State of Emergency: Economics and Accounting
During this time of transition between the 43rd and 44th President of the United States, I have decided to focus on how the current state of Economics is affecting the Accounting world. If you have been under a rock for 8 years then you need to know that the current state of finances and economies are in disarray. The U.S alone has faced the highs and lows of the stock market. The housing market is unstable with big mortgage lenders folding and being sold to other banks and competitors. The American auto industry is on hands and knees at the feet of Congress hoping to grab a piece of the nearly 800 million dollar bailout plan earmarked for the struggling economy. We have just had a historical election for the 44th president of the U.S but already the honeymoon is over. President –elect Barack Obama has assembled an economic team to ensure stability before he is even inaugurated. President Bush is not a popular figure in America partly because of the economic crisis. According to Congressman Barney Frank (D-Ma), Bush has not supported the economic help, opting instead to let it run its course.
“I am pleased that President-elect Obama has made the appointment of an economic team as one of his first moves. This sets the stage for badly overdue decisive action to provide the economic help the Bush Administration has refused to support.” -Congressman Frank. [1]
Accounting is a gigantic part of economics. Many of the companies that are staples of the American economy and economies worldwide use GAAP. GAAP is a monogram for Generally Accepted Accounting Principles and these principles translate to every company that uses accounting methods to keep track of money inflows and outflows. (Revenues and Costs) Accounting GAAP is governed by the FASB (Financial Accounting Standards Board) which has the authority to set and enact all accounting standards by the Securities Exchange Commission. Although it is not a public organization, the FASB is respected by the SEC and U.S government because they believe the private sector knows best and has the best resources. These GAAP and FASB led accounting principles have been a mainstay for a while but now have a replacement. The IFRS (International Financial Reporting Standards) have been adopted by more than 100 countries around the world including the majority of Europe.[2] The United States is the next company to adopt these standards with the earliest start date in 2010. This gives the U.S plenty of time to make sure that all companies are reporting finances correctly so there will be no more Enron’s or MCI WorldCom’s left undiscovered. The new IFRS standards will have every company that reports in the U.S give the same information that they might withhold in another country’s reporting standard. This also is easier on the economy as we move into a more global market.
The old standards that we are using will not track today’s economy very well. When the GAAP and other accounting principles were developed, society was built on tangible assets and contributions that were seen and written off. Today’s economy is more information based and thriving off of intangible assets such as: ideas, brands, ways of working, and franchises. These intangible assets are not being assessed the same by GAAP and other principles anymore. Companies are benefiting from a missing link between concrete finances and the Information age. The gap affects more than just financial analysts and financial officers. Employees don’t know how to value their contributions correctly. Managers don’t have high-quality numbers to refer to when deciding whether to back a project, or when assessing a project’s performance. Companies however are getting caught with their hands in the proverbial “cookie jar” trying to maximize revenues when their books have no semblance of accountability.
Hopefully with the advent of the IFRS, there can be a change in how Accounting relates to the current economy. The information age should be able to ensure that Accounting stay relevant by making sure these intangible assets are valued correctly. Accounting is making changes along with the economy to become better suited at keeping the accountability and integrity of companies intact. Barack Obama is doing his due diligence as president –elect at this time as well. He is not only showing the American people that he is here to fix the economic problems that plague the U.S, but also the world. In this time of a global market, it is important that companies here and abroad are keeping the books and finances straight to make sure jobs are prevalent in each economy. Goods and services are the backbone of any economy, and to make sure that the economy stays intact, there must be Accountability. Accounting will not let us down.
Government computer rentals, together with short- and long-term leasing arrangements, are key components in governmental strategies that will lead to more efficient and greener delivery of government services. As both government and private industry increasingly focus their attention on the impact their operations have on the environment, federal, state and local governments are all focusing more attention on how they can deliver services in a manner that is equally or more efficient, while reducing energy consumption. Renting or leasing computer hardware to increase flexibility in delivering programs where demands for computer and technology resources fluctuate is an environmentally and fiscally responsible ‘green IT’ solution for governments at all levels.
There is no ‘one-size-fits-all’ solution for greening government, however, due to the size and multiplicity of government agencies and departments, each using separate applications and IT systems. “Federal agencies are rife with non-standardized and manually intensive processes supported by a patchwork of legacy IT applications performed in multiple geographies and remote locations,” according to consultants from Booz Allen, in McLean, Virginia. However, the size of the challenge in making government greener and more efficient only increases the scale of the energy and fiscal savings available. “The size of the cost savings opportunity available to the U.S. government is orders of magnitude larger than that available to even the largest corporation,” notes Booz Allen’s consultancy in their paper on How the U.S. Government Can Cut Overhead.
In a recent piece on greening government IT systems, Citrix Systems’ area vice-president of federal systems, Tom Simmons, discussed how governments can reduce power requirements and green their operations through ‘virtualization’ – moving government operating systems and software applications from desktops to more energy efficient data centers where arrays of data servers more efficiently store and process information. He cites estimates that calculate the federal government “can reduce power consumption by the equivalent of 1.3 million barrels of oil a year,” solely through the virtualization of its IT systems and more efficient use of its existing data centers. He notes that, “with the price of oil [north of] $125 barrel that’s a not-insignificant cost savings.”
Moreover, through virtualization governments can move away from using numerous redundant PCs each solely dedicated to one employee and hosting his or her operating systems, applications and data files. Having numerous dedicated desktop PCs, many of which are idled at any given time, is not only fiscally inefficient but leads to an environmentally precarious waste disposal problem when computer hardware becomes obsolete. “For a long time,” Simmons notes, “the federal government was on a three- or four-year life cycle for desktop PCs and a three-year life cycle for servers. Green IT extends those life cycles in a lot of cases and reduces the waste.” He estimates that turning to computing virtualization through the use of optimized servers at more efficient data centers will extend the life of the typical government desktop to the five- to seven-year range. Of course this means less surplus equipment in landfills across the country.
Virtualization, where operating systems, applications and data are stored offsite at more energy-efficient data centers also means that the desktops and laptops that access and run the stored systems and applications do so on an as-needed basis. Government departments and agencies can then acquire PCs and laptops on an as-required basis during peak seasons and for special programs.
With increasing virtualization, a process that is already a functioning business reality in the private sector, government computer rentals and short- and long-term leasing arrangements help streamline operations, reducing the need for permanent, dedicated computer resources. The cost-savings and reduced environmental impact achieved by extending the life cycle of existing computer hardware by filling peak periods of demand through rental or leasing arrangements can then make government computer rentals a key component in finding a ‘green IT’ solution for all levels of local, state and federal government.
For more information on government computer rentals visit http://www.VernonComputerSource.com or call 1-800-827-0352 to let us help you determine your computer rental needs and to provide you with a quick and accurate quote.
As expected, President Barack Obama did not focus primarily on healthcare reform during his first State of the Union address. Rather, he deflected attention towards other aspects of policy that have received less attention by the administration and the media alike. The economy took center stage, with the wars in Afganistan and Iraq playing a supporting role. The main goal of his address appeared to be winning back the independents who voted for him in 2008 but are now skeptical of his policies.
Health insurance reform did not make an appearance in his speech until about the half-hour mark. Obama introduced that portion of his address by jokingly admitting that he clearly didn’t take on the issue because it was good politics. Indeed, it wasn’t. A recent poll by Rasmussen Reports shows that, at this point, 61% of Americans would rather that the issue be dropped altogether. Democrats have been accused of fixating on the regulation of health insurance companies to the detriment of the job market. While the economy has officially inched out of the recession, the American people have not yet seen the impact. The current 10% unemployment rate is more pressing than the possibility of losing their individual health insurance, despite the fact that the former often results in the latter.
It is likely that Obama was not counting on the healthcare reform fight to drag on as long as it has. He acknowledged that he deserves part of the blame for failing to effectively explain how it would help the general public. Millions of people would have health insurance as a result of the legislation, but most provisions would take several years to come fully online. Moreover, those who do have individual or family health insurance fear that their premiums will go up and the quality of health care will go down. The worst case scenario for many is a single-payer health care system, which gives them visions of public dental insurance and stereotypical British teeth. Obama highlighted some everyday Americans who wrote to him about their struggles buying and keeping family health insurance, in hopes that viewers could relate.
Part of the reason for healthcare reform’s unpopularity is its sheer complexity. There are so many players in the game, and each aspect is interconnected. Although a streamlined bill would certainly be more popular politically, the logistics may be hard to manage. For example, Americans generally support enacting regulations that would prevent health insurance providers from denying coverage to people with pre-existing conditions or dumping them as soon as they develop one (rescission). It would take far fewer than 1,000 pages to write a bill focused on that aspect.
However, it is very difficult to convince the health insurance companies–and their powerful lobbyists–to agree to such provisions if nothing is in it for them. Hence, the health insurance mandates, which would bring millions of new customers to the market. Wouldn’t that be unfair to the lower and middle classes, who would be unable to afford a health insurance plan and get fined as a result? The subsidies were created to resolve that inequity. Unfortunately, providing federal subsidies is expensive. That means that the government must either raise taxes (understandably unpopular during a recessionary period) or run up the deficit to pay for it. Most Americans consider deficit reduction to be a top priority, so you see where another part of the conflict lies.
Keneysian economic theory, which Obama and his advisers clearly abide by, would have it that some overspending now would stimulate the economy and lead to yet more income later; you would then be able to pay off the deficit and still end up ahead. This is similar to the idea behind student loans: if a 4-year university graduate significantly increases his or her lifetime income over that of a high school graduate (some estimate the difference is over $1 million), then borrowing some money for a college degree is often a positive mood. It will put the student in the red for the short run, but they will eventually be able to pay back the loans several times over–therefore earning more than the high school graduate who never borrowed that money. The most important part of the equation is that the money must be used on a sound investment likely to pay off. Borrowing $400,000 to major in basket weaving is probably a bad choice, because there is little chance the student will be able to pay it back with interest. $250,000 for an engineering degree at MIT is far more likely to pay off in the long run.
True to that mentality, Obama mentioned a Congressional Budget Office estimate of the eventual cost savings of healthcare reform. Though the price tag of the both the Senate’s and House of Representatives’ version of reform is near to or surpassing $1 trillion (with the House’s version, being more comprehensive, as the more expensive one), the CBO projects that increased competition among health insurance companies would help lower the health care industry’s costs–and therefore the deficit–within 20 years, in a nation where healthcare expenses currently make up over 15% of the GDP. However, the general public is very skeptical of the nonpartisan organization’s claims, and the state of the union address probably won’t change that much. 68% believe it will increase the deficit, while 81% believe it will increase taxes on the middle class.
When it comes to health insurance reform, his talk of specific policy was relatively brief. He spoke more plainly about the potential benefits reform would have for the average American, but gave no specific policy recommendations. Obama reemphasized the necessity of healthcare reform, and urged supporters in Congress not to give up when the effort has come farther than ever before. The speech implied that he supported continued attempts to pass a comprehensive bill, despite the loss of his party’s supermajority. He hit at both parties, daring Republicans to propose better solutions–as opposed to solely opposing those proposed by his administration–and motivating timid Democrats to have more guts.
(Image: Sister72 under CC 2.0)
Yamileth Medina is an up and coming expert on Health Insurance and Healthcare Reform. She aims to help people realize that they can find quality family health insurance right now. Yamileth lives in Miami, FL.