Defining the purpose of Strategic Management Accounting

Since the 80s a new term has been coined in management accounting literature: “Strategic Management Accounting” (SMA) (Simmonds, 1981). Since then, an ongoing debate about what strategic management accounting comprises has been originated. The terms SMA is used by accounting academics and sometimes practitioners in the UK, Australia and New Zealand, while strategic cost management (SCM) is commonly used in the USA literature.

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There are various studies in which SMA had been defined due to the lack of agreed definition in defining SMA or SCM. Simmonds defined SMA as “the provision and analysis of management accounting data about business and its competitors, for use in developing and monitoring business strategy” (Simmonds, 1981, p.26). Shank and Govindarajan (1994,p.xiii) describes SCM as “the blending of the financial analysis elements of three themes from the strategic management literature which are, value analysis, strategic positioning analysis and cost driver analysis. In other study conducted by Cooper and Slagmulder, 1988a, they defined that SCM as the application of cost management technique to simultaneously improve the strategic position of a firm and reduce cost. While the simplest definition of all is, SMA is about making management accounting more strategic (Roslender and Hart, 2003, p.272). The rise of activity-based costing (ABC) and activity-based management (ABM) is seen by Shank as supporting the new ideas as it presenting a revolution in thinking and providing a way for accounting to become more strategically relevant. It is still an on going debate between between Shank and Robin Cooper as to whether ABC was the capstone of strategic accounting (Cooper’s view) or whether SCM was the umbrella under which ABC and many other techniques resided (Shank’s view). However, in this paper, ABC will be considered as a part of SMA.
Some commentators define SMA as a process, such as Lord (1996) and Dixon and Smith (1993). Lord (1996) describes SMA as a six stage process which are, collection of competitor information, exploitation of cost reduction opportunities, matching of accounting emphasis with strategic position, collection of competitor information, exploitation of cost reduction opportunities, and the last process is, matching of accounting emphasis with strategic position. While Dixon and Smith (1993) present only four stages which are strategic business unit identification, strategic cost analysis, strategic market analysis, and strategy evaluation. Although there are similarities between this processes with SCM definition as described previously by Shank and Govindarajan (1994,p.xiii), but some would view SMA as broader than SCM.
2.0 Objectives
The objective of this paper is to provide a review of the origins of strategic management accounting and to assess the extent of adoption and success of strategic management accounting. The study conducted by reviewing empirical papers which have directly researched SMA and prior review papers of the adoption and implementation of SMA or SMA techniques. Besides that, the study also assessed the extent of adoption of SMA and the reasons underlying an apparent low adoption rate, role of accountant in adopting and implementation SMA and the success or otherwise of SMA is also discussed. Wider perspective on the origins and development of SMA are then presented. A selective review of literature is also done in order to achieve the paper’s objective and avoid any unneeded information.
3.0 Issues
3.1 Adoption and implementation of SMA
According to Alexander (1985), the ten most frequently occurring strategy implementation problems include underestimating the time needed for implementation and major problems surfacing that had not been anticipated, in addition uncontrollable factors in the external environment had an adverse impact. Another problem is when management style is not appropriate for the strategy being implemented, they cite the example of the “entrepreneurial risk taker may be an ideal candidate for a strategy involving growth, but may be wholly inappropriate for retrenchment” (Reed and Buckley, 1988, p. 68).Major surveys in the UK and North America regarding the practices of SMA in the late 1980s and up to 1994, resulted to the conclusion that there had been a low level adoption of SMA techniques despite the views that SMA techniques were generally regarded by adopters as useful and the intention to adopt it in the future. This can be supported by the adoption rate of ABC of 10 per cent in few companies and other study surveys that resulted of 32 per cent of companies reported using ABC and a further 28 per cent planned to use the technique. Although the adoption rate and survey still low, but there are number of firm still using ABC as a pilot studies and it is only a matter of time for the wide-scale of adoption.
Besides the perception of moving to ABC can have short time profit, and there will be unfavorable changes to employee’s performance report in response to the new costing information, the analysis of the study perceived it as too early for the propriety of changes taking place. Moreover, in the years following there is evidence of increased adoption of SMA continued to be weak. Others claimed that SMA was still ill-defined and most of the SMA research was at the conceptual level (Tomkins and Carr, 1996)
3.2 Accountant’s role in adopting and implementing SCM
According to the North American perspective. In one of the studies, Robin Cooper expressed doubt in the accountant’s role in adopting and implementing SCM would ever occur due to his opinion that accountant did not have the ability to learn ‘new trick’. This is because Cooper highlighted that SCM activity was developing outside of the view of the accounting profession. However, Shank disagreed with the Cooper’s view for saying that accountants are “intellectually and emotionally un-equipped” for the transformations (Shank, 2007, p.359). Shank pointed out that accountants have the intellects and can be trained to adopt the broad focus needed for the transition to SCM.
Other study conducted by Simmond, claimed that SMA was “spreading rapidly in practice” and that “management accountant are spending a significant proportion of their time and effort in collecting and estimating cost, volume, and price data on competition and calculating the relative strategic position of a firm and its competitors as a basis for forming business strategy” (Simmonds, 1981, p. 26). However, there is another disagreement in later year regarding simmond’s claim when several writer maintained that such practices have not been adopted widely (Guilding et al., 2000; Lord, 1994, 1996; Shank, 2007).
Bromwich (1990) provided persuasive arguments in favor of SMA, which draws on economic theories compared to previous study that relied on common sense to justify the case for SMA. In his study, he stated the need to release “management accounting from factory floor” to assist and meet global challenges in product markets, and allow management accountant to focus on the firm’s value added relative to competitors. Firm’s value added in this perspective can be such as the competitive advantage gain compared from other firms, quality services or product that can be provided to the customers and etc. Management accountant then should be contributing their ideas and ability to achieve this matter by working out with management and production team to be able costing various products that will offer the consumer cheapest price in a profitable way and compete with the other firm to be a price leader.
3.3 Strategic management accounting techniques
Balanced scorecard consists of an integrated set of performance measures that are derived from the company’s strategy and that support the company’s strategy throughout the organization. It is a very influential model, the balanced score-card may be used by firms to develop, implement and control strategy through a balanced use of financial and non-financial indicators. Roslender and Hart (2002) state that the BSC “puts strategy and vision, not control, at the centre” (Kaplan and Norton, 1992, p. 79) to allow organizations to compete more effectively. Under the balanced scorecard approach, top management translates its strategy into performance measures that employees can understand and can do something about.
However, implementing balance scorecard in the firms is not an easy task. There are also various form and ways to implement it. Bhimani and Langfield-Smith (2007) found high variety in the form and nature of strategic management accounting processes used within organizations, which was in contrast to the prescriptions of the SMA literature, which focused on the structure and formality of strategic activities and a need for a balance of financial and non-financial information to support strategic processes. One of the advantages of the balanced scorecard is that it continually tests the theories underlying management’s strategy. If a strategy is not working, it should become evident when the objectives did not achieve. Without this feedback, management may drift on indefinitely with an ineffective strategy based on faulty assumptions.
Besides balance scorecard, activity based costing (ABC) also considered as another SMA tool. Bromwich and Bhimani’s (1994) saw ABC as having the potential to overcome some of the problems of conventional management accounting techniques, through providing a better understanding of how overheads vary in relation to a range of cost drivers, and viewed statistical studies as supporting the notion that non-volume related activities may drive costs. However, some commentators reject the idea that activity-based costing is a part of SMA, as the focus of ABC is on the accuracy of cost allocation, not strategic support. Opposing the statement, Shank describes ABC as presenting a revolution in thinking and providing a way for accounting to become more strategically relevant. This is supported by, many academics and practitioners saw ABC as providing a solution to the problems of irrelevancy
3.4 Obstacles to SMA
There are various obstacles to SMA, some of it may be that traditionally management accountants have a performance rather than a learning orientation. Thus, rather than look for new data (outside the organization and traditional accounting systems) and fearing failure, management accountants stick to the familiar. To accountants, the familiar usually means financial data. The lack of widespread adoption also makes it difficult to determine the success or otherwise of SMA implementation. Moreover, the term SMA itself is not well understood by researcher or in practice, and in some cases the term is not even recognized. Some may perceive it as a burden because a company will change its strategy unintentionally, whereby a successive adaptations to SMA require the firm to follow the changing markets, competitive position, technology and any other factor that involved.
4.0 Conclusion
To conclude, as competition has become tougher and strategic positions seem harder to sustain, the management should emphasis on its financial and non financial information to be sustainable and competitive with the others. In order to achieve this, firms and its management accountant should have knowledge and management accounting system that supports an organization’s strategy with a variety of financial and nonfinancial performance indicators. Although the implementation of SMA is still not widely practices and adopted. Otley (2001) claims that SMA has had a major impact on the thinking of practicing management accountants and managers. This is not just due to the influence of the books and papers written by key SMA advocates, such as Shank, Bromwich, Cooper and Kaplan, but also due to the influence of activities of professional accounting bodies (particularly CIMA, in the UK, or CPA Australia) who have sponsored research reports and included SMA as part of professional training and professional development programs. Furthermore, the importance of SMA can be seen as early as in the universities whereby many aspects of SMA are taught not only as part of the management accounting curriculum but it also can be found in subjects in the marketing and management as well as in IT areas. As an overall conclusion, future research might be needed in order to encourage the implementation of SMA for a greater benefit to the firms.
 

Role of Knowledge for Meaning and Purpose

“The whole point of knowledge is to produce both meaning and purpose in our personal lives.” To what extent do you agree with this statement?
Curious mind, has a zeal to understand what is going on in the surrounding , let it be a natural event or phenomenon or people around, this understanding developed is what I assume frames the basis of knowledge. To quench this thirst provides the necessary fuel required to move on in personal lives. Knowledge provides the purpose and meaning to lead ones personnel life , while saying personal life I mean, the life of a person as guided by him or herself under his or her own instinct, in very own way-not forcefully guided by others rather willfully adopted to lead the personnel life. The question is how a person will drive his life in a specific way? One of the obvious answers could be by having knowledge of what is best for him. This leads to discuss the reason and emotion as the two Ways of Knowing, supported by the Areas of knowledge fueled by ethics and Natural sciences. The essay will try to understand how the reasoning charges the emotion to lead life in a particular way under the umbrella of Natural sciences in an ethical way, by considering the logical arguments related to it with the help of examples as far as possible.

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While emotion is a natural instinctive state of mind deriving from ones circumstances, moods or relationship with others, Reason is the cause, explanation or justification for an action or event, reasoning and emotions are closely connected, the decision making relies on emotions, this implies that life is guided by reasoning and emotions, reasoning helps us to foresee the consequences and to judge if the action makes sense, yet what ‘makes sense’ depends upon the emotion.
People do not practice any activity without active or passive purpose. They don’t waste time and energy purposelessly specially, a regular exercise of getting knowledge for more than a quarter of their life,Struggling in schools and colleges- investing money,time andenergy. There is Reason behind;true,sometimes the knowledge has a direct and well known purpose whereas sometimes the academic knowledge has some passive purpose but all these knowledge are meant to shape the life of the gainer and struggler for knowledge. The quest of finding the fact about malaria, a deadly disease was, to understand the reason the cause, and its cure, it took long time before the facts got established and a possible treatment was discovered leading to the invention of the medicine.Was this without a purpose? Was there an emotion attached behind, to save the whole human kind? I opine, the pain and sufferings of the patients may have fuelled the research to some extent as well. The natural science and its knowledge are all full with reason and purpose behind all scientific discoveries and inventions and endeavor. True, while trying to find out something purposefully people get extra, even un-associated knowledge of some other type or class which may or may not have an immediate use and purpose in their eyes, for the time being.But the graphic detail of it, remains saved in their mind and is utilized somewhere else in due course of time. or even if unutilized the knower is well aware of the latent information, to keep this piece of work in his brain, so as to utilize it some other time thus, knowledge has two forms namely an active and passive knowledge. It may also be noted that sometimes reason gets defeated by emotions attached to the purpose, a child’s repeated demand of cold drinks while suffering with cold and flu is accepted by father, at this point the knowledge question is, why this acceptance? Possibly, not because of reason but emotion!
Talking about the natural science, why do scientists invest their time and brain in new research? Without, any point in their brain? Then what do they do sitting and observing? Till when and why, answering these questions frames the overall purpose of them being there. And these are the knowledge question as well, any new research cannot be carried out in physics or chemistry or biology unless there is a reason behind it, the people from management studies and sciences know it much better, when they say that the most important work for a successful activity is: setting the Goal breaking it into small achievable targets, and then working for the sake of those targets.One by one, to finally achieve the goal, and thus sort out the overall purpose. Scientific research are also done in the same fashion, by setting up goals breaking it into pieces and sequential steps, all forming important steps to reach a solution of the problem, a big tunnel cannot be made or a big mountain cannot be broken or brought to ground without any purpose. Knowledge establishes facts and information are devised from this fact to help understand life and surroundings in a more refined way which thus provides a better living environment. Now the question is what if there is no purpose behind any peace of quest and there is no curious mind working behind a given idea or set of ideas, will the brain still be working will their still be an idea or creativity from nowhere? Where to start for what when how and many more questions will stand still without any straight or creative answer. So how the quest will take form and why?Another important point worth mentioning out here is the famous instant from Sir Isaac Newton’s life when he wandered as why the apple is falling down on the ground and not going up once it is broken from its branch, which leads to the famous and useful theory of gravitation. This incidence was not only once occurring rather a routine natural process that no one actually cared so no purpose and meaning for the people from normal walk of life, so a wandering but purposeful wanderer is needed to really bring meaning and purpose, to shape up knowledge. Or is there any counter claim? Supposing that Mr. Newton was sitting and thinking or dreaming something else at the time of this falling apple, paying no attention to this phenomenon of nature, then what would have happened? The answer is, whatever but not the theory.
Ethics is another important area of knowledge which needs to ponder under this debate of knowledge meaning and purpose. Human coordination towards other humans and towards the nature is another philosophical area, which never works without any relationship between purpose, meaning and knowledge. How an ethical rule is defined and or established unless the raw material, a piece of past experience or a smallest of fact is available to the genuine thinkers in this field?Human mind starts working in an active way only with an input of purpose so in here if the main purpose and the meaning are missing from the whole fury of knowledge then nothing as knowledge takes shape.
While wandering through wild purposelessly people get involved in watching the plants and trees with highest degree of curiosity only if they have interest in watching and gaining some active or passive purpose behind it others may find interest in watching animals or birds out there. Now if their interest is towards human and ethics the perspective will be different then someone interested in animals and animal protection as compared to someone else who is interested in the delicate balance between all these factors and the new ethical theory or principle formulated will be different from all these theorist and philosophers of ethics.
Having said this, we may discuss the academic knowledge as acquired by the scholars at school and colleges, they will have better approach towards their studies, if they have the knowledge and understanding behind their subject of endeavor, if they know the real reason behind the struggle in studies, they will excel in their field as compared to those who are trying to study just for the sake of studying. This is the reason why preface and introduction to the book is written, and written to be placed on the front page. Students undertaking professional qualification always record high percentage of passing out as compared to those who are pursuing a general academic course where the pass percent is comparatively low.
Thus to sum up knowledge is always acquired with a purpose and meaning in life and not in vain , I fully agree with the statement, and personally gaining knowledge for me is only possible if there is direct and indirect purpose leading to the meaning in life. This provides the necessary fuel and zeal required to continue the endeavor and struggle towards the successful assimilation of knowledge.
Bibliography:
References;
1) https://www.google.com/search?biw=1366&bih=622&noj=1&sclient=psy-ab&q=the+meaning+of+Emotion&oq=the+meaning+of+Emotion&gs_l=serp.12..0l9.94867.104530.1.110389.8.7.0.1.1.0.989.3221.3-1j2j0j2.5.0.msedr…0…1c.1.61.serp..2.6.3222.WSAznehMuh8
2) https://www.google.com/?gws_rd=ssl#q=Reasoning
3) http://www.theoryofknowledge.net/areas-of-knowledge/
4) http://www.theoryofknowledge.net/ways-of-knowing/
5) Eileen Dombrowski, Lena Rotenberg,Mimi Bick. 2007. Theory of knowledge , Course Companion Oxford University Press.
 

The Purpose and Objectives of Annual Reports

The literature review section talks about the background of research being undertaken. It provides an illustration about the importance of the different sections of the annual reports and the qualitative characteristics of information that make it useful for users of accounting information. Hence, it outlines on the previous research done on the study of annual reports and the importance of annual reports to users who have a reasonable knowledge in business, economics and accounting.

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The main purpose of annual reports
The purpose of the annual report is to inform shareholders as to the financial status of a company. Coy and Pratt (1998) conclude that the annual report serve as a communication tool and determines the reality of the organization in the public mind. However for this reality to be recognized, it depends on the quality of information provided in the annual reports. Annual reports are extremely significant sources of company information (Stanga,1976). Furthermore studies by Chang and Most (1985) and Hawkins and Hawkins (1985) concluded that even though individual investors do not find the annual report useful in decision making and do not meet their information needs, still the annual report is the document used as reference for investors and managers. Though annual report is not the only source of information for a company, as in New Zealand newspapers and magazines were also found as a source of information, nevertheless the annual report is considered to be an important resource due to its large reporting and availability. Therefore the fundamental aims of preparing financial reports are for decision making and accountability.
Accountability
Annual reports are considered as the main accountability mechanism. In 1975, the American Accounting Association (AAA) defined the purpose of accounting as “to provide information for making useful economic decisions and which, if provided will increase social welfare”. Thus annual report can be one tool for communicating economic information to allow update decisions and judgements by users.
According to Stanton and Stanton (2002) the annual report “uses the tools of management, marketing and communication theory to construct a picture of the organization”. Thus, annual report is a tool for a firm to classify its accountability for managing and controlling business activities. Moreover, a number of researchers (Winfield, 1978; Chang and Most, 1985; Boyne and Law, 1991), have noted the importance of annual reports as a ‘vehicle’ releasing accountability.
Furthermore accountability is involved in the monitoring, evaluation and control of organizational agents to make sure that they perform in the welfare of shareholders and other stakeholders (Keasey and wright,1993). It can be classified as a requirement for one party to another party for its performance over certain time. In short, accountability is simply a must to report upon as it gives an extent to which an entity has met its responsibilities towards its owners and to fulfill this role, financial reports should reflect the nature and extent of performance that are related to the entity. Moreover accountability requires broadening the capacity of disclosure beyond the financial focus to ensure that adequate and meaningful qualitative information is also contained in the annual report.
Besides, the owners of the companies, the shareholders, have a right to know what actions and what developments are taking place within the organization. Thus, the organizations are accountable to its shareholders and the annual report plays a great role in conveying the firm’s performances to them.
Decision making
As per IAS 1, the financial statements’ objective is to offer and inform the performance and the evolution of the financial situation, that could be helpful to a wide range of potential users for evaluating and making economic decisions .It is further claimed that, when the general purpose of financial reports meet this objective, they will also enable entities to discharge accountability.
Consequently the first aim of the Trueblood Report is the provision of information for economic decision making is being interpreted as being the primary function of financial statements. Hence financial reports should seek to satisfy the information needs of users. In 1989, the Solomons Report, commissioned by the ICAEW (1989) reaffirmed that decision usefulness is the fundamental aim of financial reporting. Financial reports should provide information that will be accommodating to several users who have interest in financial performance and making decisions about investing and lending.
Gray (1994, pp9), have proved that accounting literature is presently dominated by the idea of decision usefulness which mean that financial reporting will have to be maintained in order to meet the need of all users of accounting information. It is seen that nowadays there has been a rise in the users of accounting information for decision making hence objectives of annual reports are regarded as the major means by which companies distribute information to the external users (Firth, 1979).
OBJECTIVES OF ANNUAL REPORTS
According to FASB the main goals of annual reports can be classified in three parts:

Objectives for making potential economic decisions;
Objective of providing information about the financial position, performance and changes in financial position of an entity;
Objectives for presenting and disclosing of information.

Hence it is the attributes of the qualitative characteristics that make accounting information to be useful in annual reports.
Characteristics of accounting information
The quality of the information provided in annual reports determines the usefulness of those reports to users. FASB and the IASB propose that if Financial Statement setters study the standards and qualitative features in the process of preparation of financial statements only then the financial station would give the “true and fair view”.
Many researchers like (Alford et al. 1993, Amir et al. 1993, Banyopadhyay et al. 1994, Harris et al. 1994, Joos and Lang 1994, Barth and Clinch 1996, Joos 1997, Lewitt 1998 and Pope and Walker 1999) had conduct studies with the aim to identify higher quality as it is related to the ability of financial statements to pass useful information to the users.
Hendriksen and Van Breda (1992, P.123), has described qualitative characteristics as components of accounting information which lean to improve its usefulness.
The Corporate Report of the Accounting Standards Steering Committee, Institute of Chartered Accountants in England and Wales (ICAEW), (1975) has identified seven qualitative characteristics viewed as desirable to make the annual reports useful:

relevance;
understandability;
reliability;
completeness;
objectivity;
comparability;
timeliness.

Relevance
Relevance refers to the capacity of information to influence the decision making process of users. The Solomons Report (1989) has emphasized on this point: “Relevance must come first, for if information is irrelevant, it does not matter what other qualities it has”.
FASB Concepts Statement 2,says in paragraph 27, to be relevant accounting information must be able to make a difference in a decision by facilitating users to form predictions about the result of past, present and future events. It also proposed that there is a trade-off between relevance and reliability that is accounting information should be both relevant and reliable.
A number of research by Stanga (1980), and Mores and Duncan (1988) have already been conducted to deal with the issue of relevance and reliability and that optimistic association exists between the two, with minimum levels of reliability necessary to achieve relevance.
UNDERSTANDABILITY
Understandability is viewed as a user-specific property in the FASB model. Information cannot be useful to decision makers who cannot understand it, even though it may otherwise be relevant to a decision and be reliable. Information is understandable when users will be able to reasonably grasp its meaning. Thus useful information should be capable of being understood by users with reasonable knowledge of business and accounting and the way information is presented in annual reports.
In addition, researchers like Subramanian, Insley, and Blackwell (1993), had evaluated the relationship between the performance of companies and the readability of their annual reports, concluding that the annual reports of companies that done well were easier to read than those of companies that did not perform well.
RELIABILITY
Reliability involves the completeness of information. Information is reliable when it is free from material error and bias and can be depended upon by users to signify faithfully.
FASB has also concluded that verifiability is a major factor of reliability. Verifiability is the ability through consensus among measurers to guarantee that information represents what it purports to represent. It also focuses on whether a particular basis of measurement is properly pertained, rather than on whether it is appropriate.
While Lev and Thiagarajan (1991) , got proof that the market does not retort to certain balance sheet information results of other studies suggested that it may wait until the balance sheet information shows up in future earnings which make accounting information more verifiable and reliable.
COMPLETENESS
Good Accounting information is complete when it provides all its potential users with all the required information that are vital to fulfill their needs and requirements. Moreover reported information in annual reports should provide a complete image of the activities of the organization. Completeness is also when all transactions and events that should have been recorded have been recorded and classified properly. It also assumed that there will be no error of omission in the information. Thus information in the financial reports must be complete within the bounds of materiality and cost is a vital element of faithful representation.
OBJECTIVITY
According to Hines (1991), it is in the benefit of accounting profession to publicly produce information that is objective. Financial information being objective means it should be free from bias in accounting decisions and shall be a measurement of having supporting proof. In other words together with objectivity, information should be both reliable and uniform.
COMPARABILITY
Comparability is the quality of information that allows users to identify similarities in and differences between two sets of economic phenomena. Moreover compliance with accounting standards helps to attain comparability. Thus, information about an entity gains more importance if it can be contrasted with similar information about other entities and with similar information about the same entity for some other period or some other point in time. Comparability is different from consistency because comparability is the goal while consistency is a means to achieve that goal. Users must be informed of the accounting policies used in the preparation of financial statements, any changes in those policies and the effects of those changes. However it is argued that any consideration of comparability must come after relevance and faithful representation. As noted by Sterling, Robert, R (1985), “Comparability alone cannot make information relevant.”
TIMELINESS
Timeliness is considered an ancillary aspect of relevance. Timeliness is about having relevant information available sooner before it loses capacity to influence decisions. Kross and Schroeder, (1984), indicated that “the timeliness of annual reports is relative to the abnormal return around the release date of reports, corporations that released their annual reports earlier held higher cumulative abnormal returns than that of later releases.”
Researchers like Dyer Iv, and McHugh (1975),Whittred (1980) and Dwyer, and Wilson (1989), found that timeliness is affected by factors reporting lag such as auditing opinion, profitability and company size. Therefore the use of technology may enhance position of all users and improve regularity of timeliness with which information is received.
In addition to the qualitative characteristics mentioned above, there is two more qualities proposed in the accounting literature which is essential; they are faithful representation and materiality.
FAITHFUL REPRESENTATION
Faithful representation is attained when information is representing faithfully the transactions and other actions it either claims to represent or could reasonably be expected to represent. However faithful representation does not mean total freedom from error in the representation of an economic phenomenon because economic phenomenon presented in financial reports is normally evaluated under conditions of uncertainty. Thus, to attain a faithful representation, it sometimes may be essential to clearly disclose the degree of uncertainty in the reported financial information.
MATERIALITY
Materiality does not involve only relevance but also faithful representation. Information is material if it could persuade users’ decisions taken on the basis of the annual reports. Materiality depends on the nature and amount of the item in case of omission or misstatement. It forms the threshold for recognition of information and only material information is contained in the annual reports.
According to SEC (1999), is a symmetric in emphasizing that small misstatements may be material for qualitative reasons but “SAB 99 is silent on whether, and when, a quantitatively large error could be immaterial,” (Taub 2007). Thus, many registrants and practitioners consider that this guidance prevents judging quantitatively large misstatements to be immaterial.
COMPONENTS OF ANNUAL REPORTS
The annual report encloses a huge amount of information about a company. As formal communication documents the annual reports also contains quantitative information, narratives, photographs and graphs. There have been several survey-based studies in accounting conducted that the annual reports is useful source of information (e.g., Briggs, 1975; Lee and Tweedie, 1975, 1976,1981; Anderson and Epstein, 1995; Abu Baker and Naser 2000; Ho and Wong 2004). Ho and Wong (2004) conducted a research in Hong Kong and concluded that annual reports are consisted of high value of information in comparison to other sources, even though the respondents are not fully satisfied with the amount of information disclosed.
Thus in Mauritius, the section 221 of the CA 01 specifies the contents of an annual report. Hence it includes the following:
Chairman’s Report
Lee and Tweedie (1975), Barlett and Chander, 1997, p.246 found that the most common read sections of the annual reports is the chairman’s statement .This was attributed to the simplicity of the chairman’s report, which clarifies the more technical information, contained in other parts of the report. On the other hand, Wilton and Tabb(1978) surveyed about 300 shareholders and concluded that the chairman’s report was the most widely read followed by the income statement. However, Barlett and Chander have also disclosed that the majority of respondents in their sample desired less information in the form of a summary report rather than the annual report itself.
Directors Report
The Directors’ report supply useful information to investors about the activities of the company, the dividend policy and information about the decision makers of the company.
Anderson (1998) spot out that despite majority of investors found the basic financial statements to be most valuable, the most thoroughly items read in the annual report are the directors’ report. Lee and Tweedie (1975) found that the executive’s report was of great to less importance, over one-third of the respondents believed the directors’ report to be of no value.
Corporate Governance Report
Corporate governance (CG) has been a foremost policy issue in developed market economies for more than a decade. Hashim (2009) defines CG as “a combination of processes and structures conducted by the board of directors to authorize, direct and oversee management towards the achievement of the organization’s objectives”.
The Report on Corporate Governance for Mauritius, states that companies that are listed on the Stock Exchange of Mauritius shall abide to all provision of the code and there should be a separate corporate governance section in the annual report. Dividend policy, Directors profile and going concern of the corporate governance report might be useful to user of accounts. Shareholders will attain valuable information about the amount and timing for payment of dividends declared by the company. On the other hand the disclosure of the qualifications and experience of the board members is useful to investors as such information specify that people with required experience, qualifications and integrity are managing the company hence it boost up the confidence of shareholders. Cohen, Krishnamoorthy and Wright (2004) recommend that CG can be one of the main functions in ensuring the quality of financial reporting.
Auditors’ Report
The auditors are required to report to the shareholders of the company as to whether in their opinion the financial statements have been prepared accordingly with the accounting standards and whether they give a true and fair view of the transactions of the company. The fundamental aspects of an Auditor’s report are set by ISA 700-The Auditors Report on Financial Statements. This ISA gives guidance on the type and content of the auditors’ report as a result of an audit carry out. The auditor’s report was the most understandable section of the annual report while the balance sheet was the forth (Nasser and Rutherford’s 1996). Hence it is useful to users of accounts as it offers assurance that the users are making economic decisions based on reliable information. However, Bartlett and Chandler (1997) found that the auditor’s report was read the least by individual shareholders.
Corporate social responsibilities (CSR)
CSR can be described as the “process of communicating the social and environmental effects of organisations’ economic actions to particular interest groups within society” (Gray et al 1996 p.3). Corporate social disclosure is referred as the provision of financial and non financial information that intend to discharge social accountability of an organisation (Gray et al 1987).Gelb and Strawser (2001) states that CSR disclosure is a form of socially responsible behaviour, thus by providing more information to the public will help companies to meet their responsibilities towards their stakeholders in a better manner.
However research studies have shown that most users use the information of financial statements for financially based decisions. IAS 1, of IASB, 2004: (para.7) states that the objective of financial statements ‘is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions’.
So the financial statements are made as follows:

Statement of financial position
Statement of comprehensive income
Statement of changes in equity
Statement of cash flow
Notes to the accounts

Statement of financial position
This statement provides a snapshot summary of what a business owns or is owed-assets-and what it owes-liabilities-at a particular date thus it is referred as a statement of net worth. It shows how solvent a business is, how liquids its assets are and how much capital is being spent.
It also consists of non-current assets, current assets, capital and reserves, non-current liabilities and current liabilities. The non-current can be classified as assets that are not quickly and easily realizable, and current assets are assets that can be readily convertible into cash within a short time. Furthermore share capital represents amount receives in respect of shares issued by a particular company, non-current liabilities and current liabilities are obligations that are not aimed to be liquidated within a year and one that are expected to be settled within one year respectively.
Statement of comprehensive income
The main purpose of the comprehensive income statement is to report a company’s earnings over some pointing period of time. This statement reflects the company’s revenues, expenses and earnings; it gives information about the financial performance of a company. Users of accounts who are concerned about the profitability can obtain relevant information in the comprehensive income statement and they can make use of ratios to take out information they need therein.
Statement of changes in equity
IAS 1 requires that companies should prepare a statement of changes in equity to be presented with the same value as the other primary statements. According to Barry and Jamie Elliot this statement is vital because a quantity of gains and losses are required by law or accounting standards to be managed through directly with reserves, so as to prevent the financial statement from being incomplete.
The shareholders acquire more information about any changes made to share capital, retained earnings, revaluation reserves, share premium other reserves and to proposed dividends. Sometimes gains and losses may be easily traced by reserve accounting, which permits items to bypass the income statement. Hence the statement of changes in equity provides more transparency in reporting these gains or losses.
Statement of cash flow
Section 217 of the CA 01 requires all companies to include in their annual report a statement of cash flow and the latter should be prepared in accordance with IAS 7. The purpose of IAS 7 is to include the provision of information about the historical changes in cash and cash equivalents of a company by means of a statement of cash flow. Cash flow statement has become useful sources of information for users (Day (1986) and Yap (1997)).
Thus cash flows are classifies during a period from:

operating activities-the cash effects of transactions concerning trading activities;
investing activities-cash flows from the purchase and sales of non-current assets and short term investments;
financing activities-involve receipts from or refund to external providers of finance in respect of the primary amount.

Notes to the accounts
Notes to the accounts can be refers as explanatory notes that accompany the financial statements. These are intended to give further detail of the items appearing in the financial statements, to provide surplus information, to represent attention of related party transactions and to give existence of interest to stakeholders, other than the shareholders. It includes the IAS, concepts, depreciation policies and methods of valuation that an entity has used.
Furthermore studies conducted by Anderson (1981), found that the most readable sections of the annual report were seen to be the balance sheet, profit and loss account, notes to the accounts, and the chairman’s statement respectively. The comprehensive income statement, however, was seen to be more essential than the balance sheet. However this author failed to carry out any test whether there are major differences between the users’ usage of annual reports sections and on the other hand observed its importance of those sections.
Epstein and Pava (1993) has developed on the work of Epstein (1975) and found that there has been an increased in the importance of annual report as a source of information. Furthermore, they found that the importance of the balance sheet had extended, and that over the same period the perceived usefulness of the income statement had declined.
Anderson and Epstein (1995) argued that in Australia they found that the comprehensive income is more useful in making an investment decision rather than the directors’ report. In this respect the respondents had also demand for simplification and more explanation of the balance sheet, statement of cash flow, and the income statement.
In another study by, Abdelsalam (1990­) it was highlighted that the comprehensive income and information about the future of the company as well as information about directors was seen to be important part of the annual report. Ba-owaidan (1994) also found the profit and loss account to be the most influential part of the annual report followed by the balance sheet but has also concludes that some respondents faced some problems in understanding the contents of the annual reports.
The Kruskal Wallis test revealed that the cash flow section was the only section of the annual report that the user groups have significant differences regarding its value. This is not surprising as the findings reported by Lee and Tweedie (1975), Wilton and Tabb (1978) and Yap (1997) for developed countries disclosed that individual and institutional investors have little interest in the cash flow statement and may not rely upon, as they are not a sophisticated group.
In New Zealand, Chang and Most (1985), disclosed that newspapers and magazines were the preferred source of information and the comprehensive income statement was found as the main statement in the annual report for decision making.
Moreover, Anderson (1979) and Courtis (1982) also found that the balance sheet and the profit and loss statement were regarded as the two most essential statements for decision-making.
In addition, Anderson and Epstein’s (1997) study revealed that in Australia, New Zealand and US, the comprehensive income and financial position statement were ranked as the most essential items but the cash flow was less important to New Zealand and Australian investors than to US respondents.
Moreover, Stephen L.Buzby carried a research in 1974 on the usefulness of annual reports and his aim was to find the perceptions of professional financial analyst on selected items in the annual reports.
To summarize Daniels and Daniels (1991) found that information present in financial statements is important and very useful but not sufficient enough to evaluate the financial condition of a company.
USERS OF ACCOUNTS
According to IASB, financial information is prepared for users, “presuming that they have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence.” The different users and their needs are identified below:
Investors
Investors need information to decide whether they should continue to invest in an entity, to assess whether that particular organization will be able to pay out dividends as well as how the enterprise has been managed. The investors require information about profitability, volumes, sales, amounts invested, assets owned, share price and information about competitors. Epstein and Pava (1993) document that individual investor’s demand for more financial and non financial information in the annual reports.
Shareholders
Shareholders are the owners of the company. Thus, they have the right to receive dividends from the company’s profit. Information in annual reports is very important to shareholders as profit acts as an indicator of the amount of dividends they ought to obtain.
According to Cook and Sutton (1995), companies should prepare summary annual reports based on information requirements of shareholders in order to satisfy their needs. Thus, companies should disclose essential piece of information in a clear and understandable format that will enhance the relevance and value of annual reports in communicating company information to shareholders.
Lenders and Financial institutions
Lenders such as insurance companies, pension funds use FS information to decide the loan amount, the interest rate and security needed for business loan and they should also make sure whether the company would be able to repay back both the principal amounts and the interest’s payments. The key accounting information for lenders is therefore:

Cash flow
Investment requirements in business

Thus such information required by lenders is available in the annual report.
Employees
Employees demand annual report for the stability and profitability of the business. They are interested in information about employment prospects, security of their jobs and retirement benefits. Furthermore, Clark and Craig (1991) conclude that relevant information for investors is also relevant for employees.
Government
The government group makes use of an annual report for tax purposes. The tax authorities such as the Inland Revenue needs information on the profitability of an entity to levy corporation tax and custom and excise make use of information to check VAT returns. Hence tax authorities use FS information as a source for enhancing social welfare by establishing tax policies.
Public
The public are usually considered as ‘stakeholders’ and businesses form part of society at large and as a result create much public interest. Marston and Shrives (1991, pp196), found annual report as the main document available for the public thus is being regarded as the main “disclosure vehicle”.
Moreover despite some improvements has taken place in reporting in recent years, the users groups of annual reports wish to have more information than is currently provided (Abu-Nassar and Rutherford, 1996; Hatif and Al-Zubaidi, 2000; Naser and Nuseibeh, 2003). On the other hand, Dye and Bowsher (1987) concluded that most users seek an annual report to include other information that will enhance their understanding. Hay and Antonio (1990) found that users demand for highly detailed disclosures in annual reports. In addition users want information on future prospects, company products, publication of quarterly reports and management audit reports (Anderson 1981). Furthermore Benston (1976) reported that annual report were the least important source of information compared to financial press and newspaper reports.
In summary, results from preceding studies shows that users believed that annual reports is the main sources of information; though each section was not considered as of equal significance. The results also disclose a necessity to establish some changes to the annual reporting that allow the information to be more understandable and sufficient for potential users.
 

Primary Purpose of Amy Tan’s Mother Tongue

In this paper, we would be analyzing the rhetorical techniques used in Mother Tounge by Amy Tan . The paper will be discussing and analyzing the different aspects of rhetoric devices and techniques used in the story.
The primary purpose of Tan’s “Mother Tongue” is to orient the readers about the author’s intepretation of differentiating Standard English and broken English. Another purpose of writing such book is the fact that Amy Tan has spent much of her time in America, but she was born in China. This factor has enabled her to have the blend of both the societies, which was also evident in her writing.

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In the book “Mother Toungue”, the author has discussed the factors that has proved to be the primary determinants of association with her mother. Moreover, being a Chinese native, the author’s mother often finds it difficult to speak Standard Language. In her writing, Amy Tan described the merits and demerits that arose due to the limitation of her mother’s language.
Amy Tan, born on February 19, 1952, is a writer from the United States who explores the relationships between mothers and daughters and what it means to be part of the first generation of Asian Americans. In 1993, the film adaptation of his most popular work, The Lucky Star Club, became a commercial success (Henderson, 266-269).
She is known for her first novel, The Good Star Club published in 1989. She also wrote The Kitchen God’s Wife. In 1995, she wrote The Hundred Secret Senses. Her last published novel was The Bonesetter’s Daughter, though her most recent work is Saving Fish For Drowning, which recounts the experiences of a group of people when lost in an expedition to the jungles of Burma. In addition, Tan has written two books for children: The Lady in the Moon (1992) and The Chinese Siamese Cat (1994), and has also appeared in television spots PBS encouraging children to writing (Henderson, 266-269).
Amy Tan was known to the books, the wife of the fire god and daughters of heaven, which was filmed under its own direction. Other works include The Hundred Secret Senses and The Opposite of Fate: A Book of Musings, a collection of non-fictional essays. They also wrote two children’s books: The Moon Woman (1992) and The Chinese velvet cat (1994). Her books have been translated into 35 languages. The libretto for the 2008 at the San Francisco Opera premiered in setting her bestseller The Bonesetter’s Daughter Amy Tan wrote himself a composer of opera is Stewart Wallace (Henderson, 266-269).
At age forty, Tan was part of the garage-rock band literary Rock Bottom Remainders, along with Dave Barry and Stephen King, who dedicated his book. Along with King, Tan appeared in an episode of The Simpsons called Insane Clown Poppy. Although her work has been widely praised by critics, some of them, like The Joy Luck Club, have been criticized by the Asian American author Frank Chin for “perpetuating racist stereotypes” (Henderson, 266-269).
In the story of “Mother Tounge”, the author has used Appeal to pride ( an emotional appeal) device to grab the attention of the audience. Amy Tan also uses other rhetorical devices such as anecdote and oxymoron to express her embarrassed and guilt, but loving attitude toward the broken English language of her mother. Amy Tan has used a combination of rhetorcial devices to express her emotions and feelings through words. One of the rhetorical devices Tan uses to reveal that her mother’s English skills are embarrassing to her is oxymoron. Tan relates an anecdote about her mother demanding that Tan talk on the phone to a stockbroker who Mrs. Tan believes is trying to cheat her from some money. (Tan, 142-46) We sense Tan’s embarrassment in the exchange, but later when Mrs. Tan and a young Amy Tan stand before the astonished stockbroker, Tan states that her mother shouts at him in “impeccable broken English” (Tan, 142-46).
Tan’s use of Inversion, something that she change the situations and put those situation in a proper word order. Just like an inversion, where two opposing ideas coexist to make a point, so does Tan’s embarrassment and love coexist toward her mother. Tan’s use of inversion is almost a symbol of how she feels about her mother , an emotion which is both “impeccable” and “broken” at the same time. Moreover, throughout the study, Amy Tan has also used rhetorical devices such as ethos, pathos and logos. The primary purpose of using such rhetorical strategies in her writing is to illustrate the reader that a person having limitation is speaking language does not necessarily means that the person will also face limitations in other disciplines of life. That is why, she changed the situations in a usual word order.
Impersonation refers to the technique that the speaker to be said that places another person in his/her mouth. This technique was quite evident in “Mother Tounge”, as Tan possessed her ability to exhibit the sense of reasoning. Tan states in her writing that “Sociologists and linguists probably will tell you that a person’s developing language skills are more influenced by peers; but I do think that the language spoken in the family…plays a large role in shaping the language of the child” (Tan, 142-46). In this phrase, the author illustrated regarding the concepts of other people, as through the device, the author puts her word into other mouth the language skills more influenced by the peers, which means she gave the credit to the peers. The wide use of impersonation in her writing also proved the credibility of knowledge in her writing because in her writing she credited the peers at almost every point.
In “Mother Tongue”, the author has used certain rhetorical questions regarding the difference in performance of students, and provides the answers by exhibiting in her writing that “there are other Asian-American students whose English spoken in the home might also be described as ‘broken’ or ‘limited'” (Tan, 142-46). In this phrase, the author has not provided any concrete evidence regarding the claim that she made in her writing, still including herself in the study as role model which proves the credibility of the knowledge in her writing.
In summary, the writer has used specific rhetorical device in her writing to grab the attention of the audience. Amy Tan used rhetorical devices such as anecdote and oxymoron to express her embarrassed and guilt, but loving attitude toward the broken English language of her mother. Amy Tan has used a combination of rhetorcial devices to express her emotions and feelings through words. Moreover, throughout the study, Amy Tan has also used rhetorical devices such as ethos, pathos and logos. The primary purpose of using such rhetorical strategies in her writing is to illustrate the reader that a person having limitation is speaking language does not necessarily means that the person will also face limitations in other disciplines of life. This is undoudetbly another excellent piece of work by Amy Tan. By using rhetorical tehniques, she has made her writng appealing, informative and interesting to read.
 

What is the Purpose of Parallelism Between Fantasy and Reality?

What is the Purpose of Parallelism Between Fantasy and Reality?

“‘Khattam-Shud,’ he said slowly, ‘is the Arch-Enemy of all Stories, even of Language itself. He is the Prince of Silence and the Foe of Speech. And because everything ends, because dreams end, stories end, life ends, at the finish of everything we use his name. ‘It’s finished,’ we tell one another, ‘it’s over. Khattam-Shud: The End’”(Rushdie 39). In Haroun and the Sea of Stories by Salman Rushdie, the antagonist Khattam-Shud is introduced as the “the end” to all things. Khattam-Shud is the embodiment of silence and thrives for absolute command, control, and censorship. Much of the fictional character, Khattam-Shud, is developed by parallelism throughout the chapters and his purpose is demonstrated through the hidden political allegorical attacks throughout novel that showcase the inequality and unfairness in non-egalitarian totalitarian societies. It is the persona of Ayatollah Khomeini which Khattam-Shud mirrors and his Alifbay counterpart, Mr.Sengupta to further develop the themes of oppression and censorship that accompany Khattam-Shud’s character.

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  To begin, the character of Khattam-Shud is first introduced as a counterpart from Alifbay as Mr. Sengupta, “who [hates] stories and storytellers” (Rushdie 20). Throughout the first chapter, it is established that Mr. Sengupta not only despises stories but believes that, “[stories] will come to no good” (Rushdie 20). Through the character of Mr. Sengupta one can catch a glimpse into the type of character Khattam-shud develops to be, as Mr. Sengupta despises stories and imagination of any sort. While Mr. Sengupta does not see the purpose in storytelling he makes no real effort to rid Alifbay of storytelling, however his phrase, “What’s the use of stories that aren’t even true?” (Rushdie 22), leaves Rashid unable to fabricate any stories which although has the same intentions is different from Khattam-Shud who takes his detestation to extreme in which he plans on poisoning all stories in the Sea of Stories and abolish everyone’s right to speech. Nevertheless, this brief parallelism between characters allows for the roots of censorship and oppression to take place which are better established as the story progresses.

Secondly, Khattam-Shud’s thirst for complete control and the eradication of stories exhibits his craving for totalitarian power over the world of stories. This is apparent when Khattam-Shud says, “You’d have done better to stick to facts, but you were stuffed with stories…stories make trouble. An Ocean of Stories is an Ocean of Trouble” (Rushdie 155). Here Khattam-Shud expresses his resentment and bitterness regarding free speech, revealing as to why he is poisoning the Ocean of Stories and showing his disdain for them by relating “stories” and “trouble” together. Furthermore through the silence laws which depict, “In the old days the cultmaster, Khattam-Shud, preached only hatred towards stories and fancies and dreams; but now he has become more severe and opposes speech for any reason at all. In Chup city the schools and law-courts and theatres are all closed now, unable to operate because of the silence laws,”( Rushdie 101) it is evident Khattam-Shud not only plans to censor speech but to rob the society of it all together much like the oppression and censorship present with Ayatollah Khomeini who issued a fatwa against Salman Rushdie in attempts to silence him. Khattam-Shud’s yearning for totalitarianism like Khomeini can also be exhibited when he declares that, “the world is for controlling. Inside every single story, inside every Stream in the Ocean, there lies a world, a story-world, that I cannot Rule at all” (Rushdie 161). It is through the allusion to Ayatollah Khomeini that Khattam-Shud’s character can be explored as the use of allusions not only evoke images as to what the essence of the characters is like but it also contributes to having a deeper understanding of Khattam-Shud because of the implied assumptions and references made from Khattam-Shud to real-life figure Ayatollah Khomeini.

Furthermore, it is evident that even the characteristics of Khattam-Shud mirror and depict those of Ayatollah Khomeini’s. Through the resemblances and parallelism of the two, Salman Rushdie is able to portray Khattam-Shud as, “ the arch-enemy of all stories,” (Rushdie 79) who poisons the Ocean of Stories much like Khomeini, who in turn poisons the minds of those around him. It is also through Khattam-Shud’s continuous detestation for storytelling that he mirrors Khomeini’s repugnance for Salman Rushdie’s work The Satanic Verses. Additionally, it is ironic that both oppressors enforce and impose rules upon others to obtain more power, like Khattam-Shud’s Silence laws to Khomeini’s fatwa, that they have no intention of enforcing upon themselves. “Isn’t it typical, couldn’t you have guessed it, wouldn’t you have known: the Grand Panjandrum himself does exactly what he wants to forbid everyone else to do. His followers sew up their lips and he talks and talks like bily-o”(Rushdie 154). This passage shows that interestly enough, Khattam-Shud oppose his own set of laws that command for complete silence as he speaks freely within the novel. Through the attributes of Khattam-Shud reflected by Khomeini, it is evident that in Haroun and the Sea of Stories the Land of Chup is controlled by a corrupt political power figure who longs control through the demise and ceasing of all speech, further conveying the inequity in non-egalitarian societies of both real-life and fantasy.

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Ultimately, the role of Khattam-Shud’s character reveals and addresses the injustices taking place in totalitarian non-egalitarian societies through the allegories and the correspondence of similar character traits between that of real-life figures and of fictional characters. Beginning from resemblance between Khattam-Shud and Mr. Sengupta’s to Khattam-Shud’s urge to oppress and control like Ayatollah Khomeini, the development of Khattam-Shud’s character and his role within the novel is better illustrated by juxtaposing the characters to others from both fantasy and reality.

Works Cited

Rushdie, Salman. Haroun and the Sea of Stories. London :Granta Books in association with Penguin Books, 1991. Print.

Objectives and purpose of factor analysis

Factor Analysis is extensively used in business research. The purpose of factor analysis in business research is to reduce the number of variables by using lesser number of surrogate variables (factors) while retaining the variability.
The primary objective is to capture some psychological states of customers/ respondents that cannot be measured directly. This is usually implemented by constructing a scale that measures attitudes, perceptions, motivations, etc of targeted customers of a specific line of business.
Initially, the targeted customers/ respondents are subjected to answer a detailed questionnaire with different lifestyle statements along with numeric or verbal scales. Through this, what really are measured are customer’s views regarding few dimensions (factors) concerning the success of a business. These dimensions are psychological states that cannot be measured directly. So, factor analysis is used to assess these dimensions (factors) indirectly.
So, factor analysis is primarily used to simplify a data set before subjecting it to multivariate analysis – multiple regression, etc.
Developing a research plan for Factor analysis.
The first step in conducting factor analysis is to develop a research problem. In that regard, one has to identify the problem that includes several tasks. First, the objectives of factor analysis should be identified. Then, the variables to be included in the factor analysis need to be specified. The variables are included mainly based on past research, or judgment. Moreover, it is very important that the variables be appropriately measured on an interval scale or ratio scale.
The nest task is to determine the sample size. As a rough guideline, sample size should be at least 4 to 5 times the number of variables included.
For example, Wills Lifestyle wanted to study the general preference of people within age group of 22 – 30 in terms of the type of garments they wear and monetary spending habit.
So, they first identified their objective as:
“To study the general preference of people within age group of 22 – 30 in terms of the type of garments they wear (formal versus casual) and monetary spending habit (spendthrift and stingy)”
Then, it specified following lifestyle statements as variables to be included in factor analysis:
V1: I like to go for shopping frequently
V2: I like to go to parties frequently
V3: I like wearing formals quite often
V4: I have official meetings frequently
V5: I would rather save money than spend
V6: I prefer old things (clothes, shoes, etc) versus new ones
Assumptions of Factor analysis.
Following are the assumptions that factor analysis entails:
The variables included can be condensed into one or more underlying factors
As a data reduction technique, factor analysis assumes that a research involves multiple dependent variables
The sample is homogeneous in the sense that the sub groups within the sample will not have different patterns of scores on the variables included in the analysis
The factors are related to the score of each variable in linear manner
The specific factors or errors all have mean zero. It is assumed that these errors are random. So they will have a mean and the mean we will assume will be zero here
The observed correlation between variables can be attributed to the common factors
The common factors, the f’s, have mean zero. All of the unobserved explanatory variables will have a mean of zero
The common factors have variance one. These unobserved common factors are all assumed to have a variance of one.
The variance of specific factor i is ψi. Or, the errors or specific factors are assumed to have variances, ψi, for the ith specific factor. Here, ψi is called the specific variance.
The common factors are uncorrelated with one another:
The specific factors are uncorrelated with one another:
The specific factors are uncorrelated with the common factors:
Developing a Factor analysis model.
In developing the model of factor analysis, we address issues of sample size and variables as the first step.
For example, the following variables are lifestyle statements that can be put on a questionnaire along with a 7 point scale (1 = strongly disagree, 7 = strongly agree)
The variables to be factor analyzed:
V1: I like to go for shopping frequently
V2: I like to go to parties frequently
V3: I like wearing formals quite often
V4: I have official meetings frequently
V5: I would rather save money than spend
V6: I prefer old things (clothes, shoes, etc) versus new ones
The sample size:
The questionnaire is subjected to be answered by 25 respondents.
Ratio of sample size to number of variables must be at least 4:
The ratio of sample size to number of variables is 25/4 – greater than 4. Therefore, this requirement is also met.
Mathematically, we develop the factor analysis model as given below:
Xi = Ai1F1 + Ai2F2 + ……………..+ AimFm + ViUi
Where
Xi = ith standardized variable
Aij = standardized multiple regression coefficient of variable I on common factor j
F = common factor
Vi = standardized regression coefficient of variable I on unique factor i
Ui = the unique factor for variable i
m = number of common factors
The unique factors are uncorrelated with each other and with common factors. The common factors can be expressed as linear combinations of the observed variables:
Fi = Wi1X1 + Wi2X2 + …………………+ WikXk
Where
Fi = estimate of ith factor
Wi = weight or factor score coefficient
k = number of variables
Now, the weights or factor score coefficients are selected such that the first factor explains the largest portion of the total variance. Accordingly, a second set of weights are selected so that second factor accounts for most of the residual variance, subject to being uncorrelated with the first factor.
Deriving factors
The primary objective behind conducting factor analysis is data reduction and summarization. Therefore, it is imperative that we condense the original set of variables into smaller number of factors.
Several criteria are examined to determine the number of factors that would ideally represent the data:
A Priori Determination:
Here, the researcher knows how many factors to expect and thus can specify the number of factors to be extracted beforehand.
Determination based on Eigen values:
In this approach, only factors with Eigen values greater than 1.0 are retained. (Eigen Value represents the total variance explained by each factor)
Determination based on Scree Plot:
A scree plot is a plot of Eigen values against the number of factors in order of extraction. Typically, the plot consists of a distinct break between the steep slope of factors. Empirically, the number of factors is determined at the point the scree begins.
In the above figure, the scree begins at factor 4. So, number of factors to be included is four in the above example.
Determination based on percentage of variance:
In this approach, the number of factors is determined when the cumulative percentage of variance extracted by the factors reaches a satisfactory level. The level of
satisfaction depends upon the research problem at hand. But, it is recommended to extract those factors that account for at least 60 percent of the variance.
Determination based on split-half reliability:
Here, factor analysis is performed on two halves of the data set after splitting it into two halves. Then, only with high correspondence of factor loadings across the two subsamples are retained.
Determination based on significance tests:
Here, statistical significance of the separate Eigen values is determined. Then only those factors are retained that are statistically significant. A drawback of this method is observed in case of large samples, wherein many factors are statistically significant, although they represent only small portion of the total variance.
Assessing model fit including statistical significance of the model.
Confirmatory factor analysis allows a statistical test of how well a priori specified factor model explains the observed pattern of sample correlations or covariance, commonly referred to as `model fit’. Model fit can be assessed using indices of overall fit (e.g. chi – square, GFI, RMSR), incremental fit (e.g. NFI, CFI), the root mean square error of approximation (RMSEA) and Hoelter’s critical N (CN).

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It has been suggested that model fit should be evaluated using information from these different families of indices. The chi- square test reported by Greenspoon and Saklofske is highly statistically significant, implying that the model does not satisfactorily account for the data. This is dismissed by the authors on the grounds of excessive power due to the large sample size.
More acceptable ways of assessing model fit include using the Root Mean Square Error of
Approximation and a class of indices known collectively as the incremental fit indices. The calculation of the RMSEA uses the chi – square value of the model, in conjunction with the sample size and a correction for the complexity of the model (degrees of freedom) to ensure that these factors do not affect the decision to reject or accept the model.
An additional advantage of the RMSEA is that it has a known sampling distribution, and
therefore confidence limits can be calculated. The significance value of the chi – square tests the null hypothesis of exact fit, which will always be false, and therefore if the sample size is sufficiently large the power of the test will ensure that the model is rejected. To overcome this problem Browne and Cudeck propose a test of close fit, which tests the null hypothesis that RMSEA is greater than 0.05.
Another way to determine the model fit is to find the difference between the observed correlations (as given in the correlation matrix) and the reproduced correlations (as estimated from the factor matrix). These differences are called residuals. Presence of many large residuals signifies that the factor model is not ‘fit’ and should be reconsidered.
Interpreting results.
After the extraction of factors is done successfully and the model is deemed ‘fit’, the resulting factor matrix, which shows the relationship of the original variables to the extracted factors, is rotated to make it easier to interpret. This is done because in the un-rotated matrix, the factors are correlated to many variables. The coefficients in the factor matrix are used to interpret the factors. The axes are rotated about the origin so that they are located as close to the clusters of related variables as possible.
VARIMAX rotation is the most common rotation (orthogonal) type. In this the axes are rotated at right angles to each other so that the factors are not correlated with each other.
Oblique Rotation permits the factors to be correlated and is considered to be more realistic method of analysis.
First step in this stage is to determine whether there are any variables that need to be eliminated from the factor solution. A variable can be eliminated for two reasons. First, a variable is eliminated if the communality of a variable is low, i.e. less than 0.5, which means that the factor explains only half of the variance in the original variable. Second, a variable may have loadings below the criteria level on all factors, i.e. it doesn’t have a strong relationship with any factor.
The next step is to identify the variables that have large loadings on the same factor. That factor can then be interpreted in terms of the variables that load high on it. If a factor cannot be clearly defined in terms of the original variables, it should be labeled as an undefined or a general factor.
The last step after elimination of variables that do not belong to the factor analysis and identifying the variables with large factor loadings is to name the factors that are obtained. This ensures that the factor solution is conceptually valid.
Analysis of the communalities:
Once the factors are extracted successfully, we examine the table of ‘Communalities’ which tells us how much of the variance of original variables is explained by factors.
If the communality of any variable is less than 0.5, then it should be excluded from the analysis.
For example, in the table of communalities shown below, all the variables will be included in further analysis.
Analysis of the factor loadings:
After we are satisfied that the factor solution explains sufficient variance for all the variables, we examine the Rotated Factor Matrix to check whether every variable has a substantial loading on only one factor or not.
For example, if we consider substantial loading to be 0.4 or higher, then the following table shows substantial loadings in green.
In the above example, all the variables showed substantial loading on one and only one factor. If this is not the case, then we re-run the factor analysis, excluding those variables that do not have substantial loadings on only one factor, one at a time.
Naming the factors:
Once we get a pattern of loadings by following the above steps, we name the factors according to their substance and subjective content.
Validating Factor analysis result.
In this stage, we are concerned with the issue of generalizability of the factor model we have derived. Herein, two issues are examined:
The factor model stable and generalizable
The factor solution impacted by outliers, if any
The first issue is examined by using split half validation in SPSS tool.
Split Half Validation:
The strategy for examining the stability of the model is to do a split-half validation to see if the factor structure and the communalities remain the same.
Identification of outliers:
SPSS contains a strategy to identify outliers. SPSS computes the factor scores as standard scores with a mean of 0 and a standard deviation of 1. We can examine the factor scores to see if any are above or below the standard score size associated with extreme cases, i.e. +/-2.5.
An Indian case on Factor analysis: Saffola
Over the years, the brand Saffola has become renowned for its expertise in Heart Care, thanks to the consistent introduction of innovative product like heart healthy cooking oil and foods.
The case we will be discussing below is a market study done on `refined oil’ in New Delhi carried out a couple of years ago by Saffola in its early years with the below objectives:
Research Objectives:
To gauge the consumer awareness level about the existing brands of refined oil in market
To identify various sources of awareness
To analyze the pattern of consumption of cooking medium with special emphasis on refined oil
To analyze the pattern of purchase of refined oil (in terms of 1 Kg. tin, 2 Kg. tin, etc. and also loose purchasers)
To analyze and identify relevant factors that are considered while purchasing any refined oil
To analyze the perception of consumers about the important attributes of the various brands of refined oil
Methodology:
The method of a probability sampling was adopted covering about 160 households (161 to be exact) in all important areas of Delhi. The process of data collection involved a questionnaire to meet the research. The questionnaire was administered through the mechanism of personal interview in the households allowing full participation from the respondents.
Data analysis, interpretation of results and conclusions, drawn from the study are being discussed here.
Data Analysis:
Awareness of brands as revealed from memory recall.
No. of respondents = 161
Note: Because one respondent can recall more than one brand and even than 3 or 4, the percentage is not additive.
Distribution of awareness to Total Frequency:
Source of Awareness
No. of respondents = 161
Consumption pattern
Purchase pattern ( No of households buying)
Rank distribution (based on 130 households consuming refined oil out of 161)
Rating of attributes of different brands on a 0 to 10 scale:
Interpretation of results (based on data analysis)
Awareness
The research study revealed that the following brands have highest level of awareness: Postman had the highest level of awareness of 70.8% followed by Dalda of 56.5%, Ruby of 47.8%. Diamond of 43.5% and Saffola of 37.3% CORNOLA, came next in the awareness level of a low 8.1%. This indicated that the probable cause for its poor sales could be lack of awareness. The same trend was seen in the next table where the level of awareness was worked out as % to total frequency (No. of Calls) Postman 25.97%, Dalda 20.73%, Ruby
17.54%, Diamond 15.95%, Saffola 13.67%, and CORNOLA 2.96%.
Therefore one thing was conjectured that the awareness level of CORNOLA which was low could be the probable cause for its poor sales. If better sales performance and additional sales were to be generated, the present level of awareness should be increased ‘to a reasonably higher level.
How to increase awareness?
This was answered from table 2 which gives source of awareness, frequency of awareness, % of awareness’ source measured to total frequency and to total respondents. Advertisement was maximum 40.61%, followed by friends 27.92%, market shop 9.14% and personal use 16.78%. It was, therefore inferred that effective advertisement campaign could be the best method for increasing awareness. It was felt that it would be a good idea that the advertisement was not only in T.V. but also given in a magazine like ‘Femina’ which had a larger volume of circulation and was widely read by housewives.
3 Consumption Pattern
It was significant to note from the table that the monthly per capita consumption of refined oil was increasing from lower-middle income to middle income and upper income group. Let us look at the following table giving the per capita consumption for each group and for each type of cooking medium.
As per capita consumption of refined oil was maximum in upper income group, it was decided to concentrate on a priority basis on this income group, for promoting new refined oil like
4. Purchase pattern:
2 Kg. tin and 4 Kg tin appeared to be more popular in term of purchase. The purchase were 30% and 29% respectively for 2 Kg. tin and 4 Kg. tin About 23% were purchasing in loose. It was also revealing to note in posh locality 4 Kg. tin was more popular.(37% purchase). So concentration should be on 4 kg. tin and 2 Kg. tin with respect to purchase because they were more widely purchased.
5. Important factors (Ranked)
Odour, taste and cholesterol were the three most important factors that go with the purchase of any refined oil. Certainly if Saffola could match with others in respect of odour and taste of food cooked, it would definitely have a differential advantage in respect of cholesterol over the existing brands. This factor should be highlighted more in the advertisement as a special feature.
Conclusion:
The above study helped Saffola plan its marketing strategy with regards to the type of advertisement medium to be used, the most preferred tin size for sale and also the factor that they should concentrate upon. Though the taste and odour was what was revealed as the most important factor, Saffola felt the same was targeted by every other company and thus it went on to target health as its differentiating factor going forward.
The case of other Indian company:
JK Company is another Indian company that made use of factor analysis in conducting marketing research. The management felt that the Indian market is ready for inverters as the market for Direct Current (DC) generators is already saturated. The company also found that only a few local companies existed and they could not have the scale and technology that JK had. This looked as a great opportunity to JK and it decided to carry out a survey to understand the perceptions of the owners about the inverters. To do this assignment, the company hires Perfect Marketing Agency (PMA). PMA decides to conduct a survey among the owners of different generators/inverters in India. Factor Analysis technique was selected to handle the problem as it is different from Regression Analysis.
Managerial implications of the results.
Following are the managerial implications of the results of factor analysis:
The results of factor analysis signify the core reasons (factors) responsible for a specific consumer preference
It helps in relating the product to the consumer perceptions
It helps managers to attack and respond to few critical factors rather than multiple redundant variables
Data analysis in SPSS with screen shots.
Select ANALYZE from the SPSS menu bar
Click DIMENSION REDUCTION and then FACTOR
Move all the variables in the pop up that emerges to the other side, i.e. in the VARIABLES box
Click on DESCRIPTIVES. In the STATISTICS box in the popup window that emerges, check INITIAL SOLUTION.
In the Correlation Matrix box, check KMO AND BARTLETT’S TEST OF SPHERICITY. Also, check REPRODUCED. Click CONTINUE.
Click on EXTRACTION. In the popup window that emerges, select PRINCIPAL COMPONENTS (default) for METHOD. In the ANALYZE box, check CORRELATION MATRIX. In the EXTRACT box, select EIGENVALUES OVER and write ‘1’. In the display box, check UNROTATED FACTOR SOLUTION. Click CONTINUE.
Click on ROTATION. In the METHOD box, check VARIMAX. In the DISPLAY box, check ROTATED SOLUTION. Click CONTINUE.
Click on SCORES. In the popup window, check DISPLAY FACTOR SCORE COEFFICIENT MATRIX. Click CONTINUE.
Click OK.
When we click on OK, we get the output. The screenshots of output are as follows:
 

The Silk Road: History and Purpose

The Silk Road was much more than just a road, it changed the world more than arguably any other single system in history including political and religious systems. The ability to utilize other regions’ resources and combine them with your own is more prominent than ever today and it all started in Central Asia, the heart of the Silk Road. 

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How did the silk road come about? Originally the purpose of the Silk Road was to establish trade routes between the Middle East and Europe. The Han Dynasty was in rule of China at the time and the Han’s ruled from 206 BCE to 220 AD. Zhang Qian was sent to the west by Emperor Wu in an attempt to establish trade routes with Central Asia.  Along his travels, Qian discovered many separate, already established, trade routes. His communication with these major traders was a significant factor in the rise of the Silk Road (Whitfield 12-17)
The Royal Road was the main route established before the Silk Road. Zhong Qian found the system that connected Susa to Sardis. The Royal Road was formed by King Darius of the Persian Empire. This road was exactly what China had envisioned, but the Han Dynasty had something much larger in mind.
The maritime Silk Road is often an overlooked part of the trade route. It is believed that more trading was done overseas than on the Silk Road itself. The sea routes mainly Arab, Persian, and Indian ships took were dangerous. Many ships went missing never to be seen again. In the late fifteenth century new navigation routes were discovered making it possible for European ships to reach farther east. Since China did not really participate in the sea trade, their goods were still exchanged through European ships (Wriggins 9). They traded things like their Chinese porcelain, this trade created a global network of goods. Although China was not a main participant of the sea trade, they surpassed all other naval technology in the world at the time. After the ninth century the Chinese were using magnetic compasses and they had advanced star mapping systems to navigate themselves. The sea trade had items like pearls, spices, ivory, horses, and bird plumes come into Southeast Asia.
The Chinese made the other Central Asian Empires aware of their vast resources, particularly their silk. The Chinese had perfected a method of farming the worms whose cocoons are spun to make silk and they had the only productive silk textile in the world (Qiu 10-14). This caught the eyes of every kingdom in Central Asia. China began to mass produce and distribute their silk, selling to one merchant who would then sell to the next at an increased price. This chain slowly grew, and Chinese merchants began to buy other goods as well to bring home and sell. Once other countries caught on to how lucrative exporting a resource that is particular to their own culture was, everyone in the region wanted in on the trade.  
Sericulture dates to the Chinese Neolithic period. The oldest silk was found around 3630 BC. Chinese myth says that Lady Hsi-Ling-Shi, or the Goddess of silk, introduced sericulture and the loom that silk is woven on. Silk originally was reserved for a select few, like the Emperor, his wife, high-dignitaries, and important family members. Over time silk became a huge industry in China. Silk was so prominent in Chinese life that silk is used as the “key” in many Mandarin texts. Silk was so valuable that it was used as a form of currency (Whitfield 25-50). People would pay taxes in silk and the state would pay its people in silk. They measured the value by the lengths of the silk. Eventually China lost its monopoly on silk with the secrets spreading through Chinese natives settling abroad and making a living through silk. Silk production would eventually reach all the way to India. The Byzantine empire became well known producers of cheaper made silk, but the Silk Road was still the way to go if you wanted the original high-quality Chinese silk. Silk eventually reached Rome, who had never even remotely seen or heard of silk. It eventually became the staple of well-off Romans and eventually was worn by all classes in Rome.
Although the Silk Road was very popular for its silk, that is not all that was traded. In the beginning of the Silk Road China received things like horses and seeds for grapes. Grapes were unknown to them before this and later during trade they would also discover things like onions, cucumbers, and carrots. Wool products were also something the Chinese were unfamiliar with. Things like carpets, curtains, and blankets left a big impression on them. China themselves were very popular for their Chinese china. They would make the most unique and expensive china and it was sold as a luxury item in Europe. China also offered Chinese paper, varnish, perfumes, and other basic things like tea or rice. Iran was popular for their silver products and India for their spices, fragrances, dyes, and ivory. Northern Europe not only provided things like fur and honey, but they also dealt in slaves. 
Not only were tangible goods exchanged on the route, but also cultures. Buddhism was spread to China from the Kushan kingdom. Traces of Buddhism have been found, such as monuments in cities, along the Silk Road. Christianity was also spread during the 13th century. The Silk Road served as a route for Catholic missionaries to spread the word of their religion. Notably the Islamic faith was carried eastward on the route, also bringing their scientific and medical advancements. Silk weaving was spread from China to Central Asia, Iran, and Byzantium in the fifth and sixth centuries. In Central Asia paper production started in the eighth century effectively driving out the other writing materials, parchment and papyrus. Along with skills, architectural styles were shared. In Central Asia Timur’s structures in Shahrisabz, and the Timurids tombs are just a few structures that prove the people along the Silk Road were combining styles of architecture. Art and music were also spread. Eastern Turkestan and Central Asian music were the obvious favorite among the Chinese. The Silk Road heavily influenced the enrichment of all the cultures along it. 
Although the Silk Road was very effective in connecting and spreading many different cultures and ideas, it was also responsible for negative things. The Silk Road spread diseases such as smallpox, measles, and the bubonic plague (Ursula 12-24). The bubonic plague is also commonly known as the black death and would later kill off half of Europe. The environments that merchants had to travel through could be extremely harsh. Merchants were subjected to sandstorms from the Taklimakan desert or ice storms from Mount Tirich Mir. Bandits were also very prominent on the Silk Road. Raids were organized around the difficult terrain leaving whole caravans robbed. 
The Silk Road became much more than just a road, it was essentially the world’s first ever intercontinental network. When that many cultures are interacting on such a consistent basis, a lot more than goods get spread. The Silk Road became a transference of ideas, techniques, skills, culture, ways of thinking, and disease. East Africa, Asia, and Europe all boomed significantly in these days of trade. Culturally, architecturally, and intellectually each and every region now could peer into other cultures and see what was behind closed doors. Each culture did a number of things, including adopting techniques for transportation, ideas behind civil engineering, learning of different religions, utilizing materials not found in their own area, and gaining an appreciation for things they felt that they had done better than anyone else. The implications of the cultural rub-off and this style of networking are deeply ingrained into modern society. A simple, common t-shirt made in 2020 has seen more of the world than most human beings and by the end of its life could easily pass through upwards of 10 countries. Why? Because different countries have taken on certain aspects of all the processes required to create a shirt. This is a direct result of the Silk Road and in a way, a cultural assembly line. When the Silk Road was at its peak productivity, each merchant had a designated role in each society, which had their own role in the larger network now referred to as the Silk Road.
In conclusion, the Silk Road was more than an extensive trade route. It was a catalyst for the globalization of the world. Establishing itself during the Han Dynasty, it spanned from 130 BCE to 1453 CE. The production and cultivation of silk is what the Silk Road was most famous for. The art was monopolized by China until the secret got out and eggs were smuggled. Silk eventually became accessible not only by the rich, but all classes. Silk became so popular it was a form of currency on the Silk Road and people would even pay their taxes in silk. However much more than just silk was traded on the route. Things like spices, porcelain, ivory, and gold are just a few of the luxury goods that were traded. The maritime Silk Road is an often-overlooked part of the trade routes history, but it is thought to have been even more extensive and impactful than the land routes. Tangible items and goods were not the only things that were exchanged on the Silk Road, the cultural trade was just as important. Religions, architectural design, and technological developments changed each society on the Silk Road. Diseases were also spread through the trade route such as measles, smallpox, and the bubonic plague. The Silk Road started off as just a simple Royal Road, but its potential was quickly realized by the Han Dynasty and would forever change the course of history.
Works Cited

Ursula Sims-Williams with Whitfield, Susan, eds. “The Silk Route: Trade, Travel, War and    Faith,” London: British Library, 2004
Whitfield, Susan, “Life along the Silk Road,” Berkeley: University of California Press, 1999.
Wriggins, Sally. “A Pilgrim on the Silk Road.” Faces, vol. 13, no. 4, Dec. 1996, p. 8.   EBSCOhost, search.ebscohost.com/login.aspx?direct=true&db=ulh&AN=9612310547.
Qiu, Jane. “Silk Road Heads for the Hills.” Scientific American, vol. 314, no. 4, Apr. 2016,     p. 23. EBSCOhost, doi:10.1038/scientificamerican0416-23.Qiu, Jane. “Silk Road Heads for         the Hills.” Scientific American, vol. 314, no. 4, Apr. 2016, p.   23.EBSCOhost,doi:10.1038/scientificamerican0416-23.

 

Purpose and Use of Different Accounting Records

Accounting record is defined as the all of the documentations involved in the preparation of financial statements and records which are relevant to financial review and audits which include recording of assets and liabilities, ledgers, journals, and any other supporting documents like invoices.
Ledger: – Maintaining ledger is a must in all accounting system. Ledger is used for preparing trial balance which checks the arithmetical accuracy of the accounting books. Ledger is the store-house of all kind of information which is used for preparing final accounts and financial statements.
Prime entry books: – The other one is prime entry books which are also known as books of original entry are books where transactions are first recorded. The main books of prime entry consists of sales day book, purchase day book, sales return day book, purchase return day book, general journal and cash book (Ducha, et.al, 2008).
Accounting plays important and useful role by developing the information for providing answers to many questions faced by the users of accounting information. It provides information how good or bad the financial condition of the business is, which activities or products have been profitable. Accounting is important for a business entity for the following reasons: –

Accounting record, set on the base of even practices, will assist a business to compare results of one period with another period.
Insulating records, backed up by proper and genuine vouchers are good evidence in a court of law.
Increased volume of business results in large number of transactions and no businessman can remember everything. Accounting records avoid the necessity of remembering various transactions.

Fundamental concepts of accounting
Accruals concept of accounting: Other than the cash flow statement, the accounts have been set on an accruals basis. The accruals basis of accounting involves the non-cash of transactions to be mirrored in the financial statements for the period in which those effects are experienced and not in the period in which cash is actually received or paid (Open University Course Team, 2006).
Going concern: The accounts have been prepared on a going concern basis which means that the accounts have been prepared on a going concern basis. It further clears that the accounts have been prepared on the assumption that the authority will continue to operate for the foreseeable future. The Avenue account and Balance Sheet assume no intention to significantly curtail the city Council’s operations (Open University Course Team, 2006).

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Consistency concept: There are a number of different ways in which some concepts can be applied. Each business must choose the approach that gives the most reliable picture of the business, not just for this period, but over time also. According to the consistency convention, when a method has been adopted for the accounting treatments of an item, the same method will be adopted for all subsequent occurrences of similar items. However, it does not mean that the firm has to follow the method until the firm closes down. (Open University Course Team,2006).
Prudence Concepts: The account should be prudent when preparing financial statements. In other words, if something is in doubt, plan for the worst and, if a transaction has not yet been completed ignore ant possible benefits that may arise from it (Open University Course Team, 2006).
Business entity concept: It is one of the main accounting principles of accounting this concept says that Business should be treated separately from the property owner or investor In simple words we can say owner of the business should be treated separately from the business whatever profits come in to the business should be taken in company account. Under the business entity concept, the activities of a business are recorded separately from the activities of its owners, creditors, or other businesses (Ducha, et.al, 2008).

Different factors of accounting system:

Computerised accounting system: Keeping accurate accounting records is a vital part of managing an organisation. Apart from helping to keep it afloat financially and legally, it is also a requirement of funding bodies. Smaller groups can usually manage with simple book-keeping procedures but bigger groups juggling with larger sums of money and more complex financial transactions may find their workload eased by using a computerised accounting system. The good news is that there are easy to use and reasonably priced computerised accounting packages on the market that are either aimed at, or can be adapted to, voluntary sector organisations (Ducha, et.al, 2008).
Manual Accounting Systems: Accounting systems are manual or comprised. Understanding a manual accounting system is useful in identifying relationships between accounting data and reports. Also, most computerised systems use principles from manual systems. In other words, Manual accounting and bookkeeping systems are the traditional form of maintaining a businesses accounts and records. They involve keeping various ledgers and files which typically include a cash book, sales and purchase day books and petty cash sheets. Although the use of basic manual bookkeeping systems requires little knowledge or skill in accounting, they are still the preferred method of accounting for those who have used them in the past (Drew, et.al, 2000).
Considering factors when using computerised and manual accounting system:
The capacity to generate sales /increase invoices; the necessity to compute/include VAT in accounting; cost how much can a firm truthfully afford on software, updates and support, the capability to process payroll, and stock control are the considering factors of computerised accounting system.

Meaning of business risk: Business risk is associated with the uncertainty of a company’s future cash flows, which are affected by the operations of the company and the environment in which it operates. It is the variation in cash flow from one period to another that causes greater uncertainty and leads to the need for greater compensation for investors. For example, companies that have a long history of stable cash flow require less compensation for business risk than companies whose cash flows vary from one quarter to the next, such as technology companies (Fabozzi, et.al, 2007).
Components of business risks:
Operational risks: The risk of loss resulting from insufficient internal processes, people and systems, or from external events which includes legal risk. In other words, the risk of loss resulting from failure to comply with laws as well as prudent ethical standards and contractual obligations which includes the exposure to litigation from all aspects of an Institution’s activities. The definition does not focus strategic or reputational risks. In other words, operational risks are concerned to enhance operational risk assessment efforts by encouraging the industry to develop methodologies and collect data related to managing operational risk. Strategic and reputational risk is not included in this definition for the purpose of a minimum regulatory operational risk capital charge which focuses on the causes of operational risk and the Committee believes that this is appropriate for both risk management and, ultimately, measurement (Fabozzi, et.al, 200).
Compliance Risks: Compliance risk can be defined as the current and potential risk to earnings or money arising from violations of, or non-conformance with, laws, rules, approved practices, internal policies, and methods, or moral standards which arises in situations where the laws or rules prevailing certain bank products or activities of the Bank’s clients may be unclear or unverified. This risk exposes the institution to fines, civil money punishments, payment of damages, and the voiding of contracts (Fabozzi, et.al, 200).
Liquidity risks: Liquidity risk can be explained as the current and approaching risk to earnings or capital arising from a bank’s incapability to meet its obligations when they come due without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. Liquidity risk also arises from the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value (Neu, and Malz, 2007).
Meaning of risk management: The true connotation of managing the risks is combined with the activities of human wherein the identification of the risk, risk evaluation, adapting techniques to manage it and lessening of risks by using managerial strategies is done. The various ways in creating risk management includes moving the possible risk to other group, preventing the risk from happening, lessening the risk’s negative effects and recognizing all the consequences that a specific risk might bring (Blokdijk, 2007)
Corporate governance
According to Cadbury Report, Corporate governance is ‘the system by which companies are directed and controlled where the role of the shareholders is to appoint the directors and the external auditors, and to satisfy themselves that an appropriate governance structure is in place where directors are responsible for setting the company’s strategic aims, providing the leadership to put these into effect, supervising the management of the business and reporting to shareholders on their stewardship. Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. (Gupta, 2005)

The Cadbury Report, formally entitled ‘The Report of the Committee on the Financial Aspects of Corporate Governance’ was published in December 1992, following the recommendations of the Cadbury Committee. The establishment of the Committee in May 1991 by the Financial Reporting Council, the London Stock Exchange, and the accountancy profession arose in response to the occurrence of financial scandals in the 1980’s involving UK listed Companies, which had led to a fall in investor confidence in the quality of company’s financial reporting (Cadbury, 1992).
Fraud Risk Assessment
To be protective of itself and its stakeholders efficiently and effectively from fraud, an organization should recognize fraud risk and the specific risks that directly or indirectly relate to the organization. A structured fraud risk assessment, tailored to the organization’s size, complexity, industry, and goals, should be performed and updated periodically. The assessment may be integrated with an overall organizational risk assessment or performed as a stand-alone exercise, but should, at a minimum, include risk identification, risk likelihood and significance assessment, and risk response (ww.acfe.com/documents/managing-business-risk).

Managing the risk of fraud, the risk based approach:

A risk-based approach enables organisations to target their resources, both for improving controls and for pro-active detection, at problem areas. Developments in corporate governance, including the requirement for statements on internal control, create the atmosphere in which fraud can be considered as a set of risks to be managed alongside other business risks. Managing the risk of fraud should be embedded in the entirety of an organisation’s risk, control and governance procedures. In wider sense, assessing and managing the risk of fraud involves assessing the organisation’s overall exposure to fraud, recognising the areas most vulnerable to the risk of fraud, assigning ownership, calculating the scale of fraud risk, responding to the risk of fraud; and determining the success of the fraud-risk strategy (ww.acfe.com/documents/managing-business-risk).
Assessing the Organisation’s Overall Vulnerability to Fraud: Vulnerability to fraud can be assessed at different levels in an organization where a quick assessment of the overall level of risk an organisation is exposed to is often a good starting point and may highlight particular vulnerabilities where some action needs to be taken immediately rather than wait for the results of a more in-depth risk assessment to be completed. A fraud risk assessment should additionally be carried out during the development of any new policies, activities or operations to ascertain whether any new risks arise that need to be managed. The risk assessment should also be reviewed and re-assessed whenever a change in policy occurs or when changes are made to the way in which a policy is to be implemented (ww.acfe.com/documents/managing-business-risk).
Fraud risk identification may include gathering external information from regulatory bodies, industry sources, key guidance setting groups), and professional organizations, the American Institute of Certified Public Accountants (AICPA), the Association of Certified Fraud Examiners (ACFE), the Canadian Institute of Chartered Accountants (CICA), The CICA Alliance for Excellence in Investigative and Forensic Accounting. Internal sources for identifying fraud risks should include interviews and brainstorming with personnel representing a broad spectrum of activities within the organization, review of whistleblower complaints, and analytical procedures. A proper and working fraud risk identification process includes an calculation of the incentives, pressures, and chances to commit fraud. Employee incentive programs and the metrics on which they are based can provide a map to where fraud is most likely to occur. Fraud risk assessment should consider the potential override of controls by management as well as areas where controls are weak or there is a lack of segregation of duties (Vallabhaneni, 2008).
The speed, functionality, and accessibility that created the enormous benefits of the information age have also increased an organization’s exposure to fraud. Therefore, any fraud risk assessment should consider access and override of system controls as well as internal and external threats to data integrity, system security, and theft of financial and sensitive business information (Costa Lewis, 2004).
Assessing the likelihood and significance of each potential fraud risk is a subjective process that should consider not only monetary significance, but also significance to an organization’s financial reporting, operations, and reputation, as well as legal and regulatory compliance requirements. An initial assessment of fraud risk should consider the inherent risk8 of a particular fraud in the absence of any known controls that may address the risk.

Risk assessment
The control environment
Control activities
Information and communication
Monitoring (Costa Lewis, 2004).

THE COSO MODEL: In the United States many firms have adopted the internal control concepts existing in the report of the Committee of Sponsoring Organizations of the Tread way Commission (COSO). Published in 1992, the COSO report describes internal control as: A process, affected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

effectiveness and efficiency of operations,
reliability of financial reporting, and
Compliance with applicable laws and regulations.

COSO describes internal control as consisting of five essential components. These components, which are subdivided into seventeen factors, include:

The control environment
Risk assessment
Control activities
Information and communication
Monitoring (Vallabhaneni, 2008).

Duties and responsibilities of auditor
In most countries the auditor has a statutory duty to make a report to the entity’s members on the truth and fairness of the entity’s annual accounts. As we have seen in the foregoing section, this report must state the auditor’s opinion on whether the statements have been prepared in accordance with the relevant legislation and whether they give a true and fair view of the profit or loss for the year and state of affairs at the year end. The duty to report on the truth and fairness of the financial statements is the primary duty associated with the external audit.
The auditor has a duty to form an opinion on certain other matters and to report any reservations. The auditor must consider whether:
1. The entity has kept proper accounting records;
2. The entity’s balance sheet and income statement agree with the underlying accounting records;
3. All the information and explanations that the auditor considers necessary for the purposes of the audit have been obtained and whether adequate returns for their audit have been received from branches not visited during the audit;
4. The entity has complied with the relevant legislation’s requirements in respect of the necessary disclosures. If the entity has not made all the disclosures required the audit report should, if possible, contain a statement of the required particulars (Vallabhaneni, 2008).
Relationship between internal and external audit
The coordination of internal audit activity with external audit activity is very important from both points of view: from external audit’s point of view is important because, in this way, external auditors have the possibility to raise the efficiency of financial statements audit; the relevancy from internal audit’s point of view is assured by the fact that this coordination assures for the internal audit a plus of essential information in the assessment of risks control
The role of internal auditing is determined by management, and its objectives differ from those of the external auditor who is appointed to report independently on the financial statements. The internal audit function’s objectives vary according to management’s requirements. The external auditor’s primary concern is whether the financial statements are free of material misstatements; the external auditor should obtain a sufficient understanding of internal audit activities to identify and assess the risks of material misstatement of the financial statements and to design and perform further audit procedures. The external auditor should perform an assessment of the internal audit function, when internal auditing is relevant to the external auditor’s risk assessments. Liaison with internal auditing is more effective when meetings are held at appropriate intervals during the period. The external auditor would need to be advised of and have access to relevant internal auditing reports and be kept informed of any significant matter that comes to the internal auditor’s attention which may affect the work of the external auditor. Similarly, the external auditor would ordinarily inform the internal auditor of any significant matters which may affect internal auditing (Diamond, 2002).
Appropriate audit tests
Meaning of audit test: An audit test is a procedure performed by either an external or internal auditor in order to assess the accuracy of various financial statement assertions. The two common categorizations of audit tests are substantive tests and tests of internal controls. Both types of tests are used in external and internal audits in order to reach established audit objectives, as can be outlined in audit checklists or determined based on the results of audit questionnaires. Audit tests typically are performed on a sample basis over an existing group of similar transactions. Sampling approaches can either be statistical or non-statistical, with the ultimate goal being to obtain the most representative sample of the population before testing begins (Diamond, 2002).

It is essential for internal auditors to understand how this method works, as well as its purpose. Also, given the variety of testing methods that may be used during the audit process, it helps to distinguish sampling from other types of examination. Identifying the qualities that distinguish sampling as a distinctive form of testing will provide good understandings for beginning auditors to know why it is used under certain circumstances and determine when to employ this process. During an operational audit, an internal auditor might use observation as an aid in evaluating a unit’s procedures (Diamond, 2002).
Simple Random Sampling: – In auditing, this technique practices sampling without replacement; that is, once an item has been selected for testing it is not included in population and is not subject to re-selection. An auditor can implement simple random sampling in one of two ways: computer programs or random number tables (Beasley, et.al, 2005).
Systematic (Interval) Sampling: – This method describes the choice of sample items in such a way that there is an unchanging interval between each sample item. In this method, every “Nth” item is selected with a random start (Beasley, et.al, 2005).
Stratified (Cluster) Sampling: – This method describes the selection of sample items by breaking the population down into strata’s, or groups. Each stratum is then treated separately. For this strategy to be effective, distribution within clusters should be greater than distribution among clusters. An example of cluster sampling is the inclusion in the sample of all payments or cash disbursements for a particular month. If blocks of homogeneous samples are selected, the sample will be subjective (Beasley, et.al, 2005).

Process mapping analysis: Develop process maps of the supplier delivery and accounts payable/ approval processes and analyse these maps to identify potential for suppliers to refuse to deliver supply
Survey techniques: Perform a supplier satisfaction survey to identify details, magnitude and external perspective of supplier concerns over the accounts payable process.
Analytical review: Perform benchmarking analytical tests to compare key process operating statistics with industry best practices and compare specific processes with best practice procedure.
Inquiry through facilitated groups: Conduct a focus group involving several major suppliers, key members of the accounts payable process and major departments required to authorize invoices (Beasley, et.al, 2005).
Difference between management and auditor’s responsibilities:
In considerable certainty, management’s responsibility is to create internal control. Internal control includes the whole system of controls and procedures, both monetary and operational, which are established to lessen risks and their impact, safeguard assets, and ensure efficiency and to inspire devotion to College policies and directives where, it is Internal Audit’s role to carry out an independent evaluation of the efficiency of these controls. Audit is not part of line management where internal audit does not grow and install procedures, make records or involve in any activity which could compromise its independence (Wilkinson, et. al, 2008).
Audit planning: Initial audit planning takes place before the thorough audit work begins, and in planning for a specific audit assignment an auditor must take on a plan with regard to the timing, nature and degree of the audit work to be carried out. The aims of the plan are to ensure proper attention is dedicated to the different areas of the audit and potential problems are identified. On the other hand, audit plan have to be observed as a organized plan of action plotting out the audit processes to be carried out with the aim of reporting on whether a stated set of accounts show a factual and fair-minded view. However, the fact that the audit assignment is the commercial motion of the audit firm should be recognised, and if the costs of carrying out the planned procedures are likely to exceed the client entities budgeted fee then this unevenness should be informed at the planning stage by discussing with the management of the entity (Gupta, 2009).
Scope of audit planning: It is importance to keep in mind the formal scope of audit work when considering audit’s role in risk management. Based on the results of the risk assessment, the internal audit activity should evaluate the adequacy and effectiveness of controls encompassing the organization’s governance, operations, and information systems which should include reliability and integrity of financial and operational information. Effectiveness and efficiency of operation, Safeguarding of assets, compliance with laws, regulations, and contracts are the scope of audit planning (Spencer Pickett, 2006).
Audit testing: Direct tests of account balances and transactions are designed by determining the most efficient manner to substantiate the assertions embodied in the account or transactions. There are many alternatives open to the auditor in planning audit tests. The following are the types of audit tests.
Tests of effectiveness: It is essential to determine whether the controls are effective over cash disbursements. Utilize the information performing an integrated audit of controls and account balances.
Dual-Purpose Tests of Controls and Account Balances: It is useful to determine whether the controls are effective to help plan the nature, timing, and extent of other audit tests, and test the accuracy of recording the related transactions.
Substantive Analytical Tests: It is essential to determine whether account relationships meet expectations, including the possibility that some of the receivables are not collectible.
Direct Tests of Account Balances: It is essential to test the existence and dollar accuracy of account balances as stated at historical cost.
Direct Tests of Transactions: It is essential to test the existence of sales transactions (Gramling, et.al, 2009, Auditing: A business risk, Cengage Learning Publishing (Gupta, 2009).
Evidences that auditors collect from audit files and working papers: There are 7 broad categories of evidence from which the auditor can choose which are physical examination, confirmations, documentation, analytical evidence, written representations, mathematical evidence, oral evidence, and electronic evidence(Online resource: accessed at 20th May 2010, www.issai.org/media).
Audit files and testing papers:
Working papers provide evidence that an effective, efficient, and economic audit has been carried out. They should therefore be prepared with care and skill.
Importance of working papers: Working papers are important because they are necessary for audit quality control purposes provide assurance that the work delegated by the audit partner has been properly completed provide evidence that an effective audit has been carried out increase the economy, efficiency, and effectiveness of the audit contain sufficiently detailed and up-to-date facts which justify the reasonableness of the auditor’s conclusions retain a record of matters of continuing significance to future audits(Online resource, accessed at 18th May 2010: www.accaglobal.com/pubs/students).
Meaning of Statutory Audit
Statutory Audit is a checking of accounts required by law where a municipality may be required by its own law to have an annual audit of financial records or a company which is governed by any Law, the Law may require the audit to be conducted and the manner in which audit should be conducted and to whom the report of auditors should be presented (Stittle, 2003)

Statutory Auditors’ Report is prepared in accordance with Article L(225-235) of the French Commercial Code, on the report prepared by the Chairman of the Supervisory Board of Peugeot S.A., on the Internal Control procedures relating to the preparation and processing of financial and accounting information(Stittle , 2003).

Purpose of statutory Audit Report

The purpose of Statutory Audit Report is to present the fair presentation and the consistency with the financial statements of the information given in the Management Report of the Board of Directors, and in the documents addressed to the shareholders with respect to the financial position and the financial statements; the fair presentation of the information provided in the Management Report of the Board of Directors in respect of remuneration and benefits granted to certain company officers and any other commitments made in their favour in connection with, or subsequent to, their appointment, termination or change in function(Stittle , 2003).

The subjects of audit report are title, addressee, opening or Introductory Paragraph, Scope Paragraph, opinion paragraph, signature, place of signature, and date of report. Auditor’s view of a financial statement, given without any reservations, such view basically states that the auditor feels the company followed all accounting rules properly and that the financial reports are an accurate demonstration of the company’s financial condition opposite of qualified opinion(Stittle, 2003).
Statutory audit report: The Audit Commission’s auditors issue two types of statutory reports:

reports in the public interest (RIPIs) issued under Section 8 of the Audit Commission Act 1998
immediate referrals to the Secretary of State issued under Section 19 of the Audit Commission Act 1998

Reports in the public interest
Where matters are serious and an auditor decides a matter should be brought to the attention of the public he does this by issuing a report under S8 of the Audit Commission Act 1998
This report is issued to the health body concerned and copied to the Secretary of State. It is for the health body concerned to make this public and to respond to the report and for the NHS Executive to ensure they do so( Sangster, and Wood, 2008)
Qualified and unqualified report:
An unqualified report is a report from an independent auditor who has examined the accounting records and found no irregularities which has the following demerits
a) Lack of consistent application of generally accepted accounting principles
b) Substantial doubt about going concern
c) Auditor agrees with a departure from promulgated accounting principles
d) Emphasis of a matter
e) Reports involving other auditors
A Qualified Opinion report is supplied when the auditor met one of two types of situations which do not comply with normally accepted accounting principles, however the rest of the monetary statements are properly presented. This type of judgement is very alike to an unqualified or “clean opinion”, but the report states that the monetary statements are clearly presented with a certain exception which is otherwise misstated. The two types of situations which would cause an auditor to issue this opinion over the unqualified opinion are:
Single deviation from GAAP this type of qualification occurs when one or more areas of the financial statements do not conform to GAAP, but do not affect the rest of the financial statements from being fairly presented when taken as a whole. (Accounting Standards Board, 1988)
 

Management Control: Purpose and Strategies

Controlling is one of the four main functions in management. It is important to managers in order to ensure all planning, organising and leading run as smoothly as desired. If managers are able to ensure that each plan made and every task given to the employees are carried out perfectly, and the results expected is what had been planned, control is not required. Unfortunately, managers are not able to ensure these conditions will run smoothly without the occurrence of any problems since most planning is done by humans and humans are known to be diverse in terms of abilities, motivation and others. In a rapidly changing business environment, not only the expected results must be controlled, planning must also be monitored and controlled.

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11.1.1 Definition of Control
Management control is a systematic effort to fix or establish the standard of performance through planning objectives, designing information feedback systems, comparing true performance with the fixed standard, determining whether there are any disadvantages or weaknesses and taking suitable actions to ensure all resources within the organisation can be used in the most effective and efficient way in achieving the objective of the organisation.
Control is the process of ensuring that organisational activities are running according to plan. This process can be carried out by comparing the true performance with the standard that has been established and taking corrective actions in order to rectify any distortion that does not comply with the standard.
The main purpose of control in management is to prepare managers to face future or existing problems before they turn critical. In general, an organisation with a good control mechanism will have the advantage of competing strength compared to organisations without a good control system. The following are several examples of the importance of control for organisations:
11.1.2 Quality Assurance
The smooth running of a particular process can be monitored and problems can be avoided by having control. Control is able to stimulate the organisation to monitor and increase the quality of products and services offered. Through the activities related to the control process, members of the organisation will always be driven to act according to the plans that have been established.
11.1.3 Preparation to Face Changes
Change cannot be avoided. Change in environmental factors such as markets, competitors, technology and legislation makes the control process important for managers in responding towards opportunities and threats. Control helps the organisation to suit its products to the needs and wants of consumers in the market.
11.1.4 Steps in the Control Process
A control process has three basic needs: fixing of standards to be used in measuring the level of growth; monitoring decisions and comparing it to the standards, that is, the comparison of the organisation’s true performance with the planned performance; and finally, taking corrective actions in rectifying any disadvantages and weaknesses that occurred in achieving the performance that has already been set.
Establishing Standards
Standard is the base for comparison to measure the level of performance of a company in order to find out whether the company is compliant. Standard is the point of reference in making comparisons to another value. Standard can be defined as what is required out of a particular job or an individual. In management control, standards are usually derived from the objectives. Standards should be easy to be measured and interpreted. A specific objective that can be measured makes it more suitable to be used as a standard. If this standard is not clearly and specifically stated, it may be interpreted in a different way and will then raise various difficulties that can affect the goals of the organisation.
In general, there are three types of standards: physical standard such as quantity of products and services, number of customers and quality of products and services; financial standard which is stated in the form of money, and this includes labour cost, sales cost, material cost, sales revenue, profit margin and others; and lastly, time standard which includes the performance rate of a particular task or the time period required to complete a particular task.
Measuring Performance and Making Comparisons
Performance measurement is a type of control. Actual results need to be monitored to ensure that output produced is according to the specific standard. The main purpose of performance monitoring is to gather data and detect deviation and problem areas. Measurement has no meaning if it is not compared to the standard. The next step is performing the comparison of standards. Comparison of standard is a process where comparison is made between the true performances with the standard set. This step is important because it allows any deviation or distortion to be detected and corrective actions can be taken in order to achieve the goals that have been set.
Corrective Actions
It is often found that managers establish standards and monitor decisions but do not take suitable actions. The first and second steps in control will be meaningless if corrective actions are not taken. Before taking any steps in correcting, detailed analysis must be carried out in order to find out the factors that caused the particular deviation.
This corrective action may involve change in one or more operation activities of the organisation such as modification, repairing of machines, preparation of certain courses and others, or it might also involve a change in the fixed standard. Corrective action is a process of identifying the distorted performance, analysing the distortion and developing and implementing programmes in order to rectify it.
11.2 THE CONTROL PROCESS
The running of a control process is a continuous act. This process cannot be done only once in order to gain the achievement expected. This is considered as a dynamic process. This dynamic process begins with looking at the true performance and measuring the achievement level of that particular performance.
Managers will then compare the performance achieved with the performance that has been fixed. If there happens to be any difference, it must be analysed in order to identify the cause of the differences and this is followed by the correcting act. This process must be done repeatedly and must be given full attention by the manager in order to achive the performance goals set.
11.2.1 Basic Methods of Control
According to Williams (2000), a control process consists of three basic methods which are identified as future control, concurrent control and feedback control.
11.2.2 Future Control
This type of control is also known as prevention control. This involves the use of information, including information from the latest results, is to forecast what will happen in the future so that preventive measures can be taken. It is implemented to prevent the occurrence of deviation between what had really happened with what is expected to happen. Prevention is carried out through detailed analysis on the input before it is accepted into the process of organisation transformation. Input is ensured to comply with the quality standards established so that the results obtained are as expected.
One example of the use of this control is when a manager ensures that the sample of raw material that is going to be used complies with the standard established by the organisation or based on certain specifications to avoid damage towards the product in the future.
11.2.3 Concurrent Control
Concurrent control is carried out during the process of transformation. When this control is carried out, restoration actions, corrective actions or modifications are done after distortion is detected. For a production-oriented organisation, this controlling action is taken while input is being processed while for service-oriented organisations, it is taken while service is being provided.
Through this method of control, organisations will monitor their operations and simultaneously take the necessary corrective actions before the transformation process is completed. This will help to reduce mistakes in the outputs being produced. Examples of this method of control are mid-term examinations, control of accounts, control of inventories and others.
11.2.4 Feedback Control
Feedback control involves gathering information related to the weaknesses of controlling measures after an incident takes place. This type of control is implemented after the transformation process has been completed with the purpose of finding out whether the whole activity ran properly with results as expected.
This control is also able to determine whether the plan that is going to be carried out has the continuity with the previous programme. It is also able to evaluate the effectiveness and efficiency of the involved parties in performing the activities of the organisation. An example of this method of control is the use of low-quality raw materials that resulted in the production of low-quality products. The act of changing the raw materials used is one of the examples of feedback control.
11.2.5 Types of Control
According to Williams (2000), there are five forms of control that can be used by managers in implementing the process of control — bureaucratic, objective, normative, concertive and self. Figure 9.3 illustrates these five forms of control.
Bureaucratic Control
This method uses hierarchy authority to influence employees. Rewards are given to employees who obey and punishment is meted out to employees who do not obey the policies, regulations and procedure of the organisation.
Objective Control
This method uses the measurement of observation towards the behaviour of employees or output produced to evaluate work performance. Managers are more focused on the observation or measurement towards the behaviour of employees or outputs rather than the policies or rules. Objective control consists of two forms of control; behaviour control and output control.
Behaviour control
Behaviour control is the rule of behaviour and actions that controls the behaviour of employees in their tasks.
Output control
Output control is the form of control that controls the output of employees by granting rewards and incentives. Important features in the implementation of output control are reliability, fairness and accuracy, convincing employees and managers to achieve the expected results while rewards and incentives depend on the performance standard that has been established.
Normative Control
Normative control is a method that arranges the behaviour of employees and results through norms and beliefs shared together among all the members within the organisation. There are two main substances in this type of control which are, sensitivity towards selection of employees based on their attitude and norms, and obtaining inspiration based on experience and observation of employees.
Concertive Control
This is a method that uses the norms and behaviour discussed, formed and agreed by the work group. This form of control plays a role in an autonomous work group. An autonomous work group is a work group that operates without the presence of a manager and is fully responsible for the control of process, task group, output and behaviour. Autonomous work groups gradually grow through two stages of concertive control. First, members work and learn from each other, supervising the work of each member and develop norms and beliefs that guide and control them. Secondly, the appearance and acceptance of objectives as guide and control of behaviour.
Self Control
It is a system where managers and employees control their own behaviour by establishing their own goals; monitor their own progress and their own achievements of goals, and reward themselves when goals have been achieved.
EXERCISE 9.2
11.3 FACTORS THAT NEED TO BE CONTROLLED
Determining the matters to be controlled is as important as making decisions on whether to control or in what method should control be done. There are several perspectives that need to be controlled by a manager in order for the organisation to be able to achieve the goals expected.
11.3.1 Financial Perspective
One of the important areas that need to be controlled is finance. There are times when the financial performance does not reach the expected standard. If this condition remains undetected and relevant actions are not taken, the existence of the company might be in jeopardy. Financial perspective is generally related to activities such as sales, purchases and others.
Financial statements are important sources of financial information for an organisation. A balance sheet shows how strong the financial position, assets, liabilities and the position of the equity holder for a certain financial period. A profit-loss statement or income statement shows the summary of the operational activities and the relationship between expenditure and revenue for a particular financial year.
There is a new approach in the financial perspective known as economic value added. Economic value added is the total profit of a company which exceeds the capital cost in a particular year. In this perspective, a manager must impose control so that the total profit of a company always exceeds the capital cost for the company to continuously gain economic value added.
11.3.2 Human Resource Perspective
The control towards human resources is vital for organisations. If an organisation is unable to control its human resources properly such as losing expert workforce hence it will jeopardise the performance and achievement of the company. Organisations need to have planning that is able to motivate the employees. For example, organisations need to be concerned regarding the problems faced by the employees by creating harmonious discussions between the management and the employees union.
11.3.3 Quality Perspective
Internal operations of organisations are usually measured through quality. Operations control is very important for every organisation especially for manufacturing firms. This is because efficiency and effectiveness of operations control will determine the level of production and organisational performance as fixed by the standard. The quality value of products and services produced based on the standard will be able to strengthen the perception of the customers towards the quality of goods that they had purchased. For example, the control of product quality is able to reduce waste and product defects and this will further save cost. Inventory control is also effective in reducing the costs of investments related to inventory
11.3.4 Consumer Perspective
In order to measure the performance of customers, an organisation needs to impose control on customers who leave the organisation and not based on the survey of customer satisfaction. In this perspective, the manager will make evaluation by measuring the percentage rate of customers who left the organisation. By controlling customers from leaving the organisation, a company will be able to increase profits. For example, the cost in obtaining a new customer is five times more compared to the cost of retaining an existing customer.
SUMMARY
The main purpose of management control is to prepare managers to face existing or future problems before it becomes critical.
Management control has three basic needs: establishing standards; monitoring decision and comparing it to the standard; and making corrections on any distortion that occurred between the true decision and the standard.
Control is a dynamic process because it is a continuous process.
Control process consists of three basic methods: future control which is also known as prevention control; concurrent or present control; and feedback control.
There are five forms of control that can be used by managers in implementing the control process: bureaucratic, objective, normative, concertive and self.
In order to ensure that the organisation can achieve its goals, several important perspectives must be controlled — finance, human resource, quality and customers.
 

What Purpose Do Gothic Conventions Serve in the Works of Romantic Authors?

The Romanticism movement and gothic literature both derived from the mid-late eighteenth century, in which these two genres contributed to the rise of poetry and the novel as popular entertainment. It is also known as “dark romanticism with horror and romantic love as the typical characters. This darkness is mainly manifested in two aspects: one is rendering the horror and violence on the plot; the other is revealing evil of the society, politics, church and morality on the subject to explore the dark side of human nature.”[1] Romantic authors often have intertwined these gothic elements, for example the sublime, the use of settings and the supernatural into their works. Most famously Mary Shelley’s 1818 novella Frankenstein is known as one of the greatest gothic novel to be introduced in the Romantic period. Isolation of individuals, such as the monster and the settings of the whole storyline plays on the gothic elements, deliberately presenting a sense of horror and terror across the novel. We also see Samuel Taylor Coleridge and William Wordsworth’s The Rime of the Ancient Mariner from the Lyrical Ballads (1798) as one of the most famous gothic poems in romantic literature; the poem itself is seen by “many critics as a moral poem- an imaginative adventure with a moral lesson.”[2] It tells the story of an old sailor who kills an albatross, after the death of the sea bird it releases total destruction to the ship and creates supernatural events to occur. Both of these framed narrative texts play on the gothic conventions to install a feeling of fear and develop a sense of uneasiness within the reader. We see this predominantly through the gothic conventions: the use of settings, the sublime and the supernatural.

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The use of settings plays a crucial part in a gothic text. Romantic authors tend to use this typical gothic convention to create a sense of horror and terror, as well as reflecting the characters’ psychological state. Mary Shelley uses nature as the setting of Frankenstein, in which nature is one of the key characteristics of romanticism. Shelley uses this to illustrate how the world we live in both structures and imitates us in mind, body and spirit. The protagonist Victor and his creation are prime examples of this. Although we see that the storyline contains many different settings, the Arctic setting used in the novel definitely strengthens the isolation Victor’s monster feels as the Arctic is a hostile and desolated environment. “Unlike its inventor, the creature does not choose to be alienated. Rather it is, in fact, others who isolate it because of its hideous appearance…People are appalled and frightened of the creature and attempt to drive the creature away”[3], once the monster is rejected and not welcomed by the community, the monster escapes to the Arctic wasteland to isolate himself from mankind. Victor describes the Arctic to be “covered with ice, it was only to be distinguished from land by its superior wildness and ruggedness”[4]. The Arctic is used to represent the monster’s internal feelings as he feels empty and alone which links with the environment that he has escaped to. As Shelley wrote this novel in the romantic period, the idea of escapism was known as a spiritual reunion. Though Victor saw the Arctic to be a place of isolation, the character of Robert Walton saw the remote landscape as something beautiful. Nature was seen sacred to Romantic authors like Mary Shelley. They believed that they must preserve nature at all cost as it was divine and sacred. They opposed the advancement of science, which the ‘Enlightenment Age’ represented and Romantics heavily rejected. In addition, we also see in Frankenstein that Victor escapes to large remote landscapes in the time of despair and isolation. “Own vampire, my own spirit let loose”[5], he seeks out his own refuge and guidance through nature. Many critics see that “nature plays an important role with high mountains, storms, thunder, and forests. The scenery and the fantastical elements lead the reader towards a gloomy atmosphere and contain thrilling elements that makes the reader’s sin crawl”[6]. Not only does Shelley use the settings to help her character’s emotions, but also foreshadows the impending doom they will face. Whilst Victor is on his way to Geneva, he comes across darkness and frightening mountains “picture…[of] a vast and dim scene of evil.”[7] He then finds himself forced to travel to the next city as the gates of Geneva are closed. In addition, the poem The Rime of the Ancient Mariner by Coleridge starts off with the mariner at a wedding, but the tale of his story is set on a ship with sailors in the sea. After the death of the albatross, the sea becomes violent and vicious, however it can also suggests the mariner’s psychological state as he starts to feel remorseful of his actions and accepts his sin. The purpose of settings used in gothic texts is seen crucial to romantic authors, such as Shelley and Coleridge as it exposes the character’s psychological state and it develops a sense of terror within the readers.
The sublime is often embraced and used by romantic authors. The element is usually referred to being something as absolutely beautiful or breath-taking, however this romantic idea is not just limited to beauty as it implies an overwhelming awe. The sublime is frequently linked to nature; which Romantics were deeply fascinated about. Samuel Taylor Coleridge’s poem The Rime of Ancient Mariner presents the natural world to be beautiful, however terrible sights and events occur, such as the sudden weather change; fog and mist start to appear. A storm develops, which delays the journey of the shipmen and drives them to the South Pole. Yet, at once, it is exceptionally powerful and magnificent to them. Whilst in the pole, the mariner and shipmen encounter snow and giant high-glaciers on their voyage, “And Ice mast-high came floating by/As green as Emerauld.”[8],“And thro’ the drifts the snowy clifts/ Did send a dismal sheen.”[9] Although what they are confronted with is seen as beautiful, it is still dangerous, “The ice was here, the Ice was there/ The Ice was all around/ It crack’d and growl’d, and roar’d and howl’d/ Like noises of a swound.”[10]
We also see in Mary Shelley’s novel Frankenstein the gothic convention; the sublime. The main protagonist Victor feels responsible for the deaths of his youngest brother William and Justine, where he develops the emotions remorse and depression. He heads to the mountains to boost his spirits,  “these sublime and magnificent scenes…although they did not remove my grief, they subdued and tranquilised it”[11]. He describes the natural sights he encounters and the effect it has on his emotions. The scenery itself provides him with great comfort and being able to have the capacity to remove his grief. As well as physically being there with nature, the natural sights reappear in Victor’s dreams,  “I retired to rest at night; my slumbers, as it were…they all gathered round me and bade me at peace.”[12] This is a representative of romanticism as nature can have a deep influence on an individual’s emotions and feelings as Victor is only able to gain freedom from his inner struggle when he is surrounded by nature. Although we see the sublime connected to nature frequently in Frankenstein, Victor speaks of his journey to the cemetery, where he visits the dead bodies and stole body parts for his creation, “I collected bones from charnel-houses and disturbed, with profane fingers”[13], “to collect materials, I went to a graveyard to cut them off…the organs I need off the corpses”[14]. As the sublime is associated with the feeling of an overwhelming awe, which Victor experiences as he is obsessed with his monster, in which he dedicates himself to his work. In one of Victor’s letter’s, he describes “there is something at work in my soul which I do not understand. I am practically industrious — painstaking, a workman to execute with perseverance and labour — but besides this there is a love for the marvelous, a belief in the marvelous.”[15] Yet, he feels terrified, this suggests that the purpose of the gothic element in both texts; the sublime is to create a sensation of delight and confusion from terror.
The Romanticism movement believed in the supernatural, such as ghosts, spirits and angels, and was heavily interested in it. Romantic authors use this conventional element of the gothic, the supernatural, to create and build suspense for the reader. Shelley’s novel Frankenstein contains the supernatural elements as it explores the unexplained territory of science that goes against nature’s law of raising the dead. “So much has been done, exclaimed the soul of Frankenstein — more, far more, will I achieve; treading in the steps already marked, I will pioneer a new way, explore unknown powers, and unfold to the world the deepest mysteries of creation.”[16] Victor Frankenstein successfully brings the artificial “lifeless clay”[17] alive, and producing something which is abnormal and supernatural to the world, which is forbidden in the eyes of God and the society they live in. The monster itself is a supernatural being. Also in Samuel Taylor Coleridge and William Wordsworth collaborated work Lyrical Ballads contains supernatural elements as Wordsworth focuses on the natural world and Coleridge turns his attention to the supernatural. The Rime of the Ancient Mariner uses the albatross metaphorically to present the curse as a psychological burden, which the sailor shoots down and results to the albatross’s death. The sea bird is usually seen as a sign of a good omen, yet in the poem, the friendly, now dead sea bird becomes a bad omen for the ship and the men. Fog and mist develops after the death of albatross which turns into a punishment for the shipmen which obstructs their voyage and causes total chaos, “Then all averr’d, I had kill’d the Bird/That brought the fog and mist.”[18] The albatross’s death symbolises animal abuse, which goes against God’s wishes as it disrespects nature, a form of sin. “Apart from it haunting presence at vespers… the albatross seems to have no obvious moral or religious significance…the death of the albatross is a powerful but initially unintelligible event.”[19] The albatross is seen as insignificant in the poem to some, however the supernatural events that occurs makes it harder to understand, which causes fear and confusion within the reader.
Furthermore, the supernatural starts appear even more. The mariner’s ignorance leads to a huge punishment where creatures start to rise in the sea and the ocean becomes violent. Dehydration starts to develop amongst the crew; the shipmen realise that this destruction is caused by the mariner leading them to punish him. “Instead of the Cross the Albatross/About my neck was hung”[20], the dead carcass of the albatross is put around the mariner’s neck. The sea bird’s physical weight is not the ultimate punishment, but the constant reminder of the mariner’s ill deed, the disgrace is far more vigorous than the actual crime. Nature itself becomes supernatural after the killing of the sea bird as the beauty of nature turns into terror. The constant remorse and guilt throughout the gothic poem represents the poet’s own demons. Coleridge’s mental illness and inner struggles with his religious melancholy contributes to his troubled soul which we see in the mariner’s character. Carol Rumens from The Guardian supports this, “the power of the story may well be founded on its symbolic relation to the poet’s own sense of worthlessness and impotence.”[21] This suggests that the author’s own unimportance in the world, reflects through the death of the albatross and the supernatural events occurring after it, showing the inner struggle of both the author and the character of the mariner. As the supernatural is a key defining feature of the gothic, it’s purpose in both Shelley and Coleridge’s text is to therefore build suspense and create special effects for the reader, and also gives an insight into the authors lives.
In conclusion, we see that gothic conventions serves a vital part in the works of romantic authors, which we see in Mary Shelley’s Frankenstein and Samuel Taylor Coleridge’s The Rime of the Ancient Mariner. Frankenstein is in a way, a critique of science and the development of technology as it attempts to illustrate what might happen if a man interferes with nature. This novel shows the clear rejection of romantics against the representation of the ‘Enlightenment Age’ and the author’s fascination with nature, death and the supernatural.
The Rime of the Ancient Mariner also uses the gothic aspects to showcase human difficulties, such as the mariner’s misery and the downfall of the crew after the killing of the albatross.
Both these writers, “like many, were captivated by printed narratives of the unknown, they were vociferously opposed to unregulated and irresponsible venturing into the unknown in the real world”[22]. Therefore, the purpose of using settings, the sublime and the supernatural are all elements of the gothic that help create a sense of fear within the reader and reveals the characters’ psychological state.
Bibliography

Brännström, Carina, ‘An Analysis of the Theme of Alienation’ in Mary Shelley’s Frankenstein (2006) (accessed January 4, 2019)
Coleridge, Samuel Taylor, ‘The Rime of the Ancyent Marinere, in Seven parts’ in Lyrical Ballads (2011) (accessed January 4, 2019)
Davies, Lindsay, ‘THE POEM, THE GLOSS AND THE CRITIC: Discourse and Subjectivity in “The Rime of the Ancient Mariner” (1990, July 1) in the Oxford Academic : (accessed January 2, 2019)
Levy, Michelle, ‘Discovery and the Domestic Affections in Coleridge and Shelley’, Studies in English Literature, 1500- 1900 (2004), Vol. 44, no. 4, p. 693 – 713.
Rumens, Carol, ‘Poem of the week: The Rime of the Ancient Mariner’ by Samuel Taylor Coleridge (2009, October 26) in The Guardian https://www.theguardian.com/books/booksblog/2009/oct/26/rime-ancient-mariner> (accessed January 1, 2019)
Shelley, Mary, ‘Frankenstein or The Modern Prometheus’ (2008) (accessed January 3, 2019)
Stokes, Christopher (2011). “My Soul in Agony”: irrationality and Christianity in The Rime of the Ancient Mariner. Studies in Romanticism , 50 (1), 26.
Yue-ting, Chen, ‘Frankenstein and the Gothic Sublime’, Journal of Literature and Art Studies (2018) , Vol. 8, no. 2, p. 249-256.

References