant revenues on top of the audit relationship. Second, certain types of NAS, when provided by the auditor, create inherent conflicts that are incompatible with objectivity. While, according to Firth (1997b), synergy would occur between auditor and auditee when an accounting firm provides audit and NAS simultaneously and consequently it would influence independe nce of auditor. Simunic (1984) indicates that CPA providing NAS would decrease the possibility for presenting the true financial statements and would influence the users of the statements on the recognition of CPA independence. It would further affect audit quality, the reliability of financial statements and the judgment of decision-making. How NAS Can Affect Auditor Independence? The dramatic expansion of NAS may fundamentally alter the relationships between auditors and their audit clients in two principal ways. First, as auditing becomes an ever-smaller portion of a firms business with its audit clients, auditors become increasingly vulnerable to economic pressures from audit clients. Large non-audit engagements may make it harder for auditors to be objective when examining their clients financial statements. Under any circumstances, it can be difficult for an auditor to make a judgment that works against the audit clients interest. Where making that judgment may imperil a range of service engagements of the firm, of which the audit is a fairly small part, it may be unrealistic to expect that an auditor can ignore completely what the firm stands to lose by the auditors action. Second, certain NAS, by their very nature, raise independence issues. Providing certain NAS to an audit client can lead an audit firm to have a mutual or conflicting interest with the client, audit its own work, advocate a position for the client, or function as an employee or management of the client. However, not all NAS pose the same risk to independence. Only these specific NAS that impair independence, namely: Bookkeeping or other services related to the audit clients accounting records or financial statements of the company. The prohibited services are: (a) Maintaining or preparing the companys accounting records; (b) Preparing the financial statements or the information that forms the basis of the financial statements that are required by the company and; (c) Preparing or originating source data underlying the companys financial statements. Design and implementation of financial information systems that aggregate source data or generate information that is significant to the financial statements taken as a whole, unless it is reasonable to conclude that the results of these services will not be subject to audit procedures during the audit of the companys financial statements. This rule does not preclude the external auditors from working on hardware or software systems that are unrelated to the companys financial statements or accounting records. Appraisal or valuation services, fairness opinions or contribution-in-kind reports or other opinions or reports in which the external auditors provide an opinion on the adequacy of consideration in a transaction, unless it is reasonable to conclude that the results of these services will not be subject to audit procedures during the audit of the companys financial statements. This rule does not prohibit the external auditors firm from providing such services for non-financial reporting purposes (e.g., transfer pricing studies, cost segregation studies and other tax-only valuations). Actuarial services involving amounts recorded in the financial statements and related accounts for the company where it is reasonably likely that the results of these services will be subject to audit procedures during an audit of the companys financial statements. This prohibition extends to providing the company with any actuarially-oriented advisory service involving the determination of amounts recorded in the financial statements and related accounts for the company other than assisting the company in understanding the methods, models, assumptions and inputs used in computing an amount. Internal audit outsourcing services relating to the internal accounting controls, financial systems or financial statements of the company. This prohibition on outsourcing does not preclude the external auditors from providing attest services related to internal controls, evaluating the companys internal controls during the audit or making recommendations for improvements to the controls, or management from engaging the external auditors to perform agreed-upon procedures engagements related to the companys internal controls. Management functions. This rule prohibits the external auditors from acting, temporarily or permanently, as a director, officer or employee of the company or performing any decision making, supervisory or monitoring function for the company. However, the external auditors may assess the effectiveness of the companys internal controls and recommend improvements in the design and implementation of internal controls and risk management controls. Human resources functions. The external auditors may not seek out prospective candidates for managerial, executive or director positions, act as negotiator on the companys behalf such as determining position, compensation or fringe benefits or other conditions of employment or undertake reference checks of prospective candidates. The external auditors may also not engage in psychological testing or other formal testing or evaluation or recommend or advise the company to hire a specific candidate for a specific job. Broker or dealer, investment adviser, or investment banking services. The external auditors are prohibited from serving as promoter or underwriter, making investment decisions on behalf of the company or otherwise having discretionary authority over the companys investments, or executing a transaction to buy or sell an investment of the company, or having custody of assets of the company. Legal services that could be provided only by someone licensed, admitted or otherwise qualified to practice law in the jurisdiction in which the service is provided. Expert services in an advocacy capacity unrelated to the audit. This precludes engagements that are intended to result in the external audit firms specialized knowledge, experience and expertise being used to support the audit clients positions in adversarial proceedings. This prohibits the external auditors from providing expert opinions or other services to the company or a legal representative of the company for the purpose of advocating the companys interests in litigation, or regulatory or administrative investigations or proceedings. This rule does not however preclude the company from engaging the external auditors to perform internal investigations or fact-finding engagements including forensic work and using the results of this work in subsequently initiated proceedings or investigations. Any other service that the Audit Committee determines is impermissible. According to Zulkarnain (2006), in Malaysia, scholars reported that only a small number of the shareholders and auditors that participated in their study believed that NAS provision increased their confidence in auditor independence. On the other hand, Teoh and Lim (1996) found that the provision of NAS was ranked as the second most important factor that undermines auditor independence. Arrunada (1999) pointed out that joint provision of audit and NAS would reduce overall costs, raises the technical quality of auditing, enhance competition and need not prejudice auditor independence or the quality of NAS, which would ultimately increase auditor independence (Goldman and Barlev, 1974). Based on the standard organization analysis, Arrunada (1999) showed that cost savings gained from the joint provision of audit and NAS will be transferred to customers as a decrease in price in both markets, and also that the provision of NAS would result in an increase in client- and firm-specific assets, where firm-specific assets would always have a positive effect on independence. This argument is supported by Grout et al. (1994), who argued that permitting auditors to perform joint services would reduce auditors dependence on a single client and encourage them to diversify as a consequence. Opponents to the joint provision of audit and NAS claimed that auditors would not perform their audit services objectively and that joint provision would impair perceived independence because ultimately they would be auditing their own work or acting as management (SEC, 2001), and managements power over the auditor could be increased due to auditors reliance on fees received (Canning and Gwilliam, 1999). Thus, it may influence their mental attitude, impartiality and objectivity, and independence of thought and action (Flint, 1988). The year 2002 had seen the biggest corporate collapses in the United States history that have raised lots of questions regarding auditors independence. For example, Arthur Andersen, being the auditor of the three biggest bankruptcies, Enron, WorldCom and Global Crossing, was heavily criticized for the collapses. It is said that Andersen was purportedly stressing more on non-audit services (NAS) than the audit itself. Auditing profession as a whole has been badly blamed for the collapses and changes were being proposed to ensure that audit firms reduce their over-reliance on NAS (The Star, 2002). As a result, to ensure the independence of auditors and to protect the interest of investors, the accounting profession in most countries has come up with a code of ethics as a guidelines for auditors competency and independence. In Malaysia, under MIA rules that become effective January 15, 2002, professional independence is considered impaired if total fees arising from provision of NAS to a client is 20% or more of the audit firms total annual fees received for two or more consecutive years. Before 2001, the regulators in Malaysia emphasized only on the disclosure of audit fees in the companies annual reports, as required by the Companies Act 1965. Several studies have examined whether the provision of non-audit services impairs audit quality. However, the previous studies report seems conflict in the results depending on the proxy of audit quality used. Teoh and Lim (1996) found that the disclosure on non-audit fees would influence and impair audit independence. A survey done by Gul and Teoh (1986) in Malaysia, suggests that the provision of NAS reduces public confidence in auditors independence. The auditor can be interpreted to compromise its independence if the provision of NAS is significantly tied to the issuance of clean audit opinion. Wines (1994) found that the auditors of those companies that received clean reports over the period derived a significantly higher proportion of their remuneration from NAS fees than the auditors of companies that received at least one audit qualification. This finding suggests that auditors are less likely to give qualified reports to clients financial statements when high levels of NAS f ees are involved. Firth (2002) found that companies that have relatively high consultancy fees are more likely to receive a clean audit opinion due to the non-audit work clearing up problem areas at the client company; or it might be due to high consultancy fees, thus impairing auditor independence. Ayoib, Rohami and Nor (2006) suggests that non-Big Five auditors are less independent when issuing audit reports for NAS purchased companies. This is also consistent with the preposition that large auditors are more independent than smaller auditors (DeAngelo, 1981). The results imply that audit opinion is dependent on the amount of NAS fee. It could be argued that small auditors could not resist against management pressure when issuing qualified opinion. Frankel, Johnson and Nelson (2002) suggest that their results provide evidence that auditor independence is compromised when clients pay high nonaudit fees relative to total fees. Securities and Exchange Commissions (SEC) concern about the growth of nonaudit fees relative to audit fees during the 1990s (e.g., see Levitt 2000). The SECs concern that the growth in the provision of nonaudit services compromises audit firm independence is based on the premise that the provision of nonaudit services increases the fees paid to the audit firm thereby increasing the economic dependence of the audit firm on the client. Based on the use of discretionary accruals and earnings benchmarks as proxies for biased financial reporting, Hollis, Ryan and Brian (2003) find evidence supporting the claim that auditors violate their independence as the result of clients paying high fees or having high fee ratios. DeAngelo (1981) models that as the economic bond between the audit firm and client increases the audit firms dependence on the client increases. Nonaudit fees further increase the client auditor bond by increasing the portion of audit firm wealth derived from a client (Simunic 1984; Beck et al. 1988). Nonaudit fees can also threaten independence when clients use them as contingent fees. Magee and Tseng (1990) note that while contingent fees are explicitly prohibited by audit standards, clients can create contingent fees by withholding profitable nonaudit services when the auditor does not allow the client to report its preferred financial condition. Costs and Benefits of Restricting Certain Non-Audit Services (proposals by SEC) There is increasing concern that the growth of NAS provided to audit clients affects the independence of auditors. If investors lose confidence in auditors ability or willingness to provide an unbiased and impartial examination of companies financial statements, then investors trust in the reliability of publicly available financial information, and in the integrity of the securities markets, may be damaged. Currently, accounting firms may not provide certain services to their audit clients without impairing their independence. The Securities Exchange and Commission (SEC) proposals extend and clarify those restrictions that should be used to evaluate the effect of NAS on an auditors independence and by designating certain NAS that if performed by an auditor for an SEC registrant that is an audit client, impair the auditors independence. The SECs proposals on the provision of NAS may affect to: 1. Benefits (a) Investors. For the reasons explained above, the SEC believes that the proposals will enhance auditor independence and thereby enhance the reliability and credibility of financial statements of public companies. SEC expect these benefits to inure primarily to investors who, if the proposals are adopted, should be able to review public companies financial statements with greater assurance that reliance on the statements will lead to more informed investment decisions. (b) Public Accounting Firms. SEC anticipates that the proposals will confer two primary benefits on public accounting firms: The proposals should clarify what NAS may be provided to an audit client without jeopardizing auditor independence. The proposals could improve competition in the market for the provision of NAS by public accounting firms. Because the restrictions on providing NAS to an audit client would apply equally to all accounting firms, the overall impact of the proposed restrictions may be to re-distribute the restricted NAS among the public accounting firms. 2. Costs SEC proposals on NAS may impose costs on issuers and public accounting firms. (a) Issuers. The proposed amendments have the effect of restricting issuers from purchasing certain NAS from their auditors. (b) Public Accounting Firms. Some public accounting firms provide a wide variety of services both to audit and non-audit clients. Our scope of services proposals is likely to affect these firms in several ways. The primary cost for these firms is that they individually may lose one source of revenue because they will no longer be able to sell certain NAS to their audit clients. CONCLUSION In conclusion, evidence suggests that although auditors have market based incentives to remain independent, auditor independence may be threaten when an auditor provide NAS to their clients and is reasonable that the NAS actually impair independence and quality of auditor. Hillison and Kennelley (1988) had recommended three additional alternatives to a total prohibition of NAS provision to audit clients: Offer NAS to non-audit clients only, Prohibit certain types of NAS, or Permit all types of NAS with full disclosure requirements. However, some professional and academic seen it seemed not much enough to protect auditor independence and It would further affect auditor quality. Thus, national and international professions should be redefined accounting and auditing regulation as well as scanted new regulation regarding to NAS and giving clear picture about that services to auditors as well as investors and heavy penalties, to whom overriding these regulation.