Lease Financing

INTRODUCTION Financial Services basically mean all those kinds of services provided in financial terms where the essential commodity is money. These services include: leasing, hire purchase, consumer credit, investment banking, commercial banking, venture capital, insurance, credit rating, bill discounting, and mutual funds , stock broking, housing finance, vehicle finance, mortgages and car loans, factoring among other things. Various entities that provide these services are basically categorized into (a) Non –Banking Finance Companies b) Commercial Banks, and (c) Merchant Banks. Financial Services in India is too vast and varied too have evolved at one place and at one time. One of the main entities that offer financial services in India is Non-Banking Finance Companies. These NBFCs registered with Reserve Bank of India mainly perform fund based services to the customer. Fund based services of NBFCs include: leasing, hire-purchase and other asset based services whereas fee b ased services of NBFCs include bill discounting, portfolio management and other advisory services.LEASE FINANCING Leasing as financial service is a contractual agreement where the owner (lessor) of equipment transfers the right to use the equipment to the user (lessee) for an, agreed period of time in return for a rental. At the end of the lease period the asset reverts back to the lessor unless there is a provision for the renewal of the contract or there is a provision for the transfers of ownership to the lessee. If there is any such provision for transfer of ownership, the deal is treated as hire purchase.Therefore, a lease could be generally defined as – â€Å"A contract where a party being the owner (lessor) of an asset (leased asset) provides the asset for use by the lessee at a consideration (rentals), either fixed or dependent on any variables, for a certain period (lease period), either fixed or flexible, with an understanding that at the end of such period, the as set, subject to the embedded options of the lease, will be either returned to the lessor or disposed of as per the lessor's instructions†. HISTORY AND DEVELOPMENT OF LEASING The history of leasing dates back to 200BC when Sumerians leased goods.Romans had developed a full body law relating to lease for movable and im movable property. However the modern concept of leasing appeared for the first time in 1877 when the Bell Telephone Company began renting telephones in USA. In 1832, Cottrell and Leonard leased academic caps, grown and hoods. Subsequently, during 1930s the Railway Industry used leasing service for its rolling stock needs. In the post war period, the American Air Lines leased their jet engines for most of the new air crafts. This development ignited immediate popularity for the lease and generated growth of leasing industry.The concept of financial leasing was pioneered in India during 1973. The Firs Company was set up by the Chidambaram group in 1973 in Madras. Th e company undertook leasing of industrial equipment as its main activity. The Twentieth century Leasing Company Limited was established in 1979. By 1981, four finance companies joined the fray. The performance of First Leasing Company Limited and the Twentieth Century Leasing Company Limited motivated others to enter the leasing industry. In 1980s financial institutions made entry into leasing business.Industrial Credit and Investment Corporation was the first all India financial institution to offer leasing in 1983. Entry of commercial banks into leasing was facilitated by an amendment of Banking Regulation Act, 1949. State Bank of India was the first commercial bank to set up a leasing subsidiary, SBI capital market, in October 1986. Can Bank Financial Services Ltd. , BOB Financial Service Ltd. , and PNB Financial Services Limited followed suit. Industrial Finance Corporation’s Merchant Banking division started financing leasing companies as well as equipment leasing and fi nancial services.There was thus virtual explosion in the number of leasing companies rising to about 400 companies in 1990. In the subsequent years, the adverse trends in capital market and other factors led to a situation where apart from the institutional lessors; there were hardly 20 to 25 private leasing companies who were active in the field. The total volume of leasing business companies was Rs. 5000 cores in 1993 and it is expected to cross Rs. 10, 000 cores by March 1995. PARTIES OF LEASE FINANCING ELEMENTS IN LEASE STRUCTUREThis is an explanation of the elements in a lease – the parties, asset, rentals, residual value, etc. This section would also elaborate the unique features of a lease as different from a regular financing transaction. 1. The transaction: The transaction of lease of lease is generically an asset-renting transaction. What distinguishes a lease from a loan is that in the latter, what is lent out is money; in a lease, what is lent out is the asset. 2. Parties to a lease: There are two parties to a lease: the owner and the user, called the lessor and the lessee. The lessor is the person who owns the asset and gives it on lease.The lessee takes the asset on lease and uses it for the period of the lease. Any one can be a lessor, and any one can be a lessee, subject to usual conditions as to competence to contract, or holding of properties. Ownership is no pre-condition for Technically, in order to be a lessor, one does not have to own the asset: one has to have the right to use leasing: the asset. Thus, a lessee can be a lessor for a sub-lessee, unless the parent lessor has restricted the right to sub-lease. 3. The leased asset: The subject of a lease is the asset, article or property to be leased.The asset may be anything – an automobile, or aircraft, or machine, or consumer durable, or land, or building, or a factory. Only tangible assets can be leased – one cannot contemplate the leasing of the intangible assets, s ince one of the essential elements of a lease is handing over of possession, along with the right to use. Hence, intangible assets are assigned, whereas tangible assets may be leased. The concept of leasing will have the following limitations: 1. What cannot be owned cannot be leased. Thus, human resources cannot be â€Å"leased†.Leasing of immovable properties may have complications: 2. While lease of movable properties can be affected by mere delivery, immovable property is incapable of deliveries in physical sense. Most countries have specific laws relating to transactions in immovable properties: if such law provides a particular procedure for a lease of immovable or real estate, such procedure should be complied with. For example, in Anglo-Saxon legal systems (UK, Australia, India, Pakistan, etc. ), transactions in real estate are not valid unless they are effected by registered conveyance.This would apply to lease of land and buildings, and permanent attachments to land . 3. A lease is structurally a rental for the lease period: with the understanding that the asset will be returned to the lessor after the period. Thus, the asset must be capable of re-delivery: it must be durable (at least during the lease period), identifiable and severable. Leased asset is a necessary pre- condition: The existence of the leased asset is an essential element of a lease transaction – the asset must exist at the beginning of the lease, during the lease and at the end of the lease term.Non-existence of the asset, for whatever reason, will be fatal to the lease. 4. Lease period: The term of lease, or lease period, is the period for which the agreement of lease shall be in operation. As an essential element in a lease is redelivery of the asset by the lessee at the end of the lease period, it is necessary to have a certain period of lease. During this certain period, the lessee may be given a right of cancellation, and beyond this period, the lessee may be given a right of renewal, but essentially, a lease should not amount to a sale: that is, the asset being given permanently to the lessee.In financial leases, is common to differentiate between the primary lease period and the secondary lease period. The former would be the period over which the lessor intends recovering his investment; the latter intended to allow the lessee to exhaust a substantial part of the remaining asset value. The primary period is normally non-cancelable, and the secondary period is normally cancelable. 5. Lease rentals: The lease rentals represent the consideration for the lease transaction. This is what the Lessee pays to the Lessor.If it is a financial lease transaction, the rentals will simply be the recovery of the lessor's principal, and a certain rate of return on outstanding principal. In other words, the rentals can be seen as bundled principal repayment and interest. If it is an operating lease transaction, the rentals might include several elements dep ending upon the costs and risks borne by the Lessor, such as: * If the lessor is bearing any repairs, insurance, maintenance or operation Costs, them charges for such cost. Depreciation in the asset. * Interest on the lessor's investment. * Servicing charges or packaging charges for providing a package of the above service. 6. Residual value: Put simply, â€Å"residual value† means the value of the leased equipment at the end of the lease term. If the lease contains a buyout option with the lessee, residual value would mostly mean the value at which a lessee will be allowed to buy the equipment.If there is no embedded purchase option, residual value might mean the value that the lessee or someone else assures will be the minimum value of the equipment at the end of the lease term. This is typical in case of financial leases where the lessor cannot grant a buyout option to the lessee; for the lessor to protect himself against asset-based risks, he would take an assured residua l value commitment either from the lessee himself or from a third party, typically an insurance company.The residual value might also the value that the lessor assures to pay-back to the lessee in case the lessee returns the asset to the lessor: that is, it might be the value the lessor assures as the minimum value of the equipment. Such a lease, obviously an operating lease because the lessor is taking a risk on asset values, is a full payout lease, but the lessor agrees to refund the guaranteed value on the lessee returning the equipment at the end of the lease term. 7. End-of-term options: The options allowed to the lessee at the end of the primary lease period are called end-of-term options.Essentially, one, or more, of the following options will be given to the lessee at the end of the lease term: †¢Option to buy (buyout option) at a bargain price or nominal value (typical in a hire-purchase transaction), called bargain buyout option †¢Option to buy at a fair market v alue or fixed, but substantial value †¢Option to renew the lease at nominal rentals, called bargain renewal option †¢Option to renew the lease at fair market rentals or substantial rentals †¢Option to return the equipment In any lease, which option will be suitable depends on the nature of the lease transaction, as also the applicable regulations.For example, in a full payout financial lease, the lessor would have recovered the whole or substantially the whole of his investment during the primary lease period. Therefore, it is quite natural that the lessee should be allowed to exhaust the whole of the remaining value of the equipment. Regulation permitting, the lessor provide the lessee a bargain purchase option to allow the lessee to complete the purchase of the equipment. Buyout option may characterize the lease However, in many jurisdictions, it is the existence of such buyout option that demarcates between lease and as hire-purchase: hire-purchase transaction.If t he lessor is interested to structure the lease as a lease and not hire-purchase, he would be advised not to provide any buyout option, but Instead, to allow the lessee to renew the lease to continue the use of the asset. In essence, a renewal option achieves the same purpose as a purchase, but the lessor retains his ownership as also his reversionary interest in the equipment. Fair market value options, either for purchase of equipment, or for renewal, are typical of operating leases, but are really speaking no more than assuring to the lessee a continued use of the equipment.If equipment has to be bought at its prevailing market value, it can be bought from the market rather than from the lessor – therefore, the fair market value option carries no value for the lessee. 8. Upfront payments: Lessors may require one or more of the following upfront, that is, instant payments from a lessee: †¢Initial lease rental or initial hire or down payment †¢Advance lease rental à ¢â‚¬ ¢Security deposit †¢Initial fees Margins in leases are taken as initial rental: The initial lease rent or initial hire (the word hire is more common in case f hire-purchase transactions) is a surrogate for a margin or borrower contribution in case of loan transactions. Note that given the nature of a lease or hire-purchase as asset-renting transaction, it is not possible to expect a lessee's contribution to asset cost as such. Hence, the down payment or first lease rent serves the purpose of a margin. Between advance lease rent and initial lease rent – the difference is only technical. The whole of the initial lease rental is supposed to be appropriated to income on the date of its receipt, whereas advance rental is still an advance – normally an advance against the last few rentals.Therefore, the advance rental will remain as a deposit with the lessor to be adjusted against the last few rentals. Types of Lease Agreements Lease agreements are basically of two types. They are (a) Financial lease and (b) Operating lease. The other variations in lease agreements are (c) Sale and lease back (d) Leveraged leasing and (e) Direct leasing. FINANCIAL LEASE Long-term, non-cancellable lease contracts are known as financial leases. The essential point of financial lease agreement is that it contains a condition whereby the lessor agrees to transfer the title for the asset at the end of the lease period at a nominal cost.At lease it must give an option to the lessee to purchase the asset he has used at the expiry of the lease. Under this lease the lessor recovers 90% of the fair value of the asset as lease rentals and the lease period is 75% of the economic life of the asset. The lease agreement is irrevocable. Practically all the risks incidental to the asset ownership and all the benefits arising there from are transferred to the lessee who bears the cost of maintenance, insurance and repairs. Only title deeds remain with the lessor. Financial lea se is also known as ? apital lease‘. In India, financial leases are very popular with high-cost and high technology equipment OPERATING LEASE An operating lease stands in contrast to the financial lease in almost all aspects. This lease agreement gives to the lessee only a limited right to use the asset. The lessor is responsible for the upkeep and maintenance of the asset. The lessee is not given any uplift to purchase the asset at the end of the lease period. Normally the lease is for a short period and even otherwise is revocable at a short notice.Mines, Computers hardware, trucks and automobiles are found suitable for operating lease because the rate of obsolescence is very high in this kind of assets. Differentiation  Between  Operating  lease  and  Financial  Lease BASIS| FINANCIAL| OPERATING| Meaning| Long-term, non-cancellable lease contracts are known as financial Leases. | A Lease which is a short term one and one which does not cover the useful life on a n asset is called an operating lease. Form| In this type of lease, money is provideby lessor and the asset is purchaseform outside| The lessor is carrying on business of leasing and he holds such assets or is a manufacturer of such asset leases its asset| Maintenance| The lessee undertakes the maintenanceof the asset, paying insurance premiumetc. | In this type of lease, repairs and Maintenance is done by the lessor. | Risk ofObsolescence| In this types of lease, the lessee bearsthe risk obsolescence, so far as heUses the asset. In this types of lease, the lessor Bears the risk obsolescence during the period of the lease| Period of Lease| Period of lease – whole useful life ofAsset. | Period of lease – for short time. | Option to Buy| Option to buy for lessee. | Period of lease – for shot time| Accounting| EntriesAccording to the internationalaccounting standard-17, an entry is made in the balance sheet of the lessee on both the side| No entry is made in the bal ance sheet ofthe lessee under this type of lease,because lease is in the form of a hiredasset| 3. Sale and Lease back: It is a sub-part of finance lease.Under this, the owner of an asset sells the asset to a party (the buyer), who in turn leases back the same asset to the owner in consideration of lease rentals. However, under this arrangement, the assets are not physically exchanged but it all happens in records only. This is nothing but a paper transaction. Sale and lease back transaction is suitable for those assets, which are not subjected depreciation but appreciation, say land. The advantage of this method is that the lessee can satisfy himself completely regarding the quality of the asset and after possession of the asset convert the sale into a lease arrangement.The sale and lease back transaction can be expressed with the help of the following figure. ? The owner (Lessee) of the equipment sells it to a Leasing company (Lessor). ? The Lessor, leases the equipment back to the Lessee. ? Under this arrangement, the assets are not physically exchanged but it all happens in records only. ? The seller assumes the role of a lessee and the buyer assumes the role of a lessor. ? The seller gets the agreed selling price and the buyer gets the lease rentals. Two sets of cash flows occur: The lessee receives cash today from the sale. ? The lessee agrees to make periodic lease payments, thereby retaining the use of the asset. 4. Leveraged Lease: Under leveraged leasing arrangement, a third party is involved beside lessor and lessee. The lessor borrows a part of the purchase cost (say 80%) of the asset from the third party i. e. , lender and the asset so purchased is held as security against the loan. The lender is paid off from the lease rentals directly by the lessee and the surplus after meeting the claims of the lender goes to the lessor.The lessor, the owner of the asset is entitled to depreciation allowance associated with the asset. ? 3 parties to the transact ion. ? Lessor ( Equity investo ? Lender ? Lessee ? The Leasing company (Equity investor) ? buys the equipment, through substantial borrowing, and ? with full recourse to the Lessee and without recourse to it. ? The Lender obtains an assignment of the Lease and a first mortgage of the equipment. 5. Direct Lease ? Under direct leasing, a firm acquires the right to use an asset from the manufacturer directly. The ownership of the asset leased out remains with the manufacturer itself. ? Bipartite Lease – Equipment supplier-cum-Lessor and Lessee. ? Tripartite Lease (Sales-aid-Lease) – Equipment supplier, Lessor and Lessee. Single Investor Lease †¢Only two parties – Lessor and Lessee. †¢Leasing company (Lessor) funds the entire investment, having appropriate mix of Equity-cum-Debt Finance raised by the Lessor, is without recourse to the Lessee Risk Assessment of a Lessee The first step in structuring a lease is for the lessor to evaluate and then quantify th e risk inherent in the lease.Risk results from the degree of credit worthiness of the lessee combined with the collateral and residual value of the equipment to be leased. In general if the lessor deems a lease risky, any of the following variables might be affected: 1. Lease yield increased with all other factors except payment amount remaining constant 2. Additional advance payments required. 3. Security deposit required or increased. 4. Guaranteed residual required in lieu of a purchase option. 5. Lease term shortened. 6. Personal guarantee required. 7. Additional collateral beyond the leased equipment. . Increased late fees for delinquent rental payments (5% if 10 days late plus18% interest for e. g. ) 9. Security interest obtained to facilitate repossession 10. All insurable risk insured. Assignment of the risk inherent in a lease transaction is primarily a credit Worthiness decision. Many lessors as well as bankers or other moneylenders base their evaluation of risk on the 10 C’s. They are: ? Character ? Capacity ? Capital ? Credit ? Conditions ? Competition ? Collateral ? Cross-border ? Complexity ? Currency Lessor RequirementsOnce the lessor has assessed the risk and credit worthiness of the lessee and converted that into structuring variables, the lessor must look to its remaining needs and then to the requirements of the lessee. Meeting the sometimes conflicting needs of the lessor and lessee represents the more difficult part of lease structuring. Sometimes a lessor will insist on structuring an operating lease in order to retain tax benefits while at the same time the lessee desires a capital lease so it too may avail itself of the depreciation and tax benefits.Typical lessor requirements that might be at variance with lessee needs in lease structuring are: ? A yield sufficient to meet the lessor’s after-tax weighted cost of capital ? accounting for the lease on the lessor’s books as a capital lease. ? Tax structure of the agre ement as an operating lease to obtain tax benefits. ? a net lease rather than a full service lease ? Residual dependence- the lessor may want the equipment purchased by the lessee to avoid resale problems. On the other hand the lessor may want the equipment returned at the end of the lease due to its increased value.Advantages of ‘LEASING’ to ‘LESSEE’ There are several extolled advantages of acquiring capital assets on lease: (1) Saving of capital: Leasing covers the full cost of the equipment used in the business by providing 100% finance. The lessee is not to provide or pay any margin money as there is no down payment. In this way the saving in capital or financial resources can be used for other productive purposes e. g. purchase of inventories. (2) Flexibility and Convenience: The lease agreement can be tailor- made in respect of lease period and lease rentals according to the convenience and requirements of all lessees. 3) Planning Cash Flows: Leasing enables the lessee to plan its cash flows properly. The rentals can be paid out of the cash coming into the business from the use of the same assets. (4) Improvement In Liquidity: Leasing enables the lessee to improve their liquidity position by adopting the sale and lease back technique. (5) Shifting of Risk of Obsolescence: The lessee can shift the risk upon lessor by acquiring the use of asset rather than buying the asset. (6) Maintenance and Specialized Services: In case of special kind of lease arrangement, Lessee can avail specialized services of lessor for maintenance of asset leased.Although lessor charges higher rentals for providing such services, lessee’s overall administrative and service costs are reduced because of specialized services of the lessor. (7)Off-The-Balance-Sheet-Financing: Leasing provides â€Å"off balance sheet† financing for the lessee, in that the lease is recorded neither as an asset nor as a liability. Disadvantages of ‘LEASINGâ⠂¬â„¢ to ‘LESSEE’ (1) Higher Cost: The lease rental include a margin for the lessor as also the cost of risk of obsolescence, it is, thus regarded as a form of financing at higher cost. 2) Risk of being deprived the use of asset in case the leasing company winds up. (3) No Alteration In Asset: Lessee cannot make changes in asset as per his requirement. (4) Penalties On Termination Of Lease: The lessee has to pay penalties in case he has to terminate the lease before expiry o lease period. Advantages of ‘LEASING’ to ‘LESSOR’ (1) Higher profits: The lessor can get higher profits by leasing the asset. (2) Tax Benefits: The lessor being owner of asset can claim various tax benefits such as Depreciation. 3) Quick Returns: By leasing the asset, the Lessor can get quick returns than investing in other projects of long gestation period. Disadvantages of ‘LEASING’ to ‘LESSOR’ (1) High Risk of Obsolescence: The lessor has to bea r the risk of obsolescence as there are rapid technology changes. (2) Price Level Changes: In case of inflation, the prices of asset rises but the lease rentals remain fixed. (3) Long term Investment: Leasing requires the long term investment in purchase of an asset, and takes long Time to cover the cost of that assetHire purchase financing Hire purchase is a popular financing mechanism especially in certain sectors of Indian business such as he automobile sector. In hire purchase financing, there are three parties: the manufacturer, the hiree and the hirer. The hiree may be a manufacturer or a finance company. The manufacturer sells asset to the hiree who sells it to the hirer in exchange for the payment to be made over a specified period of time. A hire purchase agreement between the hirer and the hiree involves the following Three conditions: ?The owner of the asset (the hiree or the manufacturer) gives the Possession of the asset to the hirer with an understanding that the hirer will pay the agreed installments over a specified period of time. ? The ownership of the asset will transfer to the hirer on the payment of all installments. ? The hirer will have the option of terminating the agreement any time before the transfer of ownership of the asset. Thus for the hirer the hire purchase agreement is like a cancelable lease with a right to buy the asset.The hirer is required to show the hired asset on his balance sheet and is entitled to claim depreciation, although he does not own the asset until full payment has been made. The payment made by the hirer is divided into two parts: interest charges and repayment of principal. The hirer thus gets tax relief on interest paid and not the entire payment. How does hire purchase work? When a customer buys goods on hire purchase there are three parties involved ? The customer – who buys the goods ?The retailer – who sells the goods The finance company – who provides the finance You make the init ial agreement with the customer. Once the security agreement has been signed you are likely to assign the agreement (including your security interest in the goods) to the finance company. The customer makes payments to the finance company. Whether the security interest will revert back to you will depend on the terms and conditions of your agreement with the finance company. The normal tripartite hire purchase process between the dealer, customer and the finance company is as follows: ?When the business connection between the finance company and the dealer is first established a master agreement may be drawn up regulating the conditions upon which the finance company is prepared to consider the hire purchase transactions submitted by the dealer. ?After the customer has selected the goods he desires to acquire on hire purchase, the dealer arranges for him to complete the schedule to a form of hire purchase agreement. The larger finance companies have theirown standard forms of printe d agreement. In the schedule to the hire purchase agreement the dealer will insert the hirer’s name, address, occupation, and certain other details indicating his financial standing. It is also the dealer’ responsibility to insert details about the price and the installments payable. ? The intending hirer is often required to make a down payment as an indication of the customer’s financial reliability. The deposit or down payment is usually paid to the dealer at the time the proposal form is completed and is normally retained by him as a payment on account of the price to be paid to him by the finance company. The deposit having duly paid the dealer sends the appropriate set of documents to the finance company, requesting the company to purchase the designated goods from him. ?If the finance company decides to accept the transaction, the hire purchase agreement is signed by one of its officers and a copy dispatched to the hirer with instructions as to the mode o f the installments. At the same time as a copy is sent to the hirer, the finance company notifies the dealer that the proposal has been accepted and that it is in order for the dealer to deliver the goods, if he has not already done so. Upon notification of acceptance the dealer delivers the goods to thehirer and obtains the hirer’s signature to a form of delivery receipt constituting an acknowledgement by the hirer that he has received the goods in proper condition. ?The hirer makes payment of hire installment throughout the period of hire ? On completion of the hire term, the finance company issues to the dealer a completion certificate whereupon the hirer becomes the owner of the asset. Key features of Hire Purchase: ? Repayment schedules are flexible. An Offer to Hire can be arranged with no deposit or an amount that suits you. ? Balloon payments at the end of the term can be arranged. ? Esanda owns the goods until the final payment is made, at which point you gain automa tic ownership. ? the interest component of the rental and depreciation on the equipment are tax deductible, provided it is used to produce assessable income or the expense is necessarily incurred in carrying on a business. DIFFERENE BETWEEN Hire  purchase AND Lease  financing Hire  purchase| Lease  financing| 1. Depreciation-  Ã‚  Ã‚  Hirer  Ã‚  Ã‚  is  Ã‚  Ã‚  entitled  Ã‚  Ã‚  toclaim  depreciation. 1. Depreciation-  lessee  is  not  entitledto  claim  depreciation. | 2. Payments-  Ã‚  hirer  Ã‚  can  Ã‚  charge  Ã‚  onlyinterest  Ã‚  Ã‚  Ã‚  Ã‚  portion  Ã‚  Ã‚  Ã‚  Ã‚  of  Ã‚  Ã‚  Ã‚  Ã‚  hire  Ã‚  Ã‚  Ã‚  Ã‚  purchasepayments  Ã‚  Ã‚  Ã‚  Ã‚  as  Ã‚  Ã‚  Ã‚  Ã‚  expenses  Ã‚  Ã‚  Ã‚  Ã‚  for  Ã‚  Ã‚  Ã‚  Ã‚  taxcomputation. | 2. Payments-  Ã‚  lessee  Ã‚  can  Ã‚  charge  Ã‚  theentire  lease  payments  as  expenses  fortax  computation. | 3. Salvage  Ã‚  value-  Ã‚  Once  Ã‚  the  Ã‚  hirer  Ã‚  haspaid  Ã‚  all  Ã‚  installments;  Ã‚  he  Ã‚  becomes  Ã‚  theowner  Ã‚  of  Ã‚  the  Ã‚  asset  Ã‚  and  Ã‚  can  Ã‚  claim  Ã‚  itssalvage  value. | 3. Salvage  Ã‚  value-  Ã‚  Lessee  Ã‚  does  Ã‚  notbecome  Ã‚  Ã‚  Ã‚  the  Ã‚  Ã‚  Ã‚  owner  Ã‚  Ã‚  Ã‚  of  Ã‚  Ã‚  Ã‚  the asset. Therefore  Ã‚  he  Ã‚  has  Ã‚  no  Ã‚  claim  Ã‚  over  Ã‚  theasset’s  salvage  value. Principle of hire purchase 1. Consumer installment credit The ground for distinction here is whether the goods are producer goods or consumer goods. Finance provided to consumers for acquisition of consumer durables is called installment credit. Installment credit for consumers is usually extended in one of the following forms: (a) Personal loan: this is made directly by the lending a dealer may introduce company through the consumer. The loan may be unsecured or secured. E. g. by a mortgage on the borrower’s property. b) Hire purchase or conditional sale: here funds are advanced for the acquisition of particular goods, which the customer take under a hire-purchase or conditional sale agreement, acquiring title on completion of payment. Where title is reserved in this way the agreement usually used is a hire purchase agreement, though some companies use conditional sale agreements. Retail hire purchase agreements take three different forms namely ? Direct collection- the dealer sells the goods to the finance house, which lets them out on hire purchase to the customer.This is the most common form of installment financing and is known in the trade as ‘direct collection’ because the installments are collected under a hire-purchase agreement concluded direct between the finance house and the hirer, as opposed to an agreement between the dealer and the hirer which is later discounted under block-discounting agreement. Usually the finance house collects the installments itself from the hirer, and the dealer d rops out of the transaction. Such transactions are called ‘non-recourse’ for the dealer. ? Agency collection: this is a variant of direct collection.As before the dealer sells goods to the finance company but in this case signs the agreement himself as undisclosed agent for the finance company and as such agent collects installments on behalf of the company, usually in return for appropriate commission. Because the agreements are in practice handled in blocks, this form of hire purchase is also misleadingly referred to as agency block discounting, though it is not a form of block discounting at all since there is no assignment of the agreement by the dealer to the finance company and the dealer is acting merely as an agent. Block discounting: in this case the dealer enters into the hire purchase agreement direct with the customer and later discounts it to the finance company. Agreements are usually discounted in blocks at a time; hence it is called block discounting. On ce the agreement is discounted the finance company becomes entitled to receive rentals from the hirer concerned but quite commonly, in order not to disturb the business relationship existing between the dealer and his customer, the dealer is made responsible for collecting the installments and remitting these to the finance company. c) Credit sale: here the title passes to the customer from the outset. Again the agreement may be with the finance house from the beginning or it may be entered into between the dealer and customer direct and later assigned by the dealer to the finance house. (d) Rental: the renting of domestic goods is fast developing as a form of installment credit. It is increasingly the practice and to a very larger extent in the U. S. , of finance houses to enter direct into rental agreements relating to domestic goods. DOCCUMENTS IN HIRE PURCHASEAll the parties must sign a hire purchase agreement and the agreement, among other things, must specify the date when the hiring commences, the number of installments, the amount of each installment, the time for the payment of each installment, the description of the goods and where the goods are kept. Note that the agreement must be in writing. An oral agreement is not a valid hire purchase agreement. Benefits of Hire Purchase ? Retention of cash flow ? Regular Payments ? Existing credit lines preserved ? Cost of acquisition spread overtime ? Repayment schedules can be structured to suit your cash flow. You can obtain the use of goods for minimal cash outlay, so working capital is not significantly affected. ? You may be able to make use of the taxation benefits of hiring. The Hire Purchase Agreement When you buy goods on hire purchase, you and the seller sign a written agreement. ? How many agreements will be made ? How often to pay ? The amount to pay ? When to pay ? Where to pay ? The name and address of the seller Other information in the hire purchase agreement ? What happens if payment is not made as agreed ? The right to repossess goods if one fails to make payments on time ?One’s obligation to keep the goods safe and in good order ? How to return the goods if one cannot pay. This information may be in the fine print on the back of the agreement. If any of this information is missing from the agreement one may not be liable for some of the cost of credit. The agreement cannot be enforced until the required information has been supplied. Lease Financing in Bangladesh: Bangladesh is a developing country, but the national calamity and political unrest sluggish the industrial growth as well as economic growth of the country.In spites of all these hindrance the growth of leasing companies is a significant indication of our bright prospects. Lease financing was first introduced in Bangladesh in the early 1980s. Industrial Development Leasing Company of Bangladesh Ltd. (IDLC), the first leasing company of the country, was established in 1986 under the regulatory framewo rk of BANGLADESH BANK. It was a joint venture of the Industrial Promotion and Development Company of Bangladesh Ltd. (IPDC), International Finance Corporation, and Korea Development Leasing Corporation.Another leasing firm, the UNITED LEASING COMPANY Ltd. started its operations in 1989. The number of leasing companies grew quickly after 1994 and by the year 2000, rose to16. The leasing business became competitive with the increase in the number of companies and wider distribution of their market share. There are, however, 6 other companies conducting leasing business in the country, although they do not use the word leasing in their names. In terms of money value, the leasing business in Bangladesh increased from Tk 41. 44 million in 1988 to Tk 3. 6 billion in 2000. The leasing companies now operating in the country are Industrial Development Leasing Company of Bangladesh, United Leasing Company, GSP Finance Company (Bangladesh), Uttara Finance and Investments, Bay Leasing and Inves tment, Phoenix Leasing Company, Prime Finance and Investment, International Leasing and Financial Services, Union Capital, Vanik Bangladesh, Peoples Leasing and Financial Services, Bangladesh Industrial Finance Company, UAE-Bangladesh Investment Company, Bangladesh Finance and Investment Company, and First Lease International.Lease financing, as organized in Bangladesh, operates with the following objectives: (a) to assist the development and promotion of productive enterprise by providing equipment lease financing and related services; (b) to assist in balancing, modernization, replacement and expansion of existing enterprises; (c) to extend financial support to small and medium scale enterprises; (d) to provide finance for various agriculture equipment; and (e) To activate the capital market byOperating as managers to the issue, underwriters, or portfolio managers. The functions of a lease business include lease financing, short-term financing, house building financing, and mercha nt banking and corporate financing. In this last group of functions, the leasing business in Bangladesh moved away from regular leasing activities and is now involved in stock-market related activities such as issue management, underwriting, trust management, private placement, portfolio management, and mutual fund operation.Broad capital market operations of the lease financing institutions include bridge financing, corporate counseling, mergers and acquisition, capital restructuring, financial engineering, and lease syndication. Prominent among the sectors of the economy that now receive lease financing services are textiles, apparels and accessories, transport, construction and engineering, paper and printing, pharmaceuticals, food and beverage, chemicals, agro-based industries, telecommunications, and leather and leather products.Commercial banks and development finance institutions (DFIs) have been the traditional lending institutions in Bangladesh. In fact, the concept of leas e financing is a relatively new one in the country. Initially, leasing companies had to adopt the role of educators to make Bangladeshi entrepreneurs aware of the benefits of leasing. However, as DFIs demonstrated poor recovery and fund recycling performances, leasing got the opportunity to develop as an alternative source of funding.A few other factors also contributed to development of the leasing business in the country. For example, the commercial banks have been keener in providing trade financing and FOREIGN EXCHANGE dealings rather than long-term loans because of the risks involved and their longer gestation period. The selection of lease proposals is relatively free from extraneous pressure and is subject to a quality level appraisal. Under lease agreements in the private sector, projects are sanctioned and implemented expeditiously, resulting in benefits in time and cost savings.Private leasing companies also attract clients by providing relatively better services. The down payments in leasing are not high and the gestation period is low. Also, in case of lease financing, incidental costs incurred in the process of import clearing, installation, and commercial production are capitalized, which substantially reduce the initial investment. Leasing companies, however, face some problems in conducting their business in the country. The relatively slow growth of the demand side compared to the fast growth of the lease business is one such problem.This leads many leasing companies to operate in partial capacity. The culture of loan default that prevails in the country is also a deterrent. Leasing companies often find it difficult to raise funds through short- or long-term borrowing from money and capital markets. They are hard pressed to deal with the financial assets because of the present laws of the country, which are also not fully enforceable. Leasing business is gaining increased importance in the economy of Bangladesh with its gradual transformation from an agrarian to industrial one.The government periodically revises the trade and industrial policy to create a liberal business environment both for domestic and foreign investment. Increased investment in the energy sector as well as in power, transport, telecommunications, water and sanitation, and safe disposal of wastes is expected to bring further opportunities for leasing industries. The traditional sources of funds of our country in the financial market are – the Commercial Banks, DFIs and the stock exchange. But these sources are not enough to effectively meet the growing demand of capital investments for industrialization of the country.And the backdrop of such scenario, leasing companies came forward in the 80s to serving as an alternative source of financing. At present there are 11 leasing companies operating there business. The name of the leasing companies: 1. Industrial Development Leasing Company of Bangladesh Ltd. IDLC 2. United Leasing Company 3. Uttara Finance & Investment company Ltd. 4. Phonenix Leasing Company Ltd 5. Bay leasing & Investment Ltd. 6. International Leasing & Finance Company Ltd. 7. GSP Finance company (BD) Ltd. 8. Prime Finance & Investment Ltd. 9. Vonike 0. Prime Bank Ltd. COMPANIES AT A GLANCE IDLC: Industrial Development Leasing Company of Bangladesh limited is established in 1985 as a joint venture public Limited Company with the multinational collaboration of International Development Finance Institution ,Commercial Banks, Insurance Company and Foreign Leasing Corporation. During the past fourteen years of its operation, IDLC has played a catalytic role in providing alternative source of term and capital asset financing to the private sector.IDLC’s primary focus has been in the area of 3-5 year term financial leasing with particular emphasis on balancing, modernization, replacement and expansion (BMRE) of existing units. With its pioneering vision IDLC has not only established lease financing as an ef ficient and quality financial service but also laid the foundation for the creation of ten other leasing companies. Today lease financing has grown to be an industry of Taka 3. 5 billion per annum.IDLC and its institutional shareholders have upheld their commitment towards the development of the financial service sector by offering high quality service to local entrepreneurs. To ensure steady and long term growth as well as to sharpen its competitive edge in a changing and challenging business environment. Short-term Finance which have broadened its customer base and are expected to contribute significantly to IDLC’s growth and profitability. IDLC established its first branch office in Chittagong in 1990. In January 1993, the company offered its shares to the public.In terms of market capitalization, it is ranked among the top 20 listed companies in both Dhaka and Chittagong Stock Exchange. Services offered by IDLC: Lease Financing: IDLC provides lease financing for all types of manufacturing and service equipment including vehicle, computer and medical equipment to all the major industrial and service sector. Short Term Finance: With an objective to provide solution to working capital problems, STF Unit provides different financial services to clients.Emphasis is given to identifying clients’ actual need and in providing customized service to cater them. House Financing: IDLC extends loan facilities to Individuals for purchase of apartments, Business houses professionals for purchase of commercial spaces (office space chamber display center etc. ) Bangladesh Finance and Investment Company Limited (BFICL): A non-banking finance company incorporated in Bangladesh on 10 May 1999 as a public limited company. It began business on 15 February 2000. It’s authorized and paid up capital are Tk 500 million and Tk 23 million respectively.The capital is divided into ordinary shares of Tk 100 each. Major business objectives of the company are carrying out direct trade, term and working capital financing, equity participation, housing finance, fund management,financial and industrial counseling and merchant banking activities of all types. Main sectors in which the company has targeted to lease and invest are transport, electric and electronic goods (including computers), leather, textile, printing, marine vehicles and equipment, steel and engineering, fishing boats and trawlers, medical equipment and small scale industries.BFICL purchases property in its own name and pays 60% to 70% of the total price of a particular property to its supplier. After accumulating and adding all other elevant/ incidental costs with the original purchase price such as transportation, insurance premium, and costs related to letter of credit, and the rent or profit/income margin, the company determines the lease price of the property. Then it signs lease contracts with the lessee, generally for two to four years, and hands over the properties to him f or use.The lease contracts require security or collateral from the lessee in various forms. Lease installments, payable generally on a monthly basis, are determined on the basis of the lease price of properties and other relevant factors. Lease contracts are renewed each year. On the expiry of the lease periods/contracts, the lessee can gain the ownership of the leased property/equipment upon payment of 5% of the transfer value of the equipment as salvage value of the property. Alternatively, the ownership and physical possession of the property goes back to the lessor.BFICL provides lease facilities against one or more of the following securities: (a) bank guarantee/insurance guarantee; (b) easily AM-HIFC Ahsania-Malyasia Hajj Investment and Finance Company Limited (AM-HIFC) is a Sharia-based non-bank financial institution licenced by Bangladesh Bank under the Financial Institution Act 1993. The company follows the model of Malaysia`s pilgrims fund and management institution, popul arly known as â€Å"Tabung Hajj† which focuses on mobilizing savings from would-be pilgrims who intend to perform Hajj in the Holy Land.It invests its excess fund in Sharia-based activities. As a Sharia-based financial institution, adherence to Sharia is of paramount importance to us and this is embodied in out Vision and Mission statement. Bangladesh Industrial Finance Company Bangladesh Industrial Finance Company Limited (BIFC) is a joint venture Leasing and Financing Company, promoted by a group of' Foreign and Local Sponsors. Incorporated as a Public Limited Company in August 1996 and icensed by Bangladesh Bank as a Non-Bank Financial Institution in February 1998, BIFC has been rendering innovative, customized, prompt and cost effective financial solutions to the socio-economic growth of the country. Delta Brac Housing Finance Delta Brac Housing Finance Corporation Ltd. (DBH) is the pioneer, the largest and the specialist Housing Finance Institution in the private sector of the country. After commencing operation in the early 1997, the company has registered commendable growth in creating home ownership among more than 7,500 families in Dhaka and other major cities of the country.At the same time, the company has been playing an active role in promoting the real estate sector to the large cross sections of prospective clients who had but yet unfulfilled dream of owning a sweet home. Fareast Finance ; Investment Limited Fareast Finance ; Investment Limited-a leasing and financing company started its business in the early 2002 to serve its clients with high ethical standards and accountability. Fareast believes that each of its activities must provide satisfaction to its customers and will start progress for them.Financial Management Reform Programme FMRP is a five-year programme jointly financed by the UK Department for International Development (DFID) and the Royal Netherlands Embassy (RNE), and executed by the Ministry of Finance, Government of Ban gladesh. Grameen Bank Grameen Bank (GB) has reversed conventional banking practice by removing the need for collateral and created a banking system based on mutual trust, accountability, participation and creativity.GB provides credit to the poorest of the poor in rural Bangladesh, without any collateral. At GB, credit is a cost effective weapon to fight poverty and it serves as a catalyst in the overall development of socio-economic conditions of the poor who have been kept outside the banking orbit on the ground that they are poor and hence not bankable. Professor Muhammad Yunus, the founder of Grameen Bank and its Managing Director, reasoned that if financial resources an be made available to the poor people on terms and conditions that are appropriate and reasonable, these millions of small people with their millions of small pursuits can add up to create the biggest development wonder. GSP Finance Company GSP Finance Company (Bangladesh) Limited (GSPB) was incorporated in Dhaka , Bangladesh on 29th October 1995 with the Registrar of Joint Stock Companies and Firms. It started its commercial operation from 17th April 1996 under licence granted by Bangladesh Bank (Central Bank) in accordance with the Financial Institutions Act of 1993. IDCOLInfrastructure Development Company Limited – IDCOL's mission is to promote economic development in Bangladesh by encouraging private sector investment in infrastructure projects. IDLC of Bangladesh Ltd IDLC is a multiproduct financial institution, established in 1985 with the collaboration of reputed international development agencies such as: Korean Development Leasing Corporation (KDLC), South Korea, Kookmin Bank, South Korea, International Finance Corporation (IFC) of the World Bank Group, Aga Khan Fund for Economic Development (AKFED), German Investment and Development Company (DEG).Leasing, initiated by IDLC, today, plays a vital role in the mid term financing of industrial and service enterprises. Over the ye ars, IDLC has served the diverse needs of its customers with product offerings ranging from Home Loans for Individuals to Factoring and Work Order Financing for small and medium enterprises (SMEs) and services such as: Lease Financing, Syndication, Corporate Advisory, Bridge Financing, Underwriting, Issue Management, Private Placement of Stocks and Debt Instruments for Corporate Customers. IIDFCIndustrial and Infrastructure Development Finance Company (IIDFC) Limited is a Development Financial Institution, promoted by wide array of financial institutions like ten commercial banks, from both the public and private sectors, three insurance companies and Investment Corporation of Bangladesh (ICB). Union Capital Limited UNION CAPITAL LIMITED is one of the largest investment banks and fastest growing financial institutions in Bangladesh. Previously, it was known as Peregrine Bangladesh which had its origins and businesses rooted in Hong Kong.Out of the local office of the erstwhile Pereg rine Capital Limited of Hong Kong, Union Capital Limited, Dhaka emerged in early 1998 as a Bangladesh-based company led by a group of the foremost entrepreneurs of the country. Union Capital, within a short span of time, has proved its worth as a most forward-working vigorous organization achieving success with its wide international network and strong local base Leasing Law in Bangladesh Leasing is an asset renting activity, and is therefore, governed by common law. The Contracts Act 1872 applies to contracts of leases.Sections 148 to 171 of the Contracts Act cover provisions relating to bailment. As these provisions are identical to those applicable under English law, the chapter devoted to general law of leasing adequately covers the law in Bangladesh as well. It may be noted that the general law of contracts is limited to bailments of â€Å"goods†. â€Å"Goods† include movable property only – immovable property is not covered by common law. As it the common feature of all Anglo-Saxon legal systems, transactions in immovable properties are covered by a separate system of laws.Taxation of Leases in Bangladesh: The taxation system in Bangladesh has been a subject matter of criticism over a last few years. The system is characterized by a large number of incentives, tax holidays and concessions as a result of which the share of corporate taxation to total tax collection by the Govt. has come down drastically over the past few years. Taxes on corporate profits, of both domestically and foreign owned companies amounts insignificant as a 0. 5% of GDP in Bangladesh, compared with more than 6% in developed nations. The main reason cited for this low contribution is the tax incentives granted by the Govt. Which are very liberal as compared to its counterpart countries. It is probably with tax reform in view that the Govt carried out certain reforms in depreciation laws in Budget 1998-99. Among other provisions, the important change that would ha ve a far reaching effect on leasing companies is the change in

Samsung

Samsung Electronics Co. , Ltd. and its subsidiaries Stevenson Saby & Lesly Castillo American Intercontinental University September 7, 2012 Nicole Pringle Abstract The for-profit organization of interest we selected is Samsung electronics co. , ltd. and its subsidiaries. We researched the unusual or conflicting accounting principle that has impacted Samsung electronics co, Included in this research we present, a review and analyze the organizations published accounting statements of the last two years.Specifically, our research paper will: Identify the core functions of each department, their strengths and weaknesses, and make recommendations for improvement, as appropriate. This paper Identifies and describe the underlying problems, Compares the alternative courses of action, Explain the effects at issues, Recommend options that would be consistent with the organization’s accounting practices, accounting processes, and accounting-related departments. Last includes the last two years of published accounting statementsFrom its inception as a small export business in Taegu, Korea, Samsung has grown to become one of the world’s leading electronics companies, specializing in digital appliances and media, semiconductors, memory, and system integration. Today Samsung's innovative and top quality products and processes are world recognized. This timeline captures the major milestones in Samsung's history, showing how the company expanded its product lines and reach, grew its revenue and market share, and has followed its mission of making life better for consumers around the world. SAMSUNG All rights reserved) To identify the core functions of each department, Samsung organization structure consist of Vice Chairman, US executive team and a Board of directors. http://visiblebusiness. blogspot. com/2009/11/samsung-samsung-ar-2008. html Samsung has recently been involved one of the largest patent laws of its kind, Apple Inc. has sued Samsung for $2. 525 bill ion for copyright infringement of the iPhone and iPad with Samsung’s Android technology smart phones.Apple claims, Samsung owes â€Å"substantial monetary damages† for when they illegally â€Å"chose to compete by copying Apple. † You might hear some comments like â€Å"Apple is better â€Å"or what’s so good about Samsung. First let’s identify, Samsung throughout the years has been very successful in providing consumers with innovative technology. Samsung has revenue of 247. 5billon, Assets of 384. 3 billion, Equity of 224. 7 billion and net income of 18. 3 billion with 344, 00 employees. Samsung Electronics Co. , Ltd. and its subsidiaries) Apple has pulled together 434 LTE patents in order to counter a legal threat from Samsung, according to reports on Tuesday. Samsung has vowed to sue Apple if, as expected, if it unveils an LTE-enabled iPhone 5 during the launch event now confirmed for September 12. Anticipating this, Apple has been acquiring and developing enough LTE patents to combat the legal challenge, according to the Chosun Ilbo website.Samsung is planning to make the air-condition product category more strong with unique technology called ‘Triple protection proposition’ Samsung is the India’s official ‘Olympic partner’ for the 2012 London Olympic and recently launched ‘Olympic Ratna Program’. This will result enhance brand awareness and increase the sales. Samsung Mobile and Home appliance has future plans of launching Customized products for Indian market. This will improve the market share in rural market being that Apple is filling injections on a lot of their products.The Indian youth population is growing and mobile phone sales is expected to increase due to lesser call rates, Its financial position is strong and there is a scope of entering into unrelated diversification. Two years published accounting statements 2011> http://www. samsung. com/us/aboutsamsung/ir/ financialinformation/annualreport/downloads/2011/SECAR2011_Eng_Final. pdf (http://www. samsung. com, 2011) http://www. samsung. com/us/aboutsamsung/ir/financialinformation/auditedfinancialstatements/downloads/consolidated/2012_con_all. df (Samsung, 2012) Samsung’s core functions of each department, their strengths and weaknesses were identified, recommendations for improvement were addresses. We hit on possible course of actions Samsung could take with the drop in market shares as well as the alternative courses of action. Samsung Has been in the Industry to long to make a mistake as big as they did in the lawsuit against apple but they are innovators and will continue to make great products and make profits as represented in the financial statements provided.

Final essay Example | Topics and Well Written Essays - 1750 words - 1

Final - Essay Example , the discussion on recollection and death cannot avoid the aspect of immortality, materiality and invisibility, which is discussed in the dialogue of Socrates and his friends. This paper will therefore seek to examine the viability of the claim that all learning is a process of recollection in relation to the other claims made by Socrates that support the notion. The soul must have been in existence long before one is born and therefore before birth the soul has all knowledge, which it had acquired in its previous life. At the time of birth, the soul is forced to take a new body, which is then supposed to be in control of since the body is mortal but the soul is immortal. The body thus relies on the soul, which plays the divine role and acts as a source of authority for guidance in all its endeavors. As a person grows, the soul may start to forget some of the knowledge acquired as the person encounters different situations, which erode some of the information. However, it is worth noting that the information is not fully lost since when a person acquires knowledge either through sight or through other senses the impression of what is being learned will already be in the mind and the soul will reignite the impression. Therefore, a person can only remember that which he already has an impression on.1 The aspect of abstract equality reinforces the idea that all forms of learning are just a mere process of recollection. When human beings acquire any new form of knowledge they usually have to relate it with what they perceive in their minds to be the absolute truth. But where does absolute truth come from since right from the time that a person starts acquiring knowledge he already possess a definition of this absolute. It therefore emerges that a person is born with this knowledge on abstract equality, which implies that the soul must have existed before and thus acquired all such knowledge. The present reasoning thus only refers to the absolute good, justice,

NIMBY phenomenon + Home Rule + flexible zoning Research Paper

NIMBY phenomenon + Home Rule + flexible zoning - Research Paper Example Their point of argument is that such projects ruin the image of that particular place. They are also concerned that this would lead immense pollution of their environment. Pollution in this case refers to the noise, dust, fumes and odor that would come with these projects. This phenomenon has applied in many cases since time in memorial. For instance, in 1970, a proposal to build a mega railway connecting five cities in Texas was terminated due to residents’ defiance against it. The people near the tracks had a preformed mentality that building the rail would affect their tranquility due to noise. Despite the explanation by the proponent that good technology would be applied to ensure minimal noise, the residents were not ready to change their minds. Another example is the proposal to construct a metro system In Washington. This was in 1960s, whereby the Georgetown victoriously defeated this proposal. As much as many people would like to support the NIMBY phenomena, it is important to note that this phenomenon does not hold water. In most cases, the residents fail to be open minded, and are under the influence of their peers. The developments come along with their own benefits. Failure to embrace that opportunity leads to an immense loss. A good example is the two towns we have mentioned above. While Georgetown lost an opportunity for better transport system and metro stops, Texas lost an opportunity for drawing investors into their city. In my opinion, the NIMBY groups were better of supporting the projects rather than defying them. Home rule has its roots in Missouri, where it was authorized in their constitution. This was back in the year 1875. Is a scheme that deals with the relation of the municipal and the state? It gives the city dwellers a mandate to generate a charter for their particular government. Before the introduction of this

External analysis of Logoplaste Essay Example | Topics and Well Written Essays - 250 words

External analysis of Logoplaste - Essay Example Logoplaste exists in a highly competitive market and faces stiff competition from Alpla-Werke, Amcor, Graham Packaging, and Plastipak. Amcor, an Australian packaging giant, is the largest player in the plastic manufacturing industry and packaging business. Alpla-Werke has a large market base in Europe and Latin America, which holds half of its manufacturing plants ((Alcacer and Leitao, 2013, 8). The company seeks to consolidate its place in the fast-growing Asian market. Graham packaging uses manufacturing processes and technologies to produce plastic containers from various resins. It has its presence in North America, Latin America, and Europe. Plastipak is an American company with several plants in America and Europe and has been a lead supplier for Pepsi. All the companies are great competitors and are currently competing for the Asian market. Logoplaste has a loyal customer base owing to its beneficial relationship with customers. Its main customers are fast-moving consumer goods such as Coca-Cola and P&G. Innovative packing attracts positive customer attention, and this is an important factor in the challenging retail market. Logoplaste are forced to expand internationally owing to the presence of their customers globally (Alcacer and Leitao, 2013, 3). They ventured into the Asia Pacific region, and started up a new production unit for P&G in Kuantan, Malaysia to produce packaging for domestic

Social Performance Essay Example | Topics and Well Written Essays - 1000 words - 2

Social Performance - Essay Example nd are shrinking within the conventional channels and are and will be taking a highly fragmented, tough channel in which the advertisers know instantly that they have reached their audience. The performance-based marketing is online oriented giving a healthy marketing environment. In the performance-based marketing, the trend is currently encompassing an all-time high speeds for surfing. In this case, the current advancements in technology have made reporting and targeting undemanding. Indeed, the performance-based marketing has become stable to growing because of its inherent superiority of measurability. The trend is more of recession-resistant instead of the recession-proof, which could be experienced in the traditional media and whose features were not measurable. The performance-based marketing, which can be via display, email, and search, or social media, applies to a large set of advisers, publishers, agencies, plus the social media marketing in the entire continuum. For ad vertisers: with the current trends in performance-based marketing, the online advertising is subject to real-time search whenever it comes to results, which is due to the tracking of advertising. Advertisers can utilize the affiliate programs to generate highly direct links, from web-based content towards appropriate opportunities in e-commerce. The subset of performance-base marketing, the Cost per Acquisition, provides a full continuum of advertising services online hence generate a demonstrable return for advertisers (Barbara & Norman, 2001). For publishers: following the performance-based advertising, publisher get the true worth of their audience. A publisher becomes highly proactive within their marketing since they get paid for their activities. The website of the publisher can focus on moving the target market towards a highly lucrative avenue for transactions based on the market requirements. This is an indicator that; the publisher is an individual who understan ds

Low Cost Airlines Essay Example | Topics and Well Written Essays - 1750 words

Low Cost Airlines - Essay Example For more than a decade now, the potential of the low-cost airline business has been evident from the huge capitalization of these airlines at stock market spheres (Brock, 2000). For example, at the start of the current decade, in 2002, Ryanair realized a market capitalization of 4.9 billion Euros, which was 45 percent more, when compared to the levels realized by British Airways (Rhoades, 2008). The increased uptake of low-cost airlines was evident from its revenue levels, which were approximated at 20 times compared to that of the traditional competitor (Dempsey and Goetz, 1992). The huge success of starter low-cost airlines in the industry has led to the emergence of new airlines in the same category and using the same business, trying to mirror their strategies. The success of these airlines can also be traced from the fact that they have stimulated a new class of demand, which offers evidence that they are not getting their customers from traditional airlines; low-cost airlines a re attracting new demand and customers into the industry (Dresner, Lin and Windle, 1996). Due to the major impact of low-cost airlines, traditional airlines have acknowledged the threat of the growing competition; therefore, have reacted to the new business model, especially in the line of business travel (Meyer and Menzies, 2000). This paper will explore the success strategies of low-cost airlines; explore the factors behind their success, analyze their business model and prospect their growth. The deregulation of air transport Following the enactment of the Airline Deregulation Act of 1978, the control of airline business and services was, to some extent, moved from the political system to the market system (Dempsey and Goetz, 1992). Deregulation refers to the change of the control exercised over air travel from the Civil Aeronautics Board (CAB), which administrated the entry of airlines into the business, their exit and the pricing of airline services, to the partial control and administration of business systems and infrastructure. Deregulation also featured the abolishment of the CAB’s control of mergers, intercarrier agreements and customer affairs (Dempsey and Goetz, 1992). The complete shift of the control took place after the endorsement of the CAB sunset ACT of 1984, which gave way to the economic liberalization of the management of air travel, which was part of deregulation, which was started after the realization that the political control of the economy did not serve the best interests of the public (Dempsey and Goetz, 1992). The air freedoms that came after deregulation Following the deregulation of the management and the control of airline services, all airline operators were allowed the freedom to operate on any route that they chose to operate. The operators of air travel services were allowed the freedom to set the fares of their travel services like they deemed fit, which would be influenced by the forces of demand, and the supply of air travel services (Dempsey and Goetz, 1992). During the time before the deregulation, there were some carriers that were not allowed to operate out of specified states, but after deregulation, these carriers were allowed to fly and operate across the country, without any limitations. Following the deregulation of the air travel industry, the restrictions that had been set in the way of entry into the industry were abolished (Dempsey and Goet

Music, Performance and Authenticity in Films Essay

Music, Performance and Authenticity in Films - Essay Example In addition, rock film performance has been encrypted from Quadrophenia, the album of the group The Who, to the film bearing the same name as the album. This transformation of recorded audio music pieces into films did not bring any disparaging change in the rock culture; rather, it boosted and made rock performance more livelier and entertaining, attracting more and more enthusiasts. Initially, rock artists recorded music without the inclusion of videos and other display features that would make it more appealing. While rock music performance concentrates on the rock culture promotion through recording the audio pieces, the film performance is greatly involved in the use of visuals to promote the same culture. This paper will critically compare and contrast the differences and similarities in the music, the authenticity, and self-conscious film performances of Pink Floyd and The Who. Pink Floyd – The wall The film Pink Floyd-The Wall was adapted from the album The Wall. The w riter of the film utilized the music lyrics to convey different themes as represented in the original songs. Some of these include the theme of isolation, cruelty, insanity, fascism, and hard mentality as fashioned by the wall. Notably, throughout the film, there is an expression of a sad and brutal mood of the music as depicted by the author’s feelings in his school day poems. ... While music metaphorically illustrates this social alienation, the film projects the character into the real emotional situation (Kaarki 2002, p. 184). There is an illustration of severe emotional suffering that revolves in the abyss of loss and isolation resulting from fatherless childhood (due to his father death in the British war) and the domineering, overprotective, and phobia-filled love of his mother. As noted, Pink built a mental wall that could allow him to live a life free of the emotional troubles caused by the failing education system which concentrated on producing societal compliant sycophants, by police brutality, estranged marriage, and uncontrollable drug abuse (Pink Floyd 1982). Remarkably, not only does the film performance demonstrate the ability of the writer to describe the moods of the song but also evokes the emotions of the film viewers. Through the evaluation of the harmony of the film performance, viewers are able to observe the relevance of the musical per formance which develops and maintains the psychological wall built by Pink to run away from his pains. Significantly, the film performance brings out a better understanding of the music themes with an illustrative depiction of the continuous piling of problems as one runs away from their effects rather than finding solutions. In the film, the author excellently matches the themes present in the music with the film performance, giving insightful, enigmatic, and arresting images. Factually, critics have been of the view that the lifestyle as described in the song perfectly suits the film performance with its spectacular ability to conjure captivating and memorable images that elicit lingering and

Case study Example | Topics and Well Written Essays - 3000 words - 1

Case Study Example In the theme the differentiation exists in terms of rides and attractions being offered, the faà §ade and architecture; and the employees and food being served. Thus, this uniqueness and control of environment makes Disney an enthralling experience. (Project 2006) Hence, when Disney decided to expand its business, it came up with two options for opening the theme park: Barcelona and Paris. However, due to the benefits in form of subsidies and tax incentives being offered by the French government; Paris was the final choice. Another major reason for opting for Paris was the market potential that the city offered. Within a 160 km radius of the proposed site for Euro Disney a population of sixteen million lived. Not just this, the presence of an efficient transportation network made Paris an ideal location. Even if Euro Disney would have had a lower penetration in the market as compared to its sister parks in California and Florida; the market size was huge giving a higher utilization of the capacity. Another attractive feature for opening a theme park in Europe was that the Europeans had a different pattern of spending their vacations. Not only is the time period of the holidays which Europeans enjoy longer than the American citizens. But the Europeans also take frequent smaller breaks throughout the year. Disney also kept in few the family size and the disposable incomes which the target audience was composing of. And thus, kept keeping these trends in mind Disney started its new venture. Another smart thing which Disney did when starting this venture was that it financed this project in a way that the risk was minimized. Disney floated a new company in the market called the Euro Disney SCA. Through this company the financial arrangements were made in a manner that the Walt Disney group had a 49% holding where as the rest of the share was generated by raising capital from the public. Further more, Disney was

Arabic spring Essay Example | Topics and Well Written Essays - 1500 words

Arabic spring - Essay Example The effort to lead authoritarian to enhance their regional influence is not effective because of different reasons. Various regimes have a different view on the opportunities and constrains created by Arabic Spring, the influence may require medication latter, their effort may end up shaping the newly Arabs elected governments. About ten years before the rise of Arab Spring, there was the rise in global authoritarianism with an attempt of Arab autocracies to adopt their own ruling to new domestic and regional challenges. The wide implications of authoritarian collective action lead to Arabic Spring. In analyzing their effect, we stress on two related dynamics, which include the way in which powerful authoritarian regimes work as a team to advance collective interests in sustaining or consolidating institutional and strategic alternative to the western democracy. Secondly is their attempt use the Arab Spring as a mobilization tool to gain regional support, democratic powers such as th at witnessed in Turkey, Brazil, South Africa, among other nations. With their sympathetic critiques of western economy and their geographical strategic dominance, these states are seen as the global authoritarians as potential allies might enlist that in efforts to redefine regional security and political structure, thus threatening the United States aim of advancing their interest. Globalization is a process where in different fields, the world is working together as a single society, marked by common institution, organizations, and shared culture of consciousness.

To Kill a Mockingbird Songs Essay Example for Free

To Kill a Mockingbird Songs Essay Dont Matter: Akon The society didnt want to see the African Americans and White folks living together. However, some wanted to be equal. Talk about the prejudice and how separated they two were and how some tried to stay equal. (Atticus and Calpurnia, and Scout and Jem sitting with the African Americans during the trial are two examples.) http://www.youtube.com/watch?v=JIktHTbtn2o Tiptoe: Imagine Dragons- In Maycomb County, everyone always kind of sneaks around, never letting anyone really know what theyre up to, so in a way theyre always tiptoeing and never letting anyone know that theyre there. Little Bird: Ed Sheeran- A way this can Relate to to kill a mockingbird i by saying that if you do reckless things without thinking, youll often regret the. Like when he says And its not complete yet, mustnt get our feet wet,†¨Cause that leads to regret, diving in too soon hes saying that you need to really plan out and think before diving head over heels in something, and thats exactly what Atticus did. http://www.youtube.com/watch?v=qkscjEBaEPc Atticus: The Noisettes- In the beginning it says to kill a mockingbird is to silence the song that seduces you why? Which is saying that when you kill the free flying, joy-bringing mockingbird, youre silencing it forever and selfishly ridding the world of a happiness that it could have potentially brought to others. Waiting on the world to change: John Mayer- At one point he says So we keep waiting (waiting) Waiting on the world to change We keep on waiting (waiting) Waiting on the world to change Its hard to beat the system When were standing at a distance So we keep waiting (waiting) Waiting on the world to change and by saying this he is relating it to how Scout and Jem are just kids and although they can grasp the concept somewhat of what is going on, they are too young to actually be able to do something about it Fix You: Coldplay- This song just kind of totally describes To kill a mockingbird because eventually time will help fix the situation while people just keep trying and failing, which is extremely discouraging inside the book. http://www.youtube.com/watch?v=pY9b6jgbNyc For the love of a daughter: Demi Lovato-

Bdo Benchmarking Assignment Essay Example for Free

Bdo Benchmarking Assignment Essay When considered in general terms Turnbull described it as: â€Å"All influences affecting the institution processes, including those for appointing the controllers and/or regulators involved in organising the production and sale of good and services†¦.. it includes all types of firms whether or not they are incorporated under civil law. † (Turnbull, 2002:181) Factoring in all other definitions, in its simplest terms it can be defined as the â€Å"exercise of power over corporate entities† (Clarke, 2004). It is not the same as the management and the running of the company, it is concerned with how the Board of Directors, who are the governing body of a company, supervise management, because it is they who are responsible for holding the management of a company accountable and ensuring the company is being ran in a way which is favourable towards the shareholders and other stakeholders. It is the Directors’ responsibility to develop strategy and policies for the ompany and to determine the direction the management should take the business in and the Directors have overall responsibility for the performance of the company (Tricker, 2012). While the phrase ‘corporate governance’ wasn’t coined until the 1960’s and not commonly used until the 1980’s, it has really been in a gradual process of evolution since the 16th century and joint venture trading. One of the major developments in world economies which brought the need for corporate governance to the fore was the introduction of limited liability companies in the 19th century. What this meant was when companies were incorporated they became a separate legal entity, separate from their shareholders and with similar legal rights to buy, sell and transfer shares and assets, to employ people and to sue and be sued in the name of the company. This meant the liability for any company debts lay with the shareholders and not the management or the company. Add to this the fact that because of the introduction of the stock market, shares could be easily bought and sold, meaning the shareholders could be vast in numbers and have a large geographical spread. Due to the fact that all corporate entitites need to governed, the implications of this were that the management (executive control) and the shareholders (owners) were often separated (Tricker, 2012). Situations such as these, are where corporate governance is deemed to be most necessary because there is a root assumption, that members of management who do not own the company are likely to be more reckless with someone else’s money, i. e. the company’s, than they would be with their own money (Having Their Cake, 2013). This is known as the agency dilemma, which will be expanded upon later. Electing a Board of Directors who have the interest of the shareholders at the forefront of their mind, allows members to indirectly oversee the actions undertaken by the management, in order to ensure that as agents of the shareholders, the management is performing in line with the best interests of the corporation (Lashgari, 2004). 1. 2. Selection of a Case Company However, as Turnbull pointed out in ‘Corporate Governance: Its scope, concerns and theories’ (2002), having a restriction of only publicly traded corporations in studies of corporate governance, limits the validity of any onclusions drawn about the most efficient arrangements for corporate institutions with regards to good governance practices and the effect they have on a company’s performance. As Jensen said in 1993: â€Å"Privately held entities could provide the most form of enterprise. † (Jensen, 1993, cited in Turnbull, 2002). It was with this in mind that I chose BDO LLP UK (BDO), which is an incorporated partnership company in the UK, which is owned and ran by its members/partners. It is a company which offers financial accounting, audit, tax and business consultancy services (BDO LLP UK website, 2013). . 3. About the UK Financial Accounting and Audit Sector With the ever increasing focus on corporate governance for companies across the World, not just in the UK, audit firms such as BDO, KPMG and Deloitte are becoming more important because it is there job to ensure that companies are adhering to regulations laid out in the UK Corporate Governance Code (2010, revised in 2012). It should naturally follow that audit companies will have extremely good corporate governance practices put in place, however, this is not necessarily the case. Since 2000 there have been a number of high profile scandals within the International Corporate Financial Accounting industry, for example, Enron were found to be inflating revenues and hiding debts and there was also the Bernard Madoff â€Å"Ponzi Scheme†, where the real scandal was that the robbing of millions of pounds worth of people’s money, escaped the attention of auditors and regulators. ). Due to such scandals, many national regulators implemented new corporate governance requirements to improve standards (Mitchell Van der Zahn, 2009). In the UK new regulations with regards specifically to audit companies were also introduced, targeted directly at a certain group of companies. As of January 2010, 95% of the auditing work in the UK was being carried out by 8 firms, BDO being one of them. It was deemed that such companies had built upon their reputation to gain dominance in the UK market and the Financial Reporting Council (FRC) felt it was in the Public’s interest for these companies to be transparent and in order to maintain public trust be exemplars of best corporate governance practice. This led to the introduction of the Audit Firm Governance Code (2010) by the Institute of Chartered Accountants in England and Wales (ICAEW), which drew from aspects of the 2010 UK Code and established principles such as the appointment of independent non-executives within the governance structure of their company. While such rules did not apply outside of the targeted companies, it was the hope of the ICAEW that it would provide a benchmark of good governance for other companies to follow (ICAEW website, 2013). With such a bold statement being made about the importance of corporate governance in this field of work, it seemed to me to be an obvious choice to choose one of the 8 companies on the ICAEW’s list for my case-study. 1. 4. About BDO LLP UK As detailed earlier BDO LLP UK is an incorporated partnership company in the UK, which is owned and ran by its members/partners and it provides financial accounting, audit, tax and business consultancy services. It is the 6th largest accountancy firm in the UK and is a member of the BDO International Network, which itself is the 5th largest accounting organisation in the World. In an attempt to break into the top 4 big firms in the UK, BDO LLP UK completed a merger with PKF, a rival firm, in April 2013 (Keynote, 2013). After researching BDO LLP UK, it became very clear that corporate governance was of the upmost importance to the company. Not only did it have specific areas on its website dedicated to corporate governance and corporate social responsibility but it also had a number of relevant publications regarding corporate governance. One article for example, ‘Making Internal Audit Relevant’, discussed the high quality of corporate governance in the UK found by studies carried out by the FRC, it went on to say that this was underpinned by the UK Corporate Governance Code and that it was vital in maintaining the attractiveness of the UK market, to encourage new investment (BDO LLP UK website, 2013). My research also found that BDO had carried out a joint study with the Quoted Companies Alliance, which considered the introduction of a mandatory corporate governance code for small and mid-capital audit companies in the UK. Just as a point of fact, this was a proposition that 92% of such companies agreed with. One of the major indications that BDO think corporate governance is vital to the success of a company is that they produce an annual transparency report, which has an appendix of a statement of compliance with the Audit Firm Governance Code (2010). They have also went to great lengths to create a summary report in 2012 for businesses which they audit, detailing any changes to corporate governance regulations and focusing on leadership and effectiveness, reporting, risk, audit, remuneration and investor relations (Corporate Governance for TMT Businesses, 2012). It seems to be an interesting idea to look at a company who places so much emphasis on good corporate governance, not only for itself but also the companies it works for, to see if they do comply completely with the codes and if they are in fact â€Å"exemplars† of good practice. . Theories of Corporate Governance There are various theories and philosophies with regards to corporate governance, all of which, as a collective, have laid a foundation for the development of different corporate governance systems around the world (Lashgari, 2004). This paper will look at a number of these theories and how they relate to BDO, in order to gain a better understanding of th e governance standards at BDO. 2. 1. Agency Theory In the 1930’s, Berle and Means published ‘The Modern Corporation and Private Property’, it provided the first debate about the agency dilemma and set a basis for agency theory. They suggested that where ownership is separated from management or is widely dispersed, it becomes difficult for owners to have an effective check on the autonomy of corporate managers. The agency dilemma was further refined in the 1970’s, when theories were brought to the fore suggesting agents (managers) are likely to be self-interested and will serve their own interest before those of the principle (owners). Such theories also suggested that in order to counter this problem companies have to incur agency costs, for example, to create incentives to align the interest of the agent with the company and the cost of monitoring the conduct of agents. Many other theorists have a problem with agency theory because it does not even attempt to explore the possibility managers are not self-interested and opportunistic. However, they cannot deny that it has een very influential in developing market-based governance mechanisms and board-based governance mechanisms. Due to BDO being an incorporated partnership and their shares not being publicly traded, we will only look at the board-based mechanisms (Having Their Cake, 2013). Agency theory has caused internal reform of boards, there has been an increase in executive share options schemes, meaning that managers are being offered equity in the company they will manage, in order to â€Å"align their interest† (Having Their Cake, 2013). Agency theory has also led to the introduction of independent non-executive directors onto Boards of Directors, in order to ensure the actions of the management are being sufficiently monitored by the board themselves and role of boards have been greatly elaborated, they are becoming more involved with the setting of objectives of companies and monitoring of any actions taken by management and stricter provisions have been put in place to ensure the separation of the roles of chairmen and chief executive (Cadbury Committee, 1999). When applying agency theory to BDO, it is easy to see that there is a situation of agency and principle, with the fact that there are 193 partners in the firm and only 5 partners who are part of the Leadership Team (LT- management) which is responsible for the overall management of the company and is chaired by the Managing Partner. It is also noticeable from their 2012 ‘Transparency Report’ that all members of the LT have been partners in the company for a number of years, with currently the shortest term being 12 years. This could be considered good governance by BDO because in an effort to avoid the agency dilemma, they ensure their management team is made up of partners, whose interest is already aligned with the interests of the business. The transparency report also states that BDO have a Partner Council (equivalent to a Board of Directors) which is independent from the LT and responsible for the overall governance, in particular the oversight and accountability of the LT. They are also responsible for choosing members of the LT and for electing independent non-executive directors, for which there are 2 at BDO. These independent non-executive directors sit on the LT and report to the partner council of any issues of compliance with governance, policies and procedures, for which they are responsible for providing information on to the LT. The Partner Council is chaired by the Senior Partner who performs a client facing role and is responsible for managing all decisions. He also attends LT meetings in a non-executive capacity to facilitate his oversight role of the governance of the company (Transparency Report, 2012). As we can see the management team is subject to a lot of oversight and monitoring by the Partner Council and the roles of the Senior Partner and Managing Partner are completely separate, this is all a way of ensuring the company has a high standard of governance and to also ensure the management is acting in the best interest of the all the owners. BDO goes to a big effort in organising their governance structure in order to avoid the problems arising from the agency dilemma. 2. 2. Resource Dependence Theory This theory originated from studies performed by Pfeffer and Salancik (1978), they suggest that board members and non-executive directors can provide a firm with a vital set of resources. Non-executive directors are appointed with the expectation that they will support the organisation with its problems and to be a source of expertise which executives can draw upon for skills and advice and they can also be a source of contacts and information which they have gained through their past experience (Having Their Cake, 2013). At different stages in the life-cycle of companies, they have very different needs from their non-executive directors. To young entrepreneurial companies, non-executive directors can be a cheap source of legal, financial or operation management skills, while publicly listed companies are in need of network connections such directors can provide, for example, sources of finance. They can also provide the benefit of attaching a good reputation to their company. Mature businesses, with which we are most concerned because BDO falls into that category, can use non-executive directors for their relevant market or managerial experience and from the consumer confidence which can be gained from that person’s good reputation being affiliated to their company (Having Their Cake, 2013). Applying this theory to the independent non-executive directors of BDO, we can clearly see from the Transparency Report (2012) that both have experience of past non-executive director roles and both bring their own experience in a relevant field, Lesley MacDonagh with a high level of experience of law and business management which she gained from being a Managing Partner at Law firm Lovells and Lord David Currie having experience of business management from eing a Dean of Cass Business School and a past Chairman of OFCOM and he also has sound knowledge of the legal system from being a member of the House of Lords. This places them perfectly for their positions of overseeing the governance of and business management of BDO. 2. 3. Stewardship Theory This theory, which originated from the works of Donaldson (1990), suggests that directors can have motives which are ‘pro-organizational’ and counters the assumption by agency theorists that management aims are based in self-in terest and are not aligned with those of the shareholders. Donaldson even goes as far as to suggest that negative investor assumptions of the management will have the opposite effect to what was intended and can actually weaken the leadership of a company by weakening the management’s authority when splitting the decision making power between the board and the management. Donaldson also put forward the theory that inside managers and directors have possibly spent their lives working for the company they govern and because of this not only have a strong understanding of how the company is ran, therefore are able to make superior decisions, but also they will have naturally built a strong affiliation and personal investment in the success of the company. He also points out that decisions made by a board of outsiders could be of a lower quality because they would not be in a position to fully understand the company because they would not have access to the same informal knowledge sources and would lack any information which could inform them of the contextual nature of any business situations. All this in turn could lead to low firm performance (Nicholson and Kiel, 2007). As was stated earlier, BDO has a LT which is made up of partners who have been working for the company in a particular field and have been a partner for a number of years. The field they are responsible for as part of the LT is relevant to the field they have been previously working in, for example the Head of Audit and Tax, Paul Eagland has been a Tax Partner for 17 years. This ensures that any decisions that are being made are informed with the necessary knowledge to make the correct decision for the company. Also, as has been stated previously working for the company has long has built a strong affiliation to the company and its success. With regards to the non-executive director element of the board, it is made up of both independent members who come from outside the company (such as mentioned previously) and Directors such as the Senior Partner who has been with the company for a number of years, this allows for any gaps in the knowledge of the directors to be covered because there is an overlap between the meetings of the LT and the Partner Council when the Senior Partner sits in on LT meetings as an affiliated non-executive director. This ensures that the company is practicing good governance and that the board cannot be misled by the management as to how the company is being ran and if the interests of the other Partners are being looked after (Transparency Report, 2012). 2. 4. Stakeholder Theory Freeman (1980’s) put forward a whole new idea in terms of corporate governance theories, he argued that it should not simply be just the shareholders’ or partners’ interests which should be considered when making business decisions, he suggested that companies should be ran with the interests of all stakeholders in mind. Other stakeholders include employees, who have invested their time and skills in the company and have an invested interest in the company’s success, in order for them to ensure job security. This, Freeman classes as a direct interest in the success of the company, other direct stakeholders include customers and suppliers. What Freeman classed as having an indirect interest in the performance of the company includes the community as a whole and the environment (Having Their Cake, 2013). There is a major problem with this theory, which is that it is hard to operationalize because it is difficult to decide the weight that should be given to different stakeholders but accepting this difficulty, some theorists have suggested that while ultimately they are accountable to the shareholders, they must take into account the interests of other stakeholders when making decisions. This demand for ‘stakeholder value’ is legitimised through a number of examples, take globalisation; the spread of business and corporations across the world has led to environmental damage, an increase in corporate corruption and excessive executive pay has been, for example with RBS, to come hand-in-hand with company downsizing which has a direct impact on employees. In the name of good corporate governance, the increase in the value of stakeholder interests has led to an increase in business ethic codes and heightened corporate practice visibility and corporate reports of social responsibility and environmental matters (Having Their Cake, 2013). According to BDO’s website and their Transparency Report (2012), the company takes the interests of various stakeholders into account when making decisions about how the business is run, in a number of different ways, through policies and procedures: * Ethical Requirements The company has a Professional Services Manual and an Audit Manual, which contain rules relating to ethical conduct of employees, management and Partners. It is easily accessible on the company intranet and is supplemented with training and is designed to comply with International and UK Ethics Standards. The Partners and staff sign annual declarations as to their compliance to the code and the company has an Ethics Partner who is tasked with providing guidance as to correct ethics and also with maintaining compliance. * Client Relationships BDO has 5 core values which all partners and staff are committed to, they are; honesty and integrity, taking personal responsibility, mutual support and strong and personal client relationships. To aid in these values and to help deliver a quality service to clients, the company has robust client and engagement procedures. They carry out risk assessments on every potential client, before signing a contract and this helps to ensure that not only is the company secure but also that they provide the client with the sufficient standard and amount of staff they are in need of. The HR department also has clear policies and procedures when it comes to recruitment in training, to ensure the company has a sufficient number of staff who are competent and meet the required ethical standards, all in the name of providing a quality service to clients. * Employee Relationships BDO have an inclusive culture when it comes to recruitment and training and development, it provides every staff member with the same opportunities to progress regardless of differences. They have strong policies and procedures regarding regular reviews, which are performed bi-annually. They also seek to adopt the most relevant recruitment selection tools, in order to ensure the fit and quality of those joining the company. They also provide employees with ‘learning maps’ and ‘career and performance wheels’, which helps with career development and ensures promotions only occur when the staff member is ready. This all aids in the success of the company. * Corporate Social Responsibility BDO actively support and develop the local community, they have an established network of over 20 champions in the UK, tasked with â€Å"stimulating local ideas and initiatives† to help developing the community. They have a Community Volunteering Policy, allowing employees to take 6 days a year to volunteer, and they are not restricted to volunteer at certain organisations. It can be whatever is important to them. BDO ensure the negative impact their business has on the environment is minimised and have an Environmental Policy which can be accessed at the follow address: http://www. bdo. uk. com/about-us/corporate-social-responsibility/environment. Considering this, it could be said that with regards to ‘stakeholder value’ BDO practices good corporate governance. . BDO Governance in Practice 3. 1. Transparency Report Due to the EU’s 8th Directive on transparency reporting being adopted, in April 2008 the Professional Oversight Board published the Statutory Auditors (Transparency) Instrument (2008), requiring auditors of companies with a public interest to publish annual transparency reports. It also detailed requirements that such reports must meet, including systems of q uality control, independence practices and procedures and information about the company, i. e. he structure and the management. The BDO Transparency Report (2012) is available at: http://static. bdo. uk. com/assets/documents/2012/09/Transparency_Report_for_the_52_weeks_ended_29_June_2012. pdf . Transparency reports are used to demonstrate the quality of audit processes and practices of a company and are also used to encourage a high level of confidence and trust from stakeholders and the business community. BDO also provided a statement of compliance with the Audit Firm Governance Code (2010), which can be seen in Appendix A. The transparency includes details of the Governance Structure of the UK Firm, including the management and implementation of independent non-executive directors, the values of the company, the Internal Quality Control System, the Risk Management Control System and details the policies and procedures regarding independence, whistleblowing, professional development and partner remuneration. 3. 2. Statement of Compliance with the Audit Firm Governance Code One of the most important aspects of the Transparency Report is the Statement of Compliance with the Audit Firm Governance Code. Some of the key aspects of which include compliance with: * the owner accountability principle- the Partnership Council reviews decisions made by the Leadership Team, the management * the management principle- strategic and operational leadership is provided by the LT * the professionalism principle- the whole firm is committed to quality work and professional judgement and values. The firm’s management and the Head of Risk and Quality reinforce the appropriate ‘tone at the top’, instilling professional and ethical values in the firm. BDO employees are expected to comply with an internal code of conduct * the Involvement of independent non-executives principle- BDO appointed Independent Non-Executives in July 2008, comply with the same independence requirements as our partners and employees and they have sufficient experience and expertise to command the respect of the partners * the Compliance Principle- BDO have policies and procedures to ensure they comply with professional standards and applicable legal and regulatory requirements * the whistleblowing policy- all actions arising out of incidents of whistleblowing, are reported to the Head of Risk and Quality who will make an annual report the Internal Reporting Principle- LT, Partnership Council, Audit Committee and Risk Committee are supplied with information in a timely manner and in a form and of a quality which enables them to discharge their duties * the Financial Statements Principle- BDO publish annual audited financial statements in accordance with UK GAAP While BDO provide a very clear statement about how compliant they are with regards to the Audit Firm Governance Code, we must look at the FRC’s ‘BDO LLP- Audit Quality Inspection, 2013’ which considered the corporate governance compliance of BDO in order to get a true understanding of their standard of corporate governance compliance. 3. 3. FRC Annual Review of BDO The FRC found that in most areas there were appropriate policies and procedures in place for its size and client base and they found that all the statements that were made in the Transparency Report were consistent with their understanding of BDO’s policies and procedures of the firm. However, when the FRC reviewed the audits BDO carried out themselves on other companies, they found that a number of governance codes were not being adhered to: * Firstly, they were not always providing a high standard of quality auditing, failing to challenge explanations and inputs from managers, they did not always report the disclosure deficiencies which were identified to the Audit Committee and there was a lack of adequate communication with the Audit Committee with regards to inaccurate information, which led to safeguards that had been put in place not being properly assessed. Secondly, the FRC found that the audits were not always being reviewed thoroughly enough and audit quality issues and omissions in reports were not being identified. * Thirdly, BDO were found to not have complied fully with ethical standards in a number of different ways; * The business plan inferred that fees should be set lower if non-audit fees are likely to be earned, this goes against their own required ethical standards and their own * Performance evaluation criteria including the cross-selling of non-audit services * The list of entities which partners held shares and could generate a conflict of interests was not up to date. A more robust set of procedures was suggested to ensure that this list was kept up to date in future Lastly, the Internal Quality Review was not of a high enough standard, it did not provide a sufficient level of detail and clarity of explanations of significant findings. 4. Conclusion We can see that BDO go to great lengths to try and ensure that they are fully compliant with corporate governance codes and regulations, not only with their policies and procedures a nd the way the company is managed but also with governance structure of the company and the values and focus of the aims and objectives of the company. They also have a strong focus on transparency and ethics within in their business and this is linked to their value of providing great customer client relationships with professionalism, honesty and integrity. They also go to great lengths to aid the companies with which they work, in complying with corporate governance codes, again this is all in the name of developing excellent quality and trustworthy client relationships, in order to maintain and improve the success of their business. However, as we can see from the FRC review, there are gaps in their governance compliance, in particular with internal reporting and ethical standards, but it will have to be seen in the coming years of reviews if the increase in transparency and an even greater focus on corporate governance will lead to BDO closing such gaps. 5. 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