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Financial statues of Citibank
Topic; Citibank
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Introduction
A fundamental issue in macroeconomics is the consideration of whether or not the markets, if left alone can routinely bring about a long run economic equilibrium. If the market operation was done freely and in due course resulted in a total employment level of national income with firm economic growth and prices, then there would be no need to call for government intervention in the macro economy- no use of supply side policies and fiscal monetary exchange rates. The fact is that every government intervenes by use of their macroeconomic policies in a bid to attain specific policy objectives as well as improving the entire performance of the economy (Warsh 2006, pg 35).
A good climate for operating a business is the first factor every business person or group is looking for, this climate is vital to private companies led growth, development and investment, which in turn is very crucial for income growth, generating employment and poverty reduction (Warsh 2006, pg 39). Successful policies to advance the investment climate calls for development of sound facts based on the constraints and problems to private company’s investment. With the rise of macroeconomic policies, more business opportunities are coming up in different parts of the world and the results are encouraging (Warsh 2006, pg 41). These policies have provided a good climate for business transaction in Citibank and there is now a universal consensus that a good climate is very crucial for most private companies’ led economic growth. Researchers have noted that a good climate for doing business provides incentives and opportunities for companies from micro enterprise to global enterprise to create job opportunity and invest productively. Due to the good climate created by macroeconomic policies in a number of businesses, it has been noted that the investment climate molds the risks and costs of doing business, including the hindrances to competition, all of which highly influence the impact and task of the private companies’ in economic and social development, poverty reduction and economic growth (Warsh 2006, pg 44). A good business climate has been perceived as a key issue in international policy debates on promoting the private companies’ development.
Studies have shown that, in order to improve the business climate a firm can streamline the multitude regulations and rules that make life difficult for businesses of which drives the business people into the informal sector. Citibank is an example of a company that has applied the act of rules and regulations, these kinds of rules govern the registration of upcoming businesses and the capability of the companies to hire more employees and get credit, transact and enforce contracts and reinvest. The macroeconomic policies play a major role in every company for example the federal monetary policy, whereby a loose fiscal policy drives the interest rates down creating an opportune time for consideration of funds borrowing (Knoop 2004, p. 41). However macroeconomic policies can affect any business organization in a positive or negative way.
Financial statues of Citibank
The Citibank is among the top list in syndicated loans with over two billion dollars reported in the past one year. However Citibank was once bailed out with five hundred and ninety million investment dollars and it was nearly ruined by the savings and loan crisis, following real estate fall down that forced the United States into a serious recession (Walter 1996, pg 30). Currently some investment firms believe that more billion dollars will be needed by Citibank so as to save this global financial giant. As every investor across the globe wants to save Citibank, there will come a time that majority of this investors will turn towards this bank in a different way where they will be throwing good money after bad in a fruitless effort to save it. Most clients are not ready to buy the Citibank’s stock while for others it’s a game of risking. Although the reporters were not saying the business was about to go down due to its depreciating financial rates, it was very clear that, this world wide financial giant was affected badly due to the bad loans in the United States real estate sector.
These are the latest report available of Citibank Quarterly report as from December 2005 to December 2007. (Table by Turk 2008)
31-Dec-05 31-Mar-06 30-Jun-06 30-Sep-06 31-Dec-06 31-Mar-06 30-Jun-07 30-Sep-07 31-Dec-07
Total Liabilities 1,381,500 1,471,783 1,511,123 1,628,383 1,764,535 1,898,883 2,093,112 2,231,153 2,069,108
Stockholder Equity 112,537 114,418 115,428 117,865 119,783 122,083 127,754 127,113 113,598
Stated Leverage 12.3 12.9 13.1 13.8 14.7 15.6 16.4 17.6 18.2
% Equity/Liabilities 8.1% 7.8% 7.6% 7.2% 6.8% 6.4% 6.1% 5.7% 5.5%
Intangible Assets 47,879 48,025 48,760 48,894 49,316 53,710 62,206 63,600 63,891
Tangible Assets 1,446,158 1,538,176 1,577,791 1,697,354 1,835,002 1,967,256 2,158,660 2,294,666 2,118,815
Tangible Equity 64,658 66,393 66,668 68,971 70,467 68,373 65,548 63,513 49,707
Real Leverage 21.4 22.2 22.7 23.6 25.0 27.8 31.9 35.1 41.6
T-Equity/T-Assets 4.5% 4.3% 4.2% 4.1% 3.8% 3.5% 3.0% 2.8% 2.3%
Nevertheless the Citibank is trying to appreciate its financial transaction rates and from the table above, it’s very clear that, from year 2005 to current Citi’s leverage has appreciated in each quarter from 12.3-18.2 times (Turk 2008, no page). This indicates that the equity as a percentage of the liabilities has depreciated during this season from 8.1 percent to 5.5 percent. The infrequently traded assets, which stood at twenty eight billion dollars, were valued on the basis of the company’s own estimates. Studies have shown that the Citibank may end up making losses on the CDOs (Turk 2008, no page). It took more than twenty billion dollars in credit associated losses in the last years and the conditions are getting worse given that the United States is in a recession. It is still not easy to comprehend how a bank as large and old as Citibank allowed itself to get swallowed into the sub prime leading markets in such a huge way. The Citibank was the only bank that understood the basic rules and regulation of leading; this was brought about by their years of banking expertise and billions of dollars of cash treasury (Walter 1996, pg 35). Currently the Citibank future is left up to Arab billionaires and eventually the United States federal government with the threat of its economy excepted to remain in recession up to the end of year twenty ten. The city group corporation has currently an approximation of three hundred and six billion dollars in risky assets which are the major issues the bank is working on, however, in spite of this negative report the Citibank is working very hard to stabilize itself once again in this economy. There is still hope for Citibank with the help of the government who are currently investing billions of money.
References
Knopp, T. Recessions and Depressions: Understanding Business Cycles. London. University Press, 2004.
Warsh, D. Knowledge and the Wealth of the Nation. London. Norton publishers, 2006.
Walter, Wriston. Citibank, and the Rise and Fall of American Financial Supremacy. New York. Crown Publishers, 1996.
Turk, J., (2008). The Markets Oracles. Retrieved on 23 November 2010, Available at; HYPERLINK “http://www.marketoracle.co.uk/Article4088.html” http://www.marketoracle.co.uk/Article4088.html
Federal and national government systems
Federal and national government systems
The United States of America constitution shared the powers of the government between the federal and the national government. The country’s government is accountable for all the federal governments while the federal government is responsible for a state. Each state has its own federal government. The given arrangement has met opposition throughout the American history. This essay focuses on describing the distribution of the government powers in the federal system.
The federal government consists of three branches: the executive, legislature and judicial. The duties and powers of the branches are defined in the acts of the congress. The powers of the government are stated in the enumerated powers that are listed in Article One, eighth section of the constitutionof United States. The powers cover a wide range of subjects like congress’s authority to tax, borrow and spend. Most of the powers listed deal with economic stimulus and regulation, power such as coining money, maintaining postal services and granting copyrights. The enumerated powers also identify the primacy of the federal government in the conduction of diplomatic actions authorizing it over peace and war including upkeep of the armed forces.
Concurrent powers are those that are shared by the state government but belonging to the federal government. These powers are the most of the powers in the federal system. They include the power of taxing, borrowing and spending money. State governments have their own lawful systems with the courts administering, chartering the corporations, regulating the property rights and providing the public with education.
The US constitution’s tenth amendment in the Bill of Rights preserves a huge section of authority towards the governments’ states. It clarifies on the fact that non-delegated powers to the United States by constitution or the restricted by the constitution to the States, are left to the state and its people. The reserved powers commonly known as police powers, give the states legislature and regulatory abilities to protect safety, health and morals of their residents. Zoning, state criminal decree, blue laws and environmental protection are examples of the police powers.
The Jacksonian democracy era
This was the political movement towards a better democracy for the common citizens represented by the American politician Andrew Jackson with his followers. It was also known as the era of the Second Party System, which was then pigeonholed by anindependent spirit. The Jacksonian era favored the huge increase in power and respect of the common citizen.
The Jacksonian era alleged to enfranchise all the white people, rather than the propertied class, and supported patronage systems that empowered politicians in appointing their supporters into administrative offices, claiming it would reduce elites’ power and avert emergence of aristocrats.
The Good Feelings era and the system of two-parties
This political history period symbolized a sense of national drive and yearning for agreement among Americans in the repercussion of the Napoleonic battles. One party dominated it while the democratic-republicans divided internally with an impending fresh political system. The federal government was dominant at this era.
The Jeffersonian era
This was the era with republican principles implementation. The Republicans’ principles included prudent, restricted government; state rights respect, and reassurance of agriculture. This period reduced military expenses, repealed taxes and paid the public debts off. The Jeffersonian era had the national government dominant over the state government.
The appropriatedissemination of powers amid the state government and the national government
The national government should not at any point interfere with the conduction of laws and regulations in the state unless it conflicts with the rights of the common citizen
The state government should not take advantage of their independency in law formulation and implementation by amending laws that see the citizen pay higher taxes, incur unexplainable expenses and extort the common residents
The legislative powers should be given to each state. This is because the state and its people can formulate laws favorable to them to reduce misunderstandings during legal operation functions
The executive powers should be a national government task. This will be important because the national government will come up with decisions favoring every citizen as opposed to state governments, which will come up with decisions favoring their respective states
The judicial powers should be laid down for each state to have powers to amend some to fit in their legal systems. The court systems of each state vary from the other and due to their difference state policies
This particular distribution is great because it gives the state powers to implement and amend laws suiting their state and its people. The distribution of these powers enables the national government to make decisions for the nation rather than giving each state the power to curve the decisions to fit their different requirements and needs. The distribution of powers will ensure that no particular section can control the other, hence, ensuring a balance system of government.
Works cited
Habermann, Hermann. Facilitating Innovation in the Federal Statistical System: Summary of a Workshop. Washington, D.C: National Academies Press, 2011. Print.
Smith, Christopher E. Courts and Trials: A Reference Handbook. Santa Barbara, Calif: ABC-CLIO, 2003. Print.
Storey, William. Us Government and Politics. Edinburgh: Edinburgh University Press, 2010. Print.
Torrey, E F. American Psychosis: How the Federal Government Destroyed the Mental Illness Treatment System. , 2014. Print.
Financial statements of Enron Waste Management
Financial statements of Enron Waste Management
Executive Summary
Financial statements are developed to respond directly to reflect on the company financial history, current situation and project the future. In fact, through financial statements, a firm will be a better position to orient strategic management. Consequently, issues related to excesses, and losses can be singularized out this point. Financial statements have been applied to woo investors to get committed to the firm financial health. However, improper auditing of financial statement are applied to portray false figures and the firm illegal portrayal. In fact, recent strategies in the fraud arena have focused on using financial statement and a lucrative feint is overstatement of profits. The commencing analysis will attempt to examine the nature of fraud
Enron Waste Management
In October 2001, Enron Waste Managers conducted one of the most corrosive accounting fraud by twisting accounting practices and defrauding stakeholder over $ 6 billion American dollars. The fraud took centre stage in a span of five years. As a result, stakeholder presentations began complaining about the situation. The company senior management violated and aided corrupt individuals to process fraud incidences. Consequently, the management aided violations of antifraud, reporting and record/keeping provisions of federal securities laws. As part of the technicalities, Enron top management overstated earnings to a magnitude of 1.4 billion and this was a seductive approach to attract new investors.
Technically, fraudsters affiliated to the Enron, adjusted the SEC document to influence wooing of the funding. The management hired independent auditors who would earn additional fees for configuring reports to fraudulent orientation. To achieve this, waste management officials presented an illegal document called Proposed Adjusting Journal Entries. In fact, officials constantly refused to make corrections and instead of entering on closed door agreement with auditing bodies. This forced one auditing Anderson to write off the accumulated errors over ten year period this affecting reliable accounting practices. For this conduct, Andersen was forced to pay $ 220 million to Waste Management shareholder and $ 7 million to SEC.
However, this repayment was not satisfactory since waste management shareholders further lost $ 20.5 billion U.S dollars. Further to this, over eleven thousand Enron were laid off as part of the downsizing program to repay the amount resulted in the fraudulent activities. However, Enron had to pay Andersen along with the consulting fees and spin/off firm. Although Andersen was finally paid its auditing dues, it should be recalled that Andersen one of its largest client.
Following the development of Enron case, it became integral to respond to corporate scandals and this forced the American Congress to develop Sarbanes Oxley Act of 2002. The US congress envision a law which would minimize fraudulent. Many hearing in response to Enron case were devoted towards examining the role played by Arthur Andersen in influencing external information statement. Enron as well performed audits on WorldCom and Waste Management. Through the influence of Securities and Exchange Commission (SEC) banned Anderson from accepting new audit from clients.
Explain the causes of the frauds using the fraud triangle
There are two primary causes of fraud in an organization. One ethical factors causing greed, and two a general will to conduct fraud with intent to appeal to the public and potential investors. The list below shows potential causes of fraud in an organization. Firstly, this report identifies lack of transparency as the lid cause factor of fraud. Secondly, procuring of an non/independent internal audit department. In this case, an organization internal audit department is not independent and does not report according to the standard expectations. Thirdly, excessive complex organizational structure is as well primarily responsible for hindering revenue streams. Fourthly, improper provision of accounting controls. The organization constantly ignores documents such as bank reconciliation and this can be an early indication of corporate fraud. Sixthly, lack of proper moral direction from the executive encourages the development of unprofessionalism in auditing system.
To achieve corporate deceit, fraudsters develop a financial triangle one that strategizes on the nature of corporate fraud. On the top is the perceived opportunity. Fraudsters will convince the top executive on the possibility of a ghost opportunity. The goal is to make sure that the opportunity appears very legitimate on the short and long run. The fraudsters move to the next level, which is the incentives pressure. The pressure to build incentives is primarily oriented from the ability to orient fraud pressures constantly. Thirdly, the fraudsters create a rationalization policy one that seeks to approach the situation in more repellent. The goal here is to minimize visibility entirely.
Compare and contrast the causes of the frauds across the three international jurisdictions.
There are several similarities that explain similarities of the fraud cases in three jurisdiction, Australia, United Kingdom and United States, with the following companies HIH Insurance and Onetel of Australia, Enron and waste management of US, and Barings Bank and Equitable life Ins (UK). The three situations have common similarities and to some extent numerical differences. Firstly, as part of the similarities, it is notable that the three situations do involve top management in influencing decisions made and consequently altering the quality of auditing. However, as noted, there are a number of differences in each of the corporate fraud. In this case, the quality of auditing system is heavily debatable. One will notice that the level of involvement of auditing companies naturally differs. While Anderson, the principal auditing company for Enron was an integral engineer in Enron, other firms the situation is different with the auditing firms not being in central fraud planning section.
Part 2 XYZ Ltd
Balance Sheet Year 1 ($) Year 2 ($)
Assets
Current Assets
Cash 45,000 15,000
Accounts Receivable 150,000 200,000
Inventory 75,000 150,000
Fixed Assets (net) 60,000 60,000
Total Assets 330,000 425,000
Accounts Payable 95,000 215,000
Long/term Debt 60,000 60,000
Total Liabilities 155,000 275,000
Stockholder’s Equity
Reserves 25,000 25,000
Paid/up Capital 75,000 75,000
Retained Earnings 75,000 50,000
Total 175,000 150,000
330,000 425,000
INCOME STATEMENT
Net Sales 250,000 450,000
Opening Inventory 55,000 75,000
Purchases 145,000 375,000
Closing Inventory /75,000 /150,000
Cost of Goods 125,000 300,000
Gross Margin 125,000 150,000
Operating Expenses
Selling Expenses 50,000 75,000
Administrative Expenses 60,000 100,000
Net Income 15,000 /25,000
Additional Information
Average Net Receivables 150,000 210,000
Required:
Apply horizontal and vertical analysis to the financial statements of XYZ Ltd
Horizontal, reports each amount on the financial statement in comparison to another item. Each item on the balance sheet is configured in relation to the total assets.
Cash
45,000/ 45,000=100%
Against
15,000/45,000=33.33%
Accounts Receivable
150,000/150,000=100
Against
200,000/150,000=133.33
Inventory
75,000 /75,000=100%
Against
150,000/75,000=200%
Fixed Assets
60,000/60,000=100
Against,
60,000/60,000=100
On the other hand, the Vertical analysis ensures the percentage amount is presented in relation to sales. The figures are listed from the income statement.
Sales, 250,000/250,000=100%
Against
450,000/250,000=180%
Cost of goods
125,000/125,000=100%
Against
125,000/300,000=240 %
Gross Margin 125,000/125,000=100%
Against 125,000/150,000=120%
This analysis attempts to reveal relationships among items on the financial statement and trends of individual items, which occur with time. The relationship guides this report in making a better and sound judgment on what current performance of the company. In fact, the two major techniques vertical analysis, and horizontal analysis are imperative in aiding the understanding of the firm’s health.
b) Undertake ratio analysis for years 1 and 2.
Ration analysis in financial statements is applied to obtain a proper indication of a firm total financial performance in key areas. This approach will guide this report to determine debt management rations, assets management rations, market value rations, and profitability rations. The approach further guides computation ratios and facilitates the comparison of the firm total industry competitiveness. The accounting information provided is based on the nature of historical costing mechanism. Hence, it is good to note
Current Ration = Total Current Assets/ Total current liabilities
Year One= 330,000/155,000 =2.12
Against Year Two = 425,000/275,000= 1.54
Inventory Turnover= COGS/ Inventory
Year one, 125,000/ 75,000=1.66
Against year two=300,000/150,000= 1.5
Fixed Assets Turnover= Days 365/ Net Fixed Assets
Year One, 365/60,000=0.006
Against Year Two, 365/60,000=0.006
Total Assets Turnover = Sales/ Total Assets
Year One, 250,000/330, 000=0.75
Against Year Two, 450,000/425,000=1.05
Profit Margin = Net Income/ Sales
Year one, 15,000/250,000=0.06
Against Year Two,
25,000/450,000=0.055
Return on Assets= Net Income/ Total Assets
Year One, 15,000/330,000=0.045
Against Year two, 25,000/ 425,000=0.058
Identify any trends and abnormalities in the financial statement and provide possible explanation.
A key thing which as been identified from this financial statement is limitation from ration analysis. The financial statement places emphasis on indicators and key rations. It is abnormal since there is no single measure, which is capable of capturing relevant and important information on the company. In this company, the calculation on different rations happens to be the starting point. Analysis requires development of ratios, understating of reasons and forming expectations. The overarching rule of a ration is in fact ought to be and depends on the nature of particular of the industry that the financial statement is adopted from.
Consequently, from the financial statement one will notice the ratios are expected to be generated on a benchmark framework. After looking at the financial statement, one fails to notice this framework. Additionally, from the above financial statement, one will notice that they will be non-operating items; for instance, judgements include effects on the comparison between year and year two. While this approach seems legitimate, it is more meaningful to ignore effects on items and the financial ratio. For this reason, one will notice that ratios mean that there is a comparison between past ratios is not specified on given industrial or business standard. The financial statement is basically blank and does not demonstrate proper or what can be considered coherent information.
To analyse this, the best possible option is applying financial statement, which does place greater emphasis on the summary of key ration and current ration. However, as stated, there is lacks a single approach that seek to merge a single approach into a collective financial statement. It should further be noted that the possibility of engaging on window dressing presents a working challenge. Based on these two, one will notice that the above financial statement are ratios computed using standard numbers and this presents serious problems which can evoke fraudulent activities.
d) Identify the related accounts that the forensic accountant might want to further investigate.
A forensic auditor may identify the contra account and how it can be applied to offset inefficiencies in the financial statement. A contract account builds normal debit balance and creates a credit balance. The contra account is vital since it is deducted from the balance of the related assets accounts in the financial statement and resulting difference is understood as the book of assets. Improvising the contract account ensures that journal entry reduces the overall book value of assets.
In fact, the forensic accountant will be in a better position to derive a contra assets accounts. This is regular account that carriers a debit balance and also carriers a credit balance. The advantages of a contra account are that it carries doubtful accounts on accumulated depreciation depression. The accounts also create an allowance for doubtful account, which offsets a company accounts. Secondly, a contra account creates a liability account. The credit balance created has a common liability on accounts. This ensures that cash receivables are issued on a bond on maturity.
The contra account also creates a contra revenue account. This allows the creation of sales allowance, sale returns and sale discounts. The accounts also creates total amount of company’s revenue.
Conclusion