Bank

Security & E? consumer Awareness When you buy a product from an online store you expect the company to keep your data safe from loss and damage. For the company to do this they need to look in to threats to the data and how to stop this, a company needs to know the laws of data protection and different ways to prevent this like firewalls and antivirus software and encrypting the customers data to stop people reading it, this report will tell you about the types of threats ways to stop these and the laws of data protection.

All companies should do a risk assessment; they should do this to make sure that the data on the computer is safe. A risk assessment finds risks and then rates them and then says how they will be fixed. Threats to your data through an Organisations website Data intercepted by copycat website or phishing Data intercepted by use of copycat web site. The way they do this is to send you an e? ail for example saying you have to check something on your bank and at the bottom of the email there will be a link that looks like your banks website but in fact it sends you to a different website that looks the same and then you enter your detail to your bank then the owiners of the copycat website will be able to take your identity and your money. Here is an example of how they do this underneath. As you can see the address in the email will be spelt wrong or have something extra like this one has an ip address in the front this is a big give away because professional bank website would just have the bank name, this kind of e? ail is usually blocked by your spam wall in your e? mail address but if you do get an e? mail from the bank type the URL in the search bar or search engine The one on the right is the correct one because as you can see there is no number in front and it just says the banks name, also you can see there is https which stands for hypertext transfer protocol secured this is only on the official bank website to try to stop hackers. Usually the banks logo will be next to the URL address as you can see from the example above this is another way to check if the banks website looks legit.

Companies can help people not fall for these traps by providing bank protection software to the entire user; many banks do this now and run this with your normal protection like Norton but the best way to prevent these scams is to teach people how to avoid the traps this has the highest effectiveness against this scam but the computer also has to have anti? virus software that also looks for these scams and this will give you the highest effectiveness against you falling for this trap.

The effectiveness of these preventions is very high but this depends on the versions of the software that you have and if the software reads it as a threat or the real thing but the way that has the best effectiveness would be to teach employees and customers about the threats and show them examples of how they would really send them for example they would send “Dear” then your name rather than “Dear Customer” because then that would show they know you and not just trying to guest who you have accounts with, this would be the best way to prevent these scams and I feel would have the highest effectiveness against this scam.

Key loggers Key loggers are used to intercept your data which you type into your keyboard hacker usually use this to get passwords to bank amount and any other thing that requires a password. A key logger remembers everything you type and everything you delete, for your computer to get a key logger on it you have to download it because it software but key logger are usually hidden or disguised as another piece of software so you download it be accident, a key logger runs in the background of your computer so you don’t even know that its running.

The way to block key loggers is to make sure your fire wall on and after you download any software use should scan it using your virus protection software. This can happen by employees using the company’s internet to download things that they are not meant for. The way a hardware key logger works the device is put in between your keyboard and computer tower then on the same computer open up note pad and each key logger comes with a three digit code that you have to hold down at the same time to bring up what has been key logged on that computer.

To prevent key logging these companies can installer anti spyware, but now programs like Norton and MacAfee have this type of protection built in as well, this will only work if the program is kept up to date this is because there are new virus and bugs being made all the time. The effectiveness of these types of protection is very high as long as the anti? irus software is running at its highest version by being kept up to date, but it is not 100% because some key loggers may not be detected because there not in the protection software’s virus database or they might not be detected because there inside another program that’s not detected as a virus.

To protect against hardware key logger in a office there are many ways like adding CCTV and keypad locks to doors but these might all catch who doing it and not stop it right away so by the time the cameras are checked the information may be already stolen which could have bad effect on the company and its reputation but if you used both of the measure to try to prevent key logging you have the best chance to prevent in with a very high effectiveness of achieving protection against key logging. Data copied by employee

Your data can could become copied by employees and of loss or copied by human error problem with this is that human error is very hard to spot because most of the time the files are moved, copied, loss or deleted but accident so the employee could be given personal data away unaware that they are doing it, if corporate files are lost or stolen they can be valuable to the company or loss the company a lot of money. Dishonest employees will copy the files a flash drive like a USB or external hard drive if it a lot of information with the information they copy they will sell to other companies for large sums of money, they could

As you can after you open it in notepad it gives you options to see what has been reordered along with other options. This type of key logger costs around ? 30 pound which is cheap is you were taking people banks details or selling information to other company. use the information to create a fake identity for them or they could use them to empty your bank account which could give you big debt and a bad credit record, which mearns you could be refused loans, credit cards and a mortgage for your house.

The way that this can be prevented is to disable USB slots on all computers and give the employee work e? mails that can be monitored. The effectiveness of these preventions is good but not 100% because depending on the job the employee will still have access to the internet which mearns they might not use the company email and use their own which mearns some of the fixes wouldn’t work and to data could still be stolen.

Another way that would make there protection against data being stolen very effective is to add levels of access to information meaning only employees with the right access level can get certain information from the servers which would allow pretty high effectiveness against information being stolen because it makes the group smaller that has access to it meaning if it was stolen it would be easy to find who did it meaning that the risk of getting caught is higher so this adds the scare factor to stealing the companies personal information or bank detail because the risk of getting caught is very high which mearns the effective of this method is very high. Data sold by employee

If the employee sells the data they can make a lot of money by selling to gangs to make fake identities or to other companies so they can try to sell you products through the mail or over the phone, if your information is sold people could run big debt up in your name or even take the money that you have been saving up in your bank. The way the company can prevent people from selling their data is to have CCTV watching the offices and disable the USB ports on the computer this will prevent people from plugging in portable memory in the pc and copying the data across, also the company should use internal monitoring on all the pc in the offices and a check after work hours should be carry out to see if people have copied any information across or sent it using the internet.

Also the company could make employees sign an agreement that will show the employee what would happen if they were to steal the data and this might prevent it because they may feel that the chance of getting caught is higher. The effectiveness of having CCTV around the office is very high the reason for this is because if they feel that they are being monitored the chance of them getting caught becomes a lot higher meaning the risk for reward may not be worth it but the best way to prevent this would be to disable the USB drive and monitor the computers using internal monitoring software this would have the highest effectiveness against people stealing data because if they steal the data they are going to get caught because of the monitoring software meaning again the reward isn’t worth the risk. Data sold by company

The company is allowed to sell data to other third party companies for a lot of money the reason they do this is so the other company can also they to sell you products over the phone or by post, this is only allowed if the person doesn’t tick the do allowed third person parties to see my information, if this box is not ticked the company is allowed to sell it on to all of it third person companies but some companies sell it without the person permission if this happen and the company id found out it will be closed down because of the laws it has broken. An example of this is when a phone company sold information on about when contacts run out so other companies could phone up and try to sell phones and contacts, the article is show below. Companies should train employees so that they don’t make mistakes and also make them aware of the Data Protection Act.

The way the company could prevent this is to make sure they are up to date with the Data Protection Act and if they are planning to sold this information to third person parties they need to make sure they have permission from the customers because if this information is sold without them knowing or agreeing they will use trust in the company meaning they could loss customers. This would be one of the only ways of preventing this because if the company wants to sell the information they will because it’s up to the board of directors and they can’t really be restricted by anything in the company because they could bypass most blocks that would stop employees because they have control of the monitoring and have the highest access level.

The effectiveness of this prevention is very low because in the end they company has the final say on were the data goes and who can have access to it, the reason for this is because they can do what they want with the data, so no matter what protection the company has to prevent employees they could go ahead and sell information for more profit. Data stolen by hackers Your personal information could be intercepted by hacker when you are signing on to a website or where your information in store on a company server and hacker have broke the firewall and decryped to code then the hacker could sell your data or use it for there own personal things like buying cars and house or even running up un? payable debt.

An example of hacker steals company data is when a hacker claimed to have broke into a t? moblie server and got information about address and corporate information, the article is shown below. The article states that the hacker has got people personal information and is now going to sell the information to the highest bidder, to stop these companies should be running regular checks to see if any information has been copied by hackers. There are many ways the company could stop hackers from taking and gaining access to their information, the first way would be to make sure the company has an up to date firewall that will prevent hackers from gaining access to the network, along with this though they should also have anti? irus and spyware software install this would make sure if an unwanted visitor was on the server the information would be secured and the visitor signal would be blocked. The next prevention would be for the company to encrypt there data so that if hacker intercept the data when its being transmitted they will not be able gain anything from it because it will encrypted with an 120 bit encryption or higher meaning they would not be able to break it or would take a long time. Also the company could make sure that the data is transmitted across the faster route to get to its destination meaning there are less places for the hackers to intercept and gain access to the information.

The effectiveness of a firewall in a company is very high because this will stop unwanted people being able to snoop on the server or network but his will not stop the hackers 100% because firewalls are not unbreakable by some high level hackers but if you were to have firewalls and then have anti? virus and spyware software installed this would make the effective a lot higher because they would have to break and bypass a lot more system and have a higher risk of getting caught before they find what they what meaning this has a high effectiveness against the hackers. The effectiveness of stopping hackers intercepting data by encryption and making the chain of transfer shorter is very effective because encryptions are hard to break of take a long time even for the best hackers.

So if you have all these preventions it will have a very high effectiveness against the company’s information being stolen. In correct or out of date data stored by a company If you send the company wrong information such as phone number, address, postcode etc. This can be bad because if the company think you are sending wrong information be you’re not the owner of the account they will contact the bank and the bank will lock the account until the owner comes into the branch. Also if wrong information is stored on the server they could be sending your private information to the wrong address like bank statements or private letters so it’s always important to keep your information up to date so your information doesn’t end up in the wrong hands.

Also companies should update records to comply with Data Protection Laws, this makes sure that all data it kept safe and only people with the correct access level gain access to the information also this prevents the company from transferring details to other people without your permission. There are many ways to prevent in correct or out of date data being stored by the company the main way to update and back up information weekly and send it to a different off site server, this will make sure the information is kept up to date and stored correctly meaning wrong information in used. Another way would be to make sure that the wrong records aren’t edited is by only allowing them to edit new record and if they want to access a existing record they have to bring it up and the server will only allow certain edits to the data this would prevent the wrong data from being stored on the server.

Also only certain people should have access to stored data this will prevent people from opening it to view it and then changing something so the data is stored wrong because this could be bad for the company because private information could be sent to the wrong people which could mean the company break the Data Protection Act and could be held responsible. The effectiveness of the preventions is very high also as this backing update and updating is done weekly and is stored different location to the main information the reason for this is because if it stored in the same placed if the data is changed or corrupted it could also happen to the backup copy of the information. If it wasn’t stored of site backing up the information would be pointless.

Also making sure the information can only be changed and access by certain people has a high effectiveness because there less people that can change it by human error meaning the information will be stored correct. Loss due to error or Hardware failure A company could loss data by hardware failure, if a company loss data by hardware failure it can cost them time and money so the company should always have their data saved in two different server in different building, basically they should do a backup every night so if there is a hardware failure they can go back to yesterday’s work and personal, so yes they do loss some stuff but not everything.

Sometimes big companies get virus which is set to destroy valuable data or corrupt valuable data big companies should run regular checks to check their firewall has not be attack and broke by a virus because when they do the backup to their second server the virus could get sent there and the all the information could get deleted or corrupted which would loss the company money and customers. Data loss comes from the state data spill, Data loss can also be related to data spill incidents, in the case personal information and cooperate information get leaked to another party of people or deleted. Also backup policies should be in place and backup should be checked occasionally to see if they work or not and if they are effective as they might not work.

A way to prevent loss due to hardware failure is to make sure your technology is up to date, a way to do this would be to upgrade the hardware regularly this will give it less chance of failing because it will not just break down due to age or become ineffective. The effectiveness of upgrading hardware is low the reason for this is because the hardware is very unlikely to fail if it well looked after and kept at a low temperature this will ensure that you will not lose data due to hardware failure. The effectiveness of backing up data on an offsite location is very effective because it will stop data from getting corrupted but needs to be regularly re? acked up so it’s kept unto date, the reason this works so well is because if the original data on the main server is loss and corrupted the backup version of the data will be unaffected because it has not connection to the original server where to main data is stored the reason for this is there only an active connection when the data is being backed up to the offsite server and this minimise the risk of the backup data being corrupted. Along with this you need to make sure the server is secure has antivirus software installed the effectiveness of this is high but this kind of software can always be bypassed but will allow good security against low level hackers who are trying to destroy data, if this security is used and the data is backed up weekly it will have high effectiveness and will minimise the risks of data loss due to human error or hardware failure. Natural disasters

An over looked type of data loss is via nature disasters such as floods, fires, hurricanes or earthquakes if one of these hit the building were you were storing all your data there data would be loss without any chance of recovery because the server would be destroyed, so companies should back there data up to different building away from the first server so if that server get broke by a natural disaster. Also your server should be stored off the ground floor because then there is less chance of the flood reaching your servers and the last thing is all server rooms should be fitted with co2 sprinkler not water because water will damage the server do this and your data is more secure from fires. The effectiveness of backing up data on an offsite location to prevent loss due to natural disaster is very effective because it will stop data from getting corrupted but needs to be regularly re? acked up so it’s kept unto date, the reason this works so well is because if the original data on the main server is loss and corrupted the backup version of the data will be unaffected because it has no connection to the original server where to main data is stored the reason for this is there only an active connection when the data is being backed up to the offsite server and this minimise the risk of the backup data being corrupted, but this will only be effective if the offsite location is in different area to the main server so if a natural disaster hits only the main server is destroy or damaged. The effectiveness of putting the server of the ground floor to prevent flood damage is high because to will stop the floor reaching the servers and damaging them but this would only work if the foundations of the build were sthrong because if the floor was sthrong and the building was weak the building may fall meaning the prevention was pointless.

The effectiveness of having fire prevention is high but there is still a risk of loss of data the reason for this is that if the fire starts in the server the co2 sprinkles will go off but some of the data will be loss before the fire is put out, but if all these preventions are used together it will give you high effectiveness against natural disaster damage and loss. When you’re searching a website for a product and buying products from a websites you need to know that your details are secure and that no one can take your identity or use your money on other products you don’t want, there are ways to check the website is secure so that people can’t get your details, the three main ways are looking for the HTTPS, the padlock and the security certificates the three ways are shown below. Padlock HTTPS Security Certificate SET which stands for Secure electronic transactions is standard protocol for using your credit or bank cards over an insecure networks like the internet ecure electronic transactions is not a payment system but some protocols and formats the let the user to employ the existing credit card payments on an open network, it gained to gain traction. VISA now premotes the 3? D secure scheme. Websites and computers now use firewalls to stop hacker, Trojans and spyware these firewalls come on the website and computers but you can buy better firewalls like Norton firewalls stop identity thief and lots of other things that take data from u and could take your money these firewalls are a big advancement on security but people are still find ways to get passed them that’s why you have to buy the new version of Norton every year and update daily to ensure new viruses can be caught.

Also websites and companies use user names and passwords this is to stop people getting to the system and taking data and using it to steal peoples things, also big companies use access levels for example MI5 use access level to stop new employees seeing top secret data and to make sure people only see what’s in their pay grades also employees should have passwords but they should have to change them regularly to avoid revelation. Antivirus software is available to buy from shop or online, antivirus software protects you from identity thief, stolen details and etc. There are many antivirus software’s some of the main ones are Norton and MacAfee these cost about ? 5 per year this is because it protects you from many different dangers that could make you loss item or stolen your thing like work and all of the firewall’s and virus protections offered by Norton is shown below. When data is being sent from a computer to a server that contain personal and credit card data information the data in encrypted to stop people intercepting the data and reading it the encryption changes a password for example from jamesjamesjames it would change it to something like rygf84943gv43g3t83vg347vt539v, so if someone took that data they would be unable to use it. For example Game. co. uk tell you that they encrypt there data with a 128 bit encryption so this mearns its petty much unbreakable. When a company is working with data like personal and bank information all of he employees have to agree and sign the data protection act this mearns that they agree to keep any information there given a secret, for example they can’t download data and give it to another company or another person because then they would be breaking the data protection act they have signed and could get fined or go to jail to up to 10 years. Also there are laws that also stop an employee or a company giving data away to other companies or people but big companies find ways to get around this because they are legally allowed to give your data to third person party of their company unless you say otherwise. Business that keep personal and bank information on site should have physical security like cameras and guards and even guard dogs if the information is they import, they need this because it’s no good having amazing fire walls well someone could walk and a pick the server up and walk out.

The DPA which stands for Data Protection Act 1998 is a UK act of parliament which is a UK law on the processing of data on identifiable of living people. It’s the main piece of info that governs use to enforce protection of personal data in the UK. The DPA does not mention privacy it was made to bring the law into line with the European Directive of 1995 which requires members to start to protect people fundamental rights and freedoms. This law is very effective and people get caught and feel the law hit them every day around the world. There are 8 data protection principles that relate to the data protection act 1998 they are as followed: 1.

Personal data shall be processed fairly and lawfully and, in particular, shall not be processed unless – (a) At least one of the conditions in Schedule 2 is met, and (b) In the case of sensitive personal data, at least one of the conditions in Schedule 3 is also met. 2. Personal data shall be obtained only for one or more specified and lawful purposes, and shall not be further processed in any manner incompatible with that purpose or those purposes. 3. Personal data shall be adequate, relevant and not excessive in relation to the purpose or purposes for which they are processed. 4. Personal data shall be accurate and, where necessary, kept up to date. 5.

Personal data processed for any purpose or purposes shall not be kept for longer than is necessary for that purpose or those purposes. 6. Personal data shall be processed in accordance with the rights of data subjects under this Act. 7. Appropriate technical and organizational measures shall be taken against unauthorised or unlawful processing of personal data and against accidental loss or destruction of, or damage to, personal data. 8. Personal data shall not be transferred to a country or territory outside the European Economic Area unless that country or territory ensures an adequate level of protection for the rights and freedoms of data subjects in relation to the processing of personal data. The most important of these is 7,

The CMA which stands for computer misuse act 1990 in an act of parliament this was introduced partly in response to the decision and R v Gold & Schifreen 1998, the act has nonetheless become a model for which many other counties have drawn to when making their own visions of the CMA. The Consumer Protection Regulation mearns if you sell goods or services to consumers buy the internet, TV, mail, phone, or fax you need to stick to consumer protection regulations the key parts of these regulations mearns that you must give consumers clear information including details of the goods or services offered delivery arrangements and payment and you must also provide this information in writing and the consumer has a cooling? off period of seven working days.

Automation is increasingly being questioned as anti-job with chatbots, robots etc., usurping human employment across sectors. Or it might well trigger the rise of ‘knowledge’ workers. The new industrial revolution is on the anvil.

The Machine Age

The way relationship between man and machine is evolving today has never happened historically. The robots from the science fiction movies are turning reality. Imminent is the fact that robots will impact millions of jobs in multiple sectors particularly the blue-collar ones. Instances like Taiwan-based contract manufacturing giant Foxconn Technology Group replacing around 60,000 factory workers with robots in May this year are occurring globally.

“We have companies like Google which have released speech application programming interfaces (APIs) that convert streaming audios into streaming text, have a machine to render it and understand exactly what we are saying in real time. It is only a little bit further when humans will be able to actually re-render that as a response in text to speech in the way that we won’t be able to tell the difference,” says Kaiesh Vohra, Co-founder, Lucep. The Singaporebased start-up offers mobile solution that helps businesses increase their online lead generation and conversion.One can think of telecalling shrinking from hundreds of people sitting in multiple buildings to just two racks inside a server room. This kind of impact can be across sectors. “The simple act of making potato chips and selling it to people via a super market involves lot of workers. There are start-ups existing today that can mechanize that entire process and on top of it add artificial intelligence so that there are no humans  involved except for eating. Farmingtoo can be done by robots including pulling weeds out of the ground by themselves,”

Nonetheless the fear of job loss among people will be tempered with the rise of many interesting jobs for knowledge workers who will have robots as their teammates.

“It is like a new industrial revolution. Earlier all work was done manually followed by human aided machines but humans never lost their jobs, in fact it created millions of them. Now it is all about automation and in the long run there will only be more jobs,” argues Juergen Hase, CEO – IoT Business, Reliance Group.

“The willingness of people in India to use and implement IoT in their daily lives is fantastic with so many start-ups coming up in this space. It is now about executing it into mass market. So, the next step is to operate IoT instead of developing IoT which we will see in next one-two years,” adds Hase.

Impact on Financial Services

This includes the hassle of accepting payments in India which still remains in cash. However, merchants today have realized that accepting cash is not the most seamless way for payments. “Merchants have realized that while it may not have an upfront cost but the overall lifetime cost of handling cash is really expensive compared to going cash less,” says Harshil Mathur, Co-founder, Razorpay. Bengaluru-based payment gateway solution provider, Razorpay was part of winter 2015 batch of world’s top seed accelerator Y Combinator.

“With the launch of unified payment interface, Aadhaar etc., in the next two years, the way payments are done will be changed in India. It will also be critical as more and more people enter the banking ecosystem,” adds Mathur.

Gurgaon-based Eko India Financial Services that offers payment and money transfer services to customers and retail merchants believes that data generated by these digital transactions will in-turn help merchants cope up with their working capital issues. “We share the data generated by merchants’ earnings with alternative lending companies who can offer working capital loans to these merchants based on that data as traditionally merchants have been unable to raise working capital loan from formal institutions like the bank,” says Abhinav Sinha, Cofounder & COO, Eko India Financial Services.

Clearly, fintech is the way forward in such cases even as vast Indian population remains bereft of banking services. “A government in favor of dematerialization and online on boarding of the rising rural middle class could only augment the fintech growth,” says Nikhil Kamath, Co-founder and Director, Zerodha – Bengaluru-based discount brokerage firm. However, banks too are undergoing digital restructuring to avoid being on the edge of their seats courtesy fintech start-ups that have been unbundling
banks’ various services. On the face of it, banks, however, term fintech start-ups as partners rather than their possible nightmare.

“Banks have the wherewithal of putting the right governance structure, audit mechanisms, settlement and reconciliation processes in place where as start-ups are good at knowing how to work on the user interface and user experience design. This is a perfect combination to offer better services. I often joke about it saying that if fintech start-ups are to be WhatsApp of today then banks have to play the role of Internet service providers. So both have to go hand in hand,” concludes Ritesh Pai, Senior President and Country Head – Digital Banking, Yes Bank.

Big Bath Accounting is the direct opposite of the Optimism principle, which involves the overstatement of a company’s profits and the overvaluation of its assets (Jiang, 2006).  It is defined as the accounting procedures undertaken by a company’s management for the specific purpose of bringing down the profit figures for the current year.  The end objective is to achieve increased profit figures for the subsequent year.

The lower the figures are for the current year as the base year, the higher the computed increases will be in terms of rates of return and profitability ratios for the next year.  This, then, will paint a better picture of the management’s overall performance.  (Riahi-Belkaoui, 2003, p. 135)

Thus, taking a bath would mean writing off unusable assets or those that were acquired to implement old projects, recording provisions for all kinds of estimated losses and expenses, and deferring revenues to arrive at a reduced current income figure.  (Riahi-Belkaoui, 2003, p. 135)

 As necessary, management would change the company’s accounting policies, manipulate discretionary accruals, decide to adopt a new accounting standard at a suitable time, and revise operational standards for variables such as manufacturing overhead and general expenses.  Management can choose to do any of these things to protect its own interests or to generally serve its own purposes.  The Positive Accounting Theory (PAT) establishes that a company’s management would naturally make decisions that are bent toward maximizing their own utility and not necessarily the company’s profits.  (Scott, 2008).

To counter these managerial tendencies, the Agency Theory is primarily focused on establishing ways for a principal (or the company stockholders) to motivate an agent (or the company manager) to do things that for the best interest of the former – the principal or the company stockholders (Rabin, 2003, p. 809).

The prevailing conflict in what is best for each of the two parties – the stockholders and the management team – would have to be minimized (Scott, 2008).

In the process, agency costs are incurred for the various methods employed to synchronize the management’s interests with the stockholders’.

There are recommended ways to counter the Big Bath Accounting practices.  Auditing would help to identify the Big Bath-related decisions made by management.  They would then be detailed in the auditor’s report for the company’s board of directors (representing the company’s stockholders) to be alerted about them.  Budget constraints (budgeted net income minus actual) also ought to be accordingly brought up (Scott, 2008).

Management should then be required to explain all the issues that sprung forth from the Big Bath application.  It would help, too, if managers are made to recognize that they are dispensable and replaceable, especially when the financial statements relay results that do not meet the approval of the company’s stockholders.

The Big Bath Accounting practices are mostly undertaken to deflate the current year’s income so as to have better chances of inflating the next year’s income.  But then, there would be little or no reason for a company to “take a bath” if incentives are regularly given to its management based on actual income figures for each year and not on comparative increases year-on-year.

Big baths are known to be taken whenever there is a new management team in place that seeks to show depressed profitability levels as their take-off point so as to magnify the conjured positive effect of the company’s profits in the succeeding years (Riahi-Belkaoui, 2003, p. 135).  Mechanisms should be set up for management to not want this kind of leverage.

Fair Value Accounting

For all the criticisms lashed out by bankers and economists against the requirement of stating the bank’s assets and liabilities at their fair or market values, it remains generally believed that such accounting standard would have enabled the government’s monitoring agencies, the financial markets, the users of credit to see what was coming as early as the year 2007.

Fair value accounting would have mitigated the impact of the global financial crisis.  In spite of the complaints currently piling up about the worsening level of investors’ confidence in the financial markets as a whole with the fair value accounting as the cited culprit behind it all, authorities are ready to defend fair value accounting as part of the solution for the financial woes brought about by the global financial crisis.

While it is true that fair value accounting requires banks and companies to value their assets at their badly deflated market prices and that such devaluation of assets is further lowering the net assets worth of the entities, the same fair value accounting would have forced banks to be more discriminate in – if not to totally refrain from – releasing loans like liquidity was not at all an issue.

The meager cash resources that the bank had would have been put on hold as required reserves to replace the portions of the lost market values of the bank’s assets and securitized resources.  As it is, it was too late when fair value accounting became the required system.  The books of companies and banks alike have all been robust with overvalued assets that clung to historical or purchase costs that were long gone.

Fair value accounting would have led earlier to the writing off of bad debts – this one result would have let out the warning signals that, in turn, would have helped to arrest the liquidity problem at its onset.

In the aftermath of the financial tsunami, fair value accounting brings up additional troubles for the banks.  Indeed, it is no lie that using today’s market values for investment securities and for receivables is causing them to have worsened financial conditions as reflected in their financial statements.  But then, it remains that fair value accounting is the wise and fair system to uphold if the investors’ confidence is to be won back and if the circumstances that led to the global financial crisis are not to be repeated.

An alternative to fair value accounting would be transparent disclosures that should end the wave of misleading statements and inaccurate financial reports of public companies that misled the finance markets during the last decades.  Lack of transparency has brought about the large-scale accounting scandals that have sadly become a frequent occurrence (Lightstone & Driscoll, 2008, p. 8).  Regulations like the Sarbanes-Oxley Act were formulated and implemented to address these misdeeds, but it is, in the end, largely up to corporate bigwigs to decide to do the right thing for the sake of their companies, their stockholders and to a certain degree, their country.

Ethics in high places can be hard to come by.  Disclosing the real scenario is the company’s financial statements or in the notes attached thereto can be a difficult thing for the management to do.  It would then be a question of how far they would go to protect their own hide or of how important to them is the upholding of truth.  Truth can be painful to let out, as seen by the groans and complaints of the banks against having to present their assets and holdings at fair values.

But again, fair value accounting and transparency in giving the users of financial statements the true picture – whether they will be pleased or not about it – of the company’s operating results and financial condition are the only means of re-establishing for good the lost confidence in capitalism and in the finance world.

At this point, there is little that can be achieved in digging up the spoils to trace how the huge catastrophe came about.  The more important thing is to focus on what ought to be done and on getting it consistently done.

References

Jiang, C. (2006). ‘Optimism’ Vs ‘Big Bath’ Accounting – A Regulatory Dilemma in Chinese     Financial Reporting Practices.  Social Science Research Network.  Retrieved June 13,   2009 from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=922484

Lightstone, K. & Driscoll, C. (2008). Disclosing Elements of Disclosure: A Test of Legitimacy Theory and Company Ethics.  Canadian Journal of Administrative Sciences.  Retrieved          June 22, 2009 from http://0-www3.interscience.wiley.com.wam.city.ac.uk/cgi-  bin/fulltext/117934123/PDFSTART

Riahi-Belkaoui, A. (2003). Accounting – By Principle or Design? California: Greenwood           Publishing Group.

Rabin, J. (2003). Encyclopedia of Public Administration and Public Policy.  Marcel Dekker.

Scott, W. (2008). Financial Accounting Theory.  New Jersey: Prentice Hall.

Microsoft and Bank of America Merrill Lynch have joined forces on a project to use blockchain technology to make trade finance transactions faster, cheaper, safer and more transparent, the companies said on Tuesday.

The two multinationals said at the Sibos financial services conference in Geneva that they would build and test the technology and create a blockchain-based framework that could eventually be sold to other businesses.

Blockchain works as an electronic record-keeping and transaction-processing system that allows all parties to track information through a secure network and requires no third-party verification.

Proponents of the technology, which originates from digital currency bitcoin, say that it will make all kinds of transactions faster, more reliable and easier to audit because it does not require manual processing, nor authentication through intermediaries.

Trade transactions using the existing process typically take between seven and 10 days to complete and involve a complicated paper trail that is vulnerable to document fraud.

“The underlying nature of trade finance in its current form is highly manual, it’s highly time-consuming and it’s paper-based, so we thought this would be a good opportunity to streamline the way trade transactions are processed,” BAML’s head of global trade and supply chain finance, Percy Batliwalla, told Reuters.

Microsoft’s cloud-based Azure platform will be used for the project.

This is not the first move to use the nascent technology in what is viewed as one of the most suitable sectors for blockchain-based innovation. Barclays and an Israel-based start-up said this month that they had carried out the first real-word trade deal using the technology.

(Reporting by Jemima Kelly; Editing by David Goodman)

Introduction The international debt crisis has its origins in the inability of a number of Less Developed Countries (LDCs) experiencing serious difficulties in coping with their debts and their inability in meeting the debt service requirements. The crisis can be dated to August 12, 1982, when the Minister of Finance of Mexico announced that Mexico would be unable to meet its August 16 obligation to service an $80 billion debt which was mainly dollar denominated.

This inability was due to a combination of doubling import prices for oil, obligations from past external borrowings and rising protectionism in the industrial countries left with little foreign exchange to pay for imports. This sparked of a worsening situation where by October 1983, 27 countries owing $239 billion had rescheduled their debts to banks or were in the process of doing so and other countries were following suit. A majority of these 27 countries were from Latin America.

The four largest – Mexico, Brazil, Venezuela, and Argentina owed various commercial banks $176 billion, or approximately 74 percent of the total LDC debt outstanding (Wellons, 1987). Of this amount, roughly $37 billion was owed to the eight largest U. S. banks and constituted approximately 147 percent of their capital and reserves at the time. As a consequence, several of the world’s largest banks faced the prospect of major loan defaults and failure. Causes of the International Debt Crisis The Wall Street Journal noted in 1981:

It doesn’t show on any maps, but there’s a new mountain on the planet – a towering $500 billion of debt run up by the developing countries, nearly all of it within a decade . . . to some analysts the situation looks starkly ominous, threatening a chain reaction of country defaults, bank failures and general depression matching that of the 1930s. Grounds for the international debt crisis of the 1980s are varied. A major reason was thought to be the role of banking consortia in extending large loans to LDC governments with minimal analysis of the debt service prospects of the borrowing country.

The banks lent loans to the LDC governments irrespective of the prospects of debtor export earnings, or the effectiveness of domestic management of fiscal, monetary or foreign trade policies. A major reason for this inattention to debt carrying capacity of the LDC countries was because a large share of the debt build up was in the form of sovereign debt owned by the LDCs. Unlike ordinary debt contracted between two private parties which is collectible by law, sovereign debt is above the law and not subject to external enforcement.

The widespread assumption was that sovereign debt always gets repaid. Unfortunately however, most banks did not anticipate that the burden of servicing sovereign debt might become so harsh that living standards of the debtor countries would suffer and thus affect the willingness of these countries to continue repaying the debts. A striking example of this occurred in 1985 when the Peru government announced that it would unilaterally limit payments on its foreign debt. It declared that it would limit payment on it $14.

3 billion foreign debt to about 10% of its export earnings or half of the nation’s debt service ratio. The miscalculation or mismanagement of sovereign debt issues by the banks was not the only cause of the debt crisis. The crisis was further brought on by global economic shocks and economic policies in many of the borrowing countries. Three global economic shocks were of prime importance (Gillis et al, 1987): 1. The sharp run-up in world oil prices in 1979 through 1981, from $ 13. 50 per barrel to $ 36 per barrel, and the even sharper drop in oil prices in 1985 and 1986 to as low as $10 per barrel.

In addition to generating inflationary pressures around the industrial world, these price movements caused serious balance of payments problems for developing nations by raising the cost of oil and of imported goods. Developing countries needed to finance these deficits, and many began to borrow large sums from banks on the international capital markets. The oil price rise that caused the deficits also increased the quantity of funds available in the Eurodollar market through the dollar-denominated bank deposits of oil-exporting countries, thereby fueling the lending boom.

The banks merely re-channeled the funds to the oil-importing developing countries as loan credits. In addition, the rise of oil prices also helped to bring on the world recession of 1974-75, which would eventually produce a decline in world commodity prices for minerals and agricultural goods, thereby further exacerbating the developing countries debt burden. 2. The global recession that resulted in part from the 1979 to 1981 oil price rise depressed export earnings of many debtor countries to the point that most had no choice but to delay debt service.

Because most LDC credits were priced to LIBOR rates, debt-service costs grew progressively greater as these rates reached record levels. This along with the slowing in world growth and drop in commodity prices left exports stagnant and debt-service commitments hard to meet. Another factor that compounded the debt-service problem was that most of the new bank loans to the LDCs went on to cover accrued interest on existing debt and/or to maintain levels of consumption, rather than for productive investments.

3. A third factor was the combination of the sharp rise in nominal interest rates after 1979 and the decline in world inflation after 1982 which lead to a steep increase in world interest rates particularly in the years 1979-1983. Loans as a result became more expensive and most countries lacked the export earnings to carry such expensive debts. Wertman (1984) further argues that poor economic management in many debtor countries also contributed strongly to their debt problems.

The crisis countries delayed too long in undertaking measures that would have otherwise allowed them to cope with the unexpected debt crisis. Argentina, Brazil and Mexico are prime examples of such countries. In all these three, economic growth after 1979 was much slower than before and inflation rates surged almost out of control. All three countries also had to undertake emergency debt rescheduling in the early eighties and were denied access to new international borrowing at normal market norms.

Ethics is a branch of philosophy that focuses on the moral, philosophical characteristics of formal, systematic and ethical principles. Moral judgments are calculated from ethical principles which need to be applied as a standard for everyday choices in life and business. This is directly related to the decisions human beings make. Cavico (2009) states utilitarianism is more than just moral philosophy. It is a way of reformation and used extensively in government decision-making. This will be discussed further in the Bank of America-Merrill Lynch merger.

Utilitarianism is considered a scientific system of ethics and not just a philosophical theory of ethics. Utilitarian ethics follows the belief of maximizing the greatest good for the largest number of people. As utilitarianism is identified, one needs to learn that the greatest good could be based on aggregate principle or a distributive principle. The Bank of America-Merrill Lynch merger will be assessed in regards to who, what and how the greater good will be affected in this merger. Within utilitarianism, a moral philosophy is developed that focuses on the consequences of specific actions.

An action is done, then observed and then analyzed. After identifying all the people that were involved, one needs to ask the question, “Do the sum of good consequences outweigh the sum of the bad consequences? ” Quantify all the good and bad consequences in the scenario and if the good consequences are greater than the bad consequences then the action was moral and vice versa. In this paper, the actions of the Bank of America-Merrill Lynch merger will be discussed, evaluated and quantified with the Richard DeGeorge Utilitarian perspective.

Pinpointing the stakeholders in this case will show who was direct and indirectly affected and how they were affected. Furthermore, it will be discussed the overall affect it had on society from a global perspective, reaction from competitive markets and the economic impact it created within the United States and worldwide. Critical points and actions will dominate the course of action on how utilitarian ethics was applied in this situation. Identifying the individual people or groups that were in this scenario will be evaluated on a pleasure v. ain scale where it will show the extent of good or bad in the situation and the possible outcomes that followed. The pleasure v. pain comparison will then be quantified on a grading scale that represents extreme pleasures and pains in Bank of America-Merrill Lynch merger. After totaling up the good and the bad points, it will determine if the actions in this merger were moral. In late 2008, Bank of America and Merrill Lynch were in negotiations for a business deal. Bank of America was going to buy Merrill Lynch for one of the largest bank mergers and acquisitions in the world.

On the surface, Bank of America thought the merger was a good idea and a good business deal to pursue. Former Chief Executive of Bank of America, Kenneth Lewis, and the board of Bank of America saw this business deal as a way to expand into different sectors of the financial markets and strengthen many of its counterparts. With all the extensive financial records of both companies and balance sheet assessments, the deal looked great for smooth sailing. Catastrophically, the deal went through and contributed towards a massive failure in our financial markets that affected and crippled everyone worldwide.

The private deal that once seemed so good has now become a nightmare. All of a sudden, the government has stepped in and has announced it will give twenty billion dollars in assistance from tax payer’s money. Investors and the public were shocked something of this magnitude was happening and felt betrayed, cheated and crippled. Within all the mayhem, the actions that will be evaluated come from Merrill Lynch and Bank of America and their failures to disclose pertinent financial information that would have shown greater losses than expected.

United States (2009) stated the lack of transparency to investors and to the public showed that there was a negative atmosphere among them that they feared to disclose from the public. In addition to this, rumors circulated that the government had ties to this merger and flexed its power in order to make the merger happen. There were a great amount of people affected in this merger. Merrill Lynch as a company was being bought out in order to be saved financially. Merrill Lynch’s investors, shareholders and CEO, John Thain were a part of this corporation.

Bank of America was the number one candidate for purchasing Merrill Lynch at the time. Bank of America’s investors, shareholders and CEO, Kenneth Lewis were all a part of this major merger. United States (2009) includes the Secretary of the Treasury, Hank Paulson and Chairman of the Federal Reserve, Ben Bernanke were on the governmental side of this merger that apparently knew what was going on and forcefully made Bank of America buyout Merrill Lynch. This merger can also contribute to affecting the general public, global economies cross the world and the financial banking industry. As this case develops, there is uncertainty that Merrill Lynch and former CEO, John Thain, have to reveal massive amounts of losses and at one point a fourth quarter loss of fifteen billion dollars. In response, former CEO of Bank of America, Kenneth Lewis analyzes this and decides it may not be a good idea to pursue the merger. Secretively, the Fed, Paulson and Bernanke force Lewis to buy into the deal because if he doesn’t this could create a complete and total meltdown of the financial systems.

Utilitarian ethics was used by considering the global economy; the government had to step in to minimize the blow as best as they could to help the greater good of society. In addition to this, there has been speculation that if Lewis hides these huge losses before the merger and reveals them after the merger he could gain more government help in regards to the massive hit Bank of America now faces. Although the economy is in a meltdown and financial banks are getting hit harder than ever before, this merger may prove to save some of our largest financial institutions and lessen the blow of a complete loss for the global economy.

On one spectrum of the scale we have the financial banks abusing high leverage investments in order to gain more money without caring about negative consequences but then on the other hand, the nation is faced with minimizing damages and saving as much as it can because in a result of total loss, the public could be in a greater state economic loss. With Merrill Lynch being saved and Bank of America taking on the bigger role of keeping afloat, Merrill Lynch now has the opportunity to be bought out and saved compared to total collapse and bankruptcy.

In this case, it was a smart move for Merrill Lynch to be acquired by Bank of America and a foreseeable good in the future of the financial markets. Kenneth Lewis took the daunting task of acquiring Merrill Lynch and the bad debt expense that the company brought with it. Acquiring Merrill Lynch would provide a huge blow to Bank of America at first but restructuring and getting government help in the merger would prove to be a successful task that would provide foreseeable good in the future. Some people believe that Paulson and Bernanke used their governmental power to make this merger happen.

Bank of America’s Acquisition (2009) states they forced Kenneth Lewis to buy out Merrill Lynch and if not Kenneth Lewis and the board of Bank of America would have been terminated. Although this may have been a threatening action, it was in the government’s best interest to make this merger go through or a total collapse of the financial markets would be devastating for the American population and further seep into global chaos. It is a very tough situation to assess but following Utilitarianism considered the greater good of the population and this needed to be done.

In addition to this, individual investors were hit very hard with the downturn of the economy. In many cases, people lost more than fifty percent of their investments which sounds terrible but comparing it to a nongovernmental bailout, those individuals would be left with nothing. In this research study, it is needed to define the severity of good and bad consequences for each individual or group that was affected in this case on a numerical grading scale. Each individual or group will be considered according to the Richard DeGeorge Utilitarian approach.

The scale will be ranked from +5 being the best and -5 being the worst situation from a pleasure versus pain standpoint. Merrill Lynch being bought out by Bank of America is more of a good thing. Ranking it at +2 gives Merrill Lynch and Bank of America merger the positive side because without this merger people would be in greater amounts of trouble. Ranking a +1 for investors and shareholders of each company provides a positive side of this outcome. Although investors did lose over fifty percent of investments into the companies, this loss is better than losing everything that was invested.

Other financial markets were consolidated and restructured. By getting rid of bad assets, other financial institutions could start over and reinvest in the proper markets. This was also a learning lesson for the financial industry and for them to never repeat these careless mistakes again. A rank of +3 will be given to the financial markets. Hank Paul and Ben Bernanke did prove to show excessive force in making this merger happen but only in regards to saving the U. S. economy and limiting the blow that it could’ve potentially produced.

Giving the government a ranking of +2 shows they provided a better option for America and the possibility of avoiding a complete financial meltdown. Assessing our global economy by looking back at it over the past five years gives it a ranking of 0. This explains that as a country and globally, we have made minimal increases in our economy. One month says we are getting back on the right track while the next month says we are sinking deeper and deeper into recession. The economy shows a recovery in the stock market one month but the next month there is speculation that the European markets are going to crash and take everyone with them. Living in these highly volatile times gives uncertainly and fear for most investors which hinders potential growth and recovery. After summing up all the pleasure and pain rankings, the total equals +8. This shows that amidst all the chaos, deceiving and cheating, the outcome created a positive effect that saved our economy as best as possible rather than let it sink and destroy everything.

This tragic merger proves to be a morally correct standpoint regardless of the tough actions that were taken in order to achieve this outcome. No individual cheated the system or manipulated the system in order to gain financial strength. It was in the best interest of the individual companies and the U. S. economy to keep them intact or greater consequences could’ve occurred. Saving two of our largest banks provides us with a loss in investments but something that would be accepted rather than total and complete collapse of our financial systems.

Primary Source

1. United States. (2009). Bank of America and Merrill Lynch: How did a private deal turn into a federal bailout? : joint hearing before the Committee on Oversight and Government Reform and the Subcommittee on Domestic Policy, House of Representatives, One Hundred Eleventh Congress, first session. Washington: U. S. G. P. O. Secondary
2. Bank of America’s Acquisition of Merrill Lynch: A “Shotgun Merger”?. (2009, June 16). My Bank Tracker. Retrieved August 4, 2012, from www. mybanktracker. com/news/2009/06/16/bank-of-americas-acquisition-of-merrill-lynch-a-shotgun-merger/

An employee at the Bank of America Banking Center, whom we will name Morial Dawes, is a part-time window teller or customer service representative.  She works at both the drive-up window and inside.  She only performs teller functions, does not open new accounts or sell loan or credit products.  Morial is also a college student.  She has two years remaining to complete her bachelors degree in business management and finance.  Morial also holds a real estate agent license and occasionally lists and sells homes.  She is currently age 27, and has been active in many civic organizations since age 21.  She has been featured in the local news as a board member and mentor for a local program that helps single mothers obtain job skills, higher education, and employment.  Morial’s goals are to obtain an executive level position with a local company, or to start her own real estate agency.

Morial believes that the bank is a good launching board for her goals.  She also believes that she offers the bank many skills that can help them be a better corporate citizen, and be more profitable in their local business.  Morial has recently completed some Dale Carnegie seminars and is interested in doing motivational speaking and corporate training.  She has done some small speaking engagements at her church and civic organizations.  Morial would like to do some motivational seminars for her coworkers, as she has noticed low morale and high stress among some tellers.

Morial will write a letter to Mr.  Modeba explaining her observations, and outlining a seminar plan that she can do in-house at staff meetings.  Mr.  Modeba will respond with a decline based on the bank’s internal training model and on Morial’s position within the organization.  He will explain to her how she can reach the point where her proposal can be reconsidered.

Our staff meetings always provide excellent tools for communicating with customers and with managers.  During my time here at this branch I have learned to adapt my communications patterns to adjust to customers, branch management, and senior level management when they come into our staff meetings.

As we have previously discussed, I have completed some speech and communications courses at the university level.  I have also attended many of the Dale Carnegie seminars.  Not only have these courses and seminars helped me to develop my personal communications style, but they have given me a greater ability to incorporate the strategies that you have taught into my daily work activities.

Some of my fellow tellers have been experiencing low morale since our branch received a below average rating in overall communications efforts.  However, I know that each one of us enjoys our jobs immensely, and would like to do all we can to raise our branch rating the the ‘excellent’ level.  To that end, I would like to assist by offering a series of peer seminars to help enhance our internal communications strategies.

With your assistance, I would like to conduct a five week, 60 minute seminar based on the five communication concepts that you often refer to in our meetings – information, progress reporting, motivation, organizational advance, and implying law.  In each session we will discuss each concept in detail, and conduct peer-to-peer practice scenarios on how to apply each concept.  For example, in the session on implying law, we would practicing asking clarifying questions to senior management who present new policies to us.  Then we would practice explaining the changes to customers who are used to older practices.  We would also learn how to discuss amongst each other how the policies alter our tasks and how to remain efficient during transition.

I am willing to meet with you after my shift or during my off hours to draft out the full plan for the seminars.  I am sure that you will need approval from senior management, so I will also answer any questions or put a detailed proposal and seminar curriculum in writing for presentation and review.  I believe that this will help all of us reach a greater comfort level and become a model branch for achieving communications excellence.

Thank you for your memo affirming the challenges and goals we have as a branch team.  I am also pleased that you have taken so much from my staff meetings.  I realize that our meetings are short and to the point, but it is positive to know that you are able to apply the principles we discuss into your daily activities.

As a branch manager, my purpose and goal in having staff meetings is to provide employees with a sounding board for their day to day observations and concerns.  Staff meetings also facilitate senior management in providing new product or service training, and to discuss changes in bank policy and procedure as it relates to our daily operations.

You may or may not know that our regional office has a state-of-the-art training and educational facility.  As a manager, I often attend training programs designed to enhance my ability to communicate with employees at the branch level.  Some of the trainers are our in-house training personnel, other times local universities send their staff in to conduct training or even provide coaching for individual managers.  There is also a dedicated staff at the company headquarters that works closely with staff at the regional offices to identify training needs and to develop and acquire training resources.  As such, all official and technical training programs are developed at the corporate level first, and then duplicated at the regional level.

I have shared your memo and idea, as well as your resume with my senior regional manager.  She is impressed with your attention to detail and with your identification of need and response to that need.  However, we are unable to approve in-house peer-to-peer branch training.  That model was in use several years ago, and proved to be ineffective in meeting the corporate training goals.

At my regional manager’s request, I am forwarding to your email a link to our corporate careers webpage, and a copy of several positions available at the regional office.  As you will see, there are several opportunities within the training division for persons with your skill and vision.  As you know, our company prefers to promote from within and you may be surprised to learn that my regional manager began as a part-time float teller while attending school.

I hope that this information is helpful to you, and find it conceivable to someday bring the entire branch staff to attend corporate training led by you.