Over The Counter Drugs And Paracetamol Advertising Economics Essay

Over The Counter Drugs And Paracetamol Advertising Economics Essay Over the past few decades advertising has been an important marketing strategy. Advertising is always subjected to change because taste of the people, demographic, cultural and socio economic factors change always. Consumers changing response to advertising is essential to develop more effective and efficient marketing strategies. Chanjin (2000) developed a varying-parameter advertising model specifying advertising parameters as a function of advertising strategies and the market environments to explain the varying nature of the advertising responses. The model is applied to New York City fluid milk market and he concludes his findings that advertising strategies and market environment play important role in determining advertising effectiveness and he further concludes that demographic factors are more important than economic factors(Chanjin, 2000). Companies change their advertising strategies time to time to attract customers as well as keep the existing customers with their produ cts. But in some developed countries they have their own self regulatory system in order to stave off the government intervention. Harker(2003) states in his published article that sometimes advertising has its own self regulatory system despite claims of social and economic benefits. In general, when dealing with unacceptable advertising, considerable advertisers in developed countries use their own self regulatory mechanism since they consider the intervention of the government or regulatory bodies for their product marketing are not good for their brand image. The recent breakdown of one of the worlds longest established advertising self-regulatory programmes in Australia has reopened the 20 years old debate concern with enhancing understanding of such regulatory system(Harker, 2003).Though he states like that , even in some developed countries the advertising misleading consumers significantly sometimes very badly. To face to the race of businesses, companies use varies marketing strategies to attract and retain consumers with their products. Advertising is one of the most efficient marketing tools that most widely used in the world. The issue is it has become a main tool or a media where consumers are misled for products or services. Expressing the finding of the result of his research paper, Howard (2005) says over half of the sample viewed most or all mail and telephone advertising as misleading, and that 38 percent of the respondents regarded most or all television advertising as misleading. Also, findings for the Age groups indicate that two out of three respondents regarded most or all advertising directed at children as seriously misleading (Howard, 2005). Advertising has become a powerful emotional promotion method and now there is a trend of sending advertisements via mobile phones even without prior permission. But Melody(2004) points out those consumers generally have negative attitu des toward mobile advertising unless they have specifically consented to it(Melody, 2004). Generally in most countries attitudes toward the quality and information containing in advertisements are not in a good scale. Richard (1993) explains in his paper that a comprehensive model of attitudes toward advertising includes three personal utility factors (product information, social image information, and hedonic amusement) and four socioeconomic factors (good for economy, fostering materialism, corrupting values and falsity/no-sense). He tested these seven factor model on two independent samples and found most respondents exhibited conflict between an appreciation of the personal uses and economic value of advertising and an apprehension of cultural degradation(Richard, 1993). False information in advertisements significantly decreases the credibility of the product. That is why some standard organizations validate their advertisements before broadcast or expose to general public. Ste phen (1998) conducted a study to investigate whether consumers who are exposed to an advertisement containing a deceptive environmental claim have significantly different attitudes about the advertisements than those consumers exposed to a similar non-deceptive advertisement. He concludes the study mentioning that higher levels of perceived deception were associated with lower level of perceived corporate credibility, less favourable attitudes towards the advertisement, less favourable attitudes toward the advertised brand, and decreased purchase intention toward the product in the advertisement(Stephen, 1998). Marketing Pharmaceuticals-Increasing trend Marketing pharmaceuticals are very dynamic and innovative subject especially in this current business arena. Pharmaceutical industry is one of the most profitable businesses in all over the world. Kesic(2008) states the pharmaceutical market has been changed significantly especially in last decade with dramatic improvement. There are many factors directly affected for these new trend and developments particularly concentrated globalization, huge competitiveness and many more factors influence directly or indirectly for new challengers for pharmaceutical companies. Not only in pharmaceutical industry, but also in most of the business entities, profit maximization is a core objective. However, Chandra(1999) points out that pharmaceutical product companies are completely different from other companies since their product directly deal with human health not like most other companies in the business world. Reinhardt(2004) highlights that it is not clear that the current allocation of the pharmaceutical industrys revenue dollars to marketing and research development is efficient for societys point of view(Reinhardt, 2004). Kesic(2008) concludes in his paper that research and development(RD), mutually with other marketing and profit earning activities are two main operative and prioritized strategies of the global pharmaceutical industry. Having analysed these figures he has found that the biggest, inventive world pharmaceutical companies invest, on average, approximately 16% of their sales into RD and even more, about 26% or more into marketing and sales activities(Kesic, 2009). Drug companies really spend ample amount of money for marketing especially for direct-to-consumer advertising. Lisa(2008) says according to the IMS health report in 2006 in America, drug companies have spent nearly 5 billion on direct advertisements to consumers, and 80 percent increase over what they were spending in 2002(Lisa, 2008).Likewise Chiu(2005) explains that according to the Nationa l Institute for Health Care Management, U.S consumers spent $154.5 billion on prescription drugs in 2001.This amount to 10% of total health spending, which account for 14.9 % of the U.S GDP as of 2002.In a publication Parker(2003) states that there is a little doubt that the pharmaceutical industry is a major force in todays economy as measured by both over-the-counter(OCT) and prescription drug sales and further more he says that it seems clear that there have been rather dramatic increases in advertising expenditures by pharmaceutical companies in the past few years. It also seems clear that these expenditures have coincided with significant increases in sales of both OTC drugs and prescription drugs(Parker, 2003). Promoting drugs to consumers directly has become a new trend in all over the world and many pharmaceutical companies have experienced it as a very effective way to market their products. Wilkes et al(2000) points out that direct to consumer drug(DTC) marketing makes some kind relationship of patients, doctors as well as with pharmaceutical organizations. He further points out that drug companies have increased their budget for advertisements and at the same time the number of drugs advertised also increased. Wilkes et al (2000) further state that several news sources had suggested that drug manufactures earnings have directly benefited from this new promotional strategy(Michael, 2000). According to Moynihan et al(2002)drug companies earn lot of money from healthy people and he interprets it as disease mongering. Director of research and policy at the National Institute for Health Care Management, Findlay(2000) concludes that Advertising works and pharmaceutical companies have success fully promoted their product to doctors for decades. They are now bringing that marketing survey to the consumer market place. The question is whether -over time-the benefits of raising consumers awareness of specific drugs and the conditions the medicines treat will outweigh the danger that consumers will bring to demand and use some medicines inappropriately(Findlay, 2000). Over-The-Counter Drugs and Paracetamol Advertising Over-the-counter drugs can be purchased any amount without a prescription anywhere in the world. But some researchers have pointed out having some sort of mechanism for issuing these drugs to consumers may reduce misuses. Trends towards greater availability are paralleled by increase in its use for both non-fatal overdoses and suicide. Gunnel(1997) says in France mobidity and mortality was considerable less due to the regulatory action taken to reduce the quantity of paracetamol in a single purchase. Although non conclusive, these data add to a body of evidence which suggest that restrictions in the quantity of paracetamol available as a single purchase in other countries can reduce suicide and liver failure related to paracetamol(D Gunnell, 1997).Most of these over-the-counter drugs are advertised frequently in mass media to get and keep attention of consumers on those products. Ashish(1999) in his research paper states that manufactures may attempt to familiarize consumers with bra nd names in hopes that the consumer will purchase product. The consumer may think that he has heard of this product and assume that it is somehow better than competitive product(Ashish, 1999).In his research paper Hawton(2004) clearly states that suicides and hospital admissions due to paracetamol poisoning reduced after change in legislation which is limiting the size of the available pack of the paracetamol for consumers and in his study he concludes that legislation reducing pack size of analgesics in the United Kingdom has been beneficial and further reduction in pack size could prevent more deaths(Hawton, 2004). Over the counter drug usage among children is very common. Allotey(2004) mentions in his recently published paper Research on the medication of preschool-aged children has suggested that the use of OTC medication is substantial. Kogan et al for instant, found that 54% of three year olds in the United States has been given OTC medications in the 30days preceding the study. In a common survey in New York, 22% of children have taken OTC medication in the preceding 3 day period. Studies in United Kingdom also indicated high rate of OTC medication use among children, ie,28% during a 2-week period and 66% during a 4-week period(Allotey, 2004). Wazaify(2005) emphasizes that increasing availability of non prescription medicines may encourage patients to believe that there is a drug treatment for every ailment. Furthermore, he explains the use of such products may delay/mask the diagnosis of serious illness, with increased risks of interactions and adverse reactions and of self treatment being undertaken when medical aid should have been sought. There is also the potential for misuse and abuse of such products(Wazaify, 2005). According to the Sri Lankan context there are many proprietary products under one generic product. Senarathna(2008) in her thesis of master of philosophy points out that there are around forty registered product of paracetamol in Sri Lanka(Senarathna, 2008).Weerasuriya(1993) points out there were 63 registered paracetamol products in the country in 1993 and paracetamol was the commonest drug registered in the OTC category(Weerasuriya, 1993). Ethics of Advertising OTC drugs It is clear there is an increasing trend of usage for OTC drugs in all over the world. Wazaify(2005) states that in recent years there have been an increasing trend in self-medication with non prescription drugs available in pharmacies and retail outlets and in parallel, more products have been deregulated for purchase without a prescription(Wazaify, 2005). At the same time Solhaug(2006) concludes in his recent abstract publication that only half of the information presented in drug advertisements was correct and clinically relevant and relatively few statements were fault, but a considerable proportion of statements gave an excessively positive picture of the product; hence, in general, this kind of information has no value as a source of information(Solhaug, 2006).Among the publications those point out that drug advertisements are not up to the standard especially OTC drug, Ashish(1999)states in his publication that in reality, it has been observed that pharmaceutical product adver tisers often promote their products to achieve their own goals at the potential risk of having an adverse effect on the consumers health and this type of advertising is most often seen in OTC drug product advertisements(Ashish, 1999). Wazaify(2005) points out that the deregulation process has been championed by the pharmaceutical industry, the pharmacy profession and government health policy makers and is supported by the view that patients wish to have a greater role in their treatment choices. Almost all countries in the world have not allowed to pharmaceutical companies to advertise their product to consumers directly. Stremersh(2009) states in his research paper that so far only two countries, New Zealand and the United States, allow pharmaceutical marketers to advertise directly to consumers and in the same paper he further explains that due to this reason patient requests are often accommodated by physicians mainly because they affect physician visit satisfaction and show patients that the physician cares(Stremersch, 2009). Drugs are categorized into few groups and essentially there are two categories which are OTC drugs and prescription drugs. What is categorized as OTC varies from country to country and i s dependent on the local legislative framework according to (Buckley, 2004). Many researchers have pointed out over-the-counter drugs have become a public health problem due to misuse, disease mongering and drug abuse and wrong, in appropriate or inadequate information given in the promotional program may have an impact of this health issue(Ashish, 1999, Allotey, 2004, Fernando, 2008, Buckley, n.d.). While there are government agencies charged with monitoring the marketing of medicines, typically this is one of many briefs for these agencies and is often only in a reactive fashion. In other words such monitoring as does occur, occurs only in response to complaints, and even then is often very slow and cumbersome(Buckley, n.d.). Buckley(n.d.) urges that two things should happen to put this issue in a correct track which are establishing independent monitoring bodies to police marketing codes of practice with real penalties and paying increased attention to the education of the consumers of pharmaceutical advertising, in particular those with prescribing powers (Buckley, n.d.).In Sri Lanka also the situation is almost same like most of the countries in the world. The government has imposed rules and regulations for promoting and advertising pharmaceuticals within the country. In a paper published by the Sri Lanka medical associations ethics committee recently says that Advertisement to the general public should help people to make rational decision on the use of drugs which are legally available without a prescription. They should take account of peoples legitimate desire for information regarding their health, but should not take undue advantage of their concern for their health. Drug advertisement should neither portray nor be directed at children. Advertisement may claim that a drug can cure, prevent or relieve an ailment only if this can be substantial. They should also indicate, where applicable, limitations to the use of the drug When lay language is used, the information should be consistent with the scientific data sheet or other legally determined scientific basis for approval. Language, pictures or sounds, which bring about undue fear or distress, should not be used. The following list illustrates the type of information that advertisement to the general public should contain The name of the active ingredient, using either international non-proprietary names or the approved generic name of the drug The brand name Major indication(s) for use Major precautions, contraindications for warning Name and the address of the manufacturer or the distributor Information to the consumer on price should be accurately and honestly portrayed(Committee(SLMAEC), 2003). Though the guidelines are clear, there is a doubt of implementing and practicing the guidelines in many countries including Sri Lanka. There is a big challenge and responsibility for the government authorities and regulatory bodies in terms of providing correct information to the consumers. Techniques, methods and effective advertising Pharmaceutical industry is in a pressure and Kesic(2008) states that fast globalization is the main factor of the strategic development of the world pharmaceutical industry. There are so many challengers in pharmaceutical industry and drug companies running after many strategic moves to have sustainable competitive advantage. Direct marketing products to consumer have become one of the innovative methods to win the market comparatively. Buckley(n.d.) states that in United States all drugs may be promoted to consumer, but in practice direct to consumer advertising focuses on OTC and common ailment targeted prescription drugs(Buckley, n.d.). But some authors support to this argument and they mention direct to consumer advertising makes consumer better understanding and make more informative for drugs available to them(Leonard, 1999, Weissman, 2003). On the other hand some researchers like Maguire(1999) points out that American physicians are being asked to rubber stamp self diagnoses a nd self-prescriptions by patients. That is how some advertisements have been influenced on consumers. Kesic(2009) explains in his paper that the biggest multinational companies spend more than 25% of their sales into marketing activities especially for promoting, introducing their products and competing for global market share. Supporting to the argument of Kesic, Michael adds that drug companies spend ample number of money for number of drugs advertised increased, not only that they spend considerable amount of money for quality, attractiveness and particularly for sophisticated advertising (Michael, 2000). A paper published in Thailand in 2005 on Radio drug advertisement situation and regulation in Thailand says advertising has a strong influence on the sale volume of any goods. Drug advertising covers media such as television, radio, newspaper, magazines, internet and printed materials. It further says that radio advertisements can easily mislead people in rural areas because of socioeconomic and educational status(Kittisopee, 2005). Allotey(2004) mentions that OTC medications pro moted through television, radio and print advertising directly targeted at women, housewives or working mothers, encourage them not only to self medication but also to dispense OTC medications to their children, because it is important to establish a lifelong pattern of sensible (drug)use'(Allotey, 2004), Ashish(1999) explains that all pharmaceutical advertising is not bad but advertisements should be considered what they are promotions. Drug marketers should always try to follow the unwritten rules of marketing ethics and consider what is best for their consumers before developing a particular advertising strategy. Nowadays the issue is consumer can purchase any kind of drug online. Buckley(2004) highlights in his paper that thre is no restrictions for purchasing all kind of drugs online without a prescription and the issue is most of these internet pharmacies very low or poor quality information(Buckley, 2004). Moynihan(2002) expresses that inappropriate medication carries the dangers of unnecessary labelling, poor treatment decisions, iatrogenic illness, and economic waste, as well as the opportunity cost that result when resources are diverted away from treating or preventing more serious disease(Moynihan, 2002). How consumers are misled -Reliability, Relevance and adequacy of Advertisements Many research papers point out that drug advertisements mislead consumers in many ways directly or indirectly (Sidney, 2002, Michael, 2000, Ashish, 1999, Findlay, 2000). Though it is a common phenomena in all over the world, a practical guide on understanding and responding to pharmaceutical promotion published by the world health organization recently explains clearly how information is given to consumers in advertisements in developed and developing countries. It says while advertisements from developed countries typically contain nearly all of the information listed in the box, this is not always the case in developing countries(WHO, n.d.). The table below published by Hawkins(1993)in his research paper support to the above argument strongly and in the discussion he states that indications were mentioned more often than the negative effects of medicines. Important warnings and precautions were missing in half of the advertisements while side effects and contraindications in about forty percent. Price tended to be given only in countries where a social security system pays for the medicines(Herxheimer, 1993). Nowadays there is a trend of promoting drugs through internet. Buckley(n.d.)mentions on his research paper that most of the internet advertisements provide less information or poor quality information. Many pharmaceutical companies mislead consumers in many ways. A United States Food and Drug Administration(FDA) has issued 88 letters accusing drug companies of advertising violations from August 1997 to Aug 2002(Buckley, n.d.). Most of the time drug companies overstated the effectiveness of the promoting drug and they always keep attention not to highlight its risk. Some companies disseminate advertisements misleading advertisements even after they were warned or cited for violations(Gottlieb, 2002). Some drug companies stimulate consumers to buy expensive or new drugs which has high profit margin and it raises the health care cost of consumers as well as of the country ultimately. Some drugs promoted by pharmaceutical companies have limited Medical beneficiaries but those are heavily advertised because of the high profit margin. Rebecca(2010) says its almost impossible for the public to actually parse the ads and come to their own independent conclusions(Rebecca, 2010). But Weissman(2003)states in his research paper that industrys argument is that patients are highly motivated to seek the best available treatment for their condition and they need and deserve more and better information on which to base their judgement(Weissman, 2003). It is true if the pharmaceutical advertisements provide proper, balance and correct information to their consumers. A research done in Thailand, sharing the findings says that 22% radio advertisements have misled consumers and only 7% of the advertisements have recommended an appropriate dose among studied advertisements. Further more a warning message was found in only 3% of the advertisements and name of the manufacturers were present only 20% of the advertisements collected(Kittisopee, 2005).Weil(2009) is really against the trend of this drug advertisements. He says almost a ll highly advertised drugs have many complications either short term or long term basis and in general these drugs are ineffective and some serious side effects are not considered or neglected by the manufacturers. Because most pharmaceutical companies give priority for their profit margin and such vast profit potentials may be obtained from this kind of heavy drug advertising (Weil, 2009). Now there is a trend of using popular characters for marketing advertisements of drugs and sometimes they are neither reliable nor relevance. In a paper published by Michael(2000) says that Now advertisements enlist well-known personalities to endorse pharmaceutical products (Michael, 2000). Lot of people imitate and follow famous personalities and it help pharmaceuticals to reach consumer quickly and in a familiar manner. Criticizing this promotional tactics Weil(2009) says in his report that Sally Field is a talented actor, But what qualifies her to promote Boniva, an osteoporosis drug that is of limited benefit, has worrisome side effects, and for which there are natural alternatives that merit careful consideration?.(Weil, 2009) Drug companies are in the process of promoting their product to consumers in many ways. Sometimes they may use health care professionals to reach consumers because they know that consumer believe professionals who have background knowledge about treatments. Wazaify(2005) points out in his recent published paper that The main factor found to influence the publics choice of OTC medicines was pharmacist recommendation. This is reassuring especially with increasing availability of potent medications without prescription and the increased potential for interactions(Wazaify, 2005). It is one of the indirect marketing methods that the pharmaceutical industry uses. On the other hand people have a belief that over the counter drugs like paracetamol do not have serious side effects. Some over the counter drugs have serious side effects when consumer uses it with some other medications. A very good example is Viagra used for erectile dysfunction. If consumer uses it while using nitrate as a treatment of blood pressure, it causes severe drop of blood pressure which is difficult to treat. Buckley(n.d.)says it has mentioned on advertisements but in a much smaller font, it is You must not take Viagra if you are using any nitrate medication including amyl(poppers). It may lead to a severe drop of your blood pressure that may be difficulty to treat. As sexual activity may be a strain on your heart your doctor will need to check whether you are fit enough to use Viagra(Buckley, n.d.). Buckley points out the ordinary people do not know what is nitrate medications and they cannot recognize from this statement that the combination of these two drugs will en ough to kill them more often. Supporting to this argument Wazaify(2005) mentions that consumers generally believe that only safe medicines are permitted to be sold without prescription and OTC medicines do not usually have serious side-effects(Wazaify, 2005). Some giant pharmaceutical companies have their own physicians, independent monitoring committees and analytical groups etc. They make public aware of some new drugs which are effective treatment for some diseases which are common among current generation and they suggest through advertisements, that it may be effective to use their drugs or supplementary product to prevent from those diseases. This is another current trend in the world and basically what they do is label healthy people that they are sick. Supporting to this arguments Moynihan(2002) express his view in this paper stating that sometimes the issue is informal alliance engage, including doctors, drug company staff and consumer groups and this kind of alliance is being used by the drug companies in raising public awareness about some new drugs which are not scientifically proven. On the other hand theses groups conduct some health campaigns and awareness programmes about undiagnosed and untreatable problems and view of th is kind of problems are treatable because these disease awareness programmes are directly connected to drug companies and their marketing strategies. In general drug companies use this type of marketing strategies to promote their new pharmaceutical products (Moynihan, 2002). Extensive advertising and promotion has put on higher price on pharmaceuticals. Consumer has become the victim of those expensive pharmaceuticals. Dave(2010)says Promotion may affect price through two difference processes. First, promotion may increase demand and/or reduce the absolute magnitude of the demand price elasticity (that is, reduce the price responsiveness of purchasers), which may raise price. Second, the increasing operation cost due to high promotional spending may be shifted to purchasers in the form of higher price. Concluding his findings he states that in addition to potential misuse, the cost of direct to consumer advertising result from increased drug price and increased use of expensive drugs in place of equally effective lower-price drugs(Dave, 2010). Effect of Misleading Many researchers have pointed out that misleading consumer due to unprofessional advertisement of the pharmaceutical industry has created considerable issue to the society in many countries(Herxheimer, 1993, Dave, 2010, Leonard, 1999, Ashish, 1999). There is a reasonable doubt whether consumers spend money for their real requirements of treatments. Moynihan (2002) says drug companies earn lot of money from healthy people and it is better to describe as disease mongering. He further says some practices in medicine and pharmaceuticals are questionable particularly on the subject of disease mongering and its impact on public health, medical practices, public awareness and financial budgeting(Moynihan, 2002). There are people who count this criticism and say Direct To Consumer Advertisements (DTCA) fosters rapid detection of disease and promote grater compliance with treatment regimes. Further more they suggest that DTCA is simply part of a wider social trend whereby consumers take great er responsibility for their health care(Hoek, 2002). Pharmaceutical industry may grab ample amount of money from consumers through unprofessional promotions and advertising drugs. Most of the time heavily promoted drugs may have less clinically importance considering the price as the generic drug provide almost similar clinical effect at a cheap price. Parker(2003),supporting to this argument says Prescription drugs such as Celebrex and Vioxx are heavily promoted and cost the consumer just over $2per pill, while generic ibuprofen, which cost the consumer pennies per pill, often work just as well(Parker, 2003). Effective and attractive advertisement can attract consumer towards the product some times without considering the quality or the value of the product. Ashish(1999) states in his publication that Advertising is thought to contribute to the economy as well. By effective promoting increase in promotion of goods and services may occur, which in turn can result in increase in sales and the flow of money within society(Ashish, 1999). But some researchers expresses a different idea about the relationship between drug price and drug advertisements. They point out when drugs are advertised, the market is more competitive and due to that the price of the particular drug reduces. Research has generally found that advertising tend to reduce price, rather than increase them, primarily because advertising makes markets more competitive(Calfee, 2002). Sometimes drug advertisement give wrong information due to many reasons for consumers and it is affected for less dose or overdose usage of drugs. A general problem associated with drug advertisements is that it is a powerful influence which may motivate consumers to select overly expensive, overrated, or less than optimum medications for their particular needs. More specifically, it is possible to identify numerous individual problems associated with the promotional practice(Ashish, 1999). Our culture very much believes in the More in Better principle and consumers sometimes even ho

Evaluation of Comptronix Corporation: Identifying Inherent Risk and Control Risk Factors Essay

1. Professional auditing standards present the audit risk model, which is used to determine the nature, timing, and extent of audit procedures. Describe the components of the model and discuss how changes in each component affect the auditor’s need for evidence. The audit risk model is used to determine the nature, timing, and extent of substantive audit procedures. The components of audit risk model usually stated as follows: DR = AR/(IR x CR) Where: DR = detection risk; AR = audit risk; IR = inherent risk; CR = control risk Detection Risk: auditors’ procedures will lead them to conclude that a financial statement assertion is not materially misstated when in fact such misstatement does exist. If auditors want to decrease DR, they had better collect more evidence and make sure the validity of evidence. Audit Risk: auditors may unknowingly fail to appropriately modify their opinion on financial statements that are materially misstated. If AR should be keep in low level, which means the other risks also should be low. Inherent Risk: The risk of material misstatement of a financial statement assertion, assuming there were no related controls. As inherent risk increases, PDR decreases, which in turn increases the auditor’s need for stronger evidence. Control risk: The risk that a material misstatement that could occur in an account will not be prevented or detected on a timely basis by internal control. If the strength of internal control is assessed as decreasing, the auditor should pay more attention to control risks. 2. One of the components of the audit risk model is inherent risk. Describe typical factors that auditors evaluate when assessing inherent risk. With the benefit of hindsight, what inherent risk factors were present during the audits of the 1989 through 1992 Comptronix financial statements? Inherent risk is a measure of the auditor’s assessment of the susceptibility of an assertion to a material misstatement assuming there are no related internal controls. Some believe that inherent risk would be greater for some assertions and related account based on some conditions as follows: †¢Complex calculations rather than simple calculations. †¢Non-routine rather than routine transactions. †¢Subjective data rather than objective data. More importantly is that inherent risk is always be effected by external factors as follows: †¢Changes in economic environment †¢Insufficient capital to continue operations †¢Technological improvements. †¢Transactions with related parties. †¢Susceptibility of assets to misappropriation. The inherent risk factors present during the 1989 through 1992 financial statement audits as follows: †¢Loss of Key Customer: Comptronix lost a key customer to SCI after the public offering of stock. Once the company lost their a key customer, Management have a strong motivation manipulate sales and operating performance to satisfy investor expectations because the loss of a key customer put too much pressure on management to meet the requirements of external users. †¢Public Offering of Stock: After Comptronix made its public offering of stock , they have the pressure which push the management to manipulate operating performance too meet the expectations from the external users. †¢Technological Improvement: Comptronix is a manufacture company which main products are circuit boards and the circuit boards’ development depend on technological improvement. The technological improvement has a negative impact on operating performance. †¢Pressures from a new star Company: By the first year of the fraud (1989), Comptronix became a new company which can employ more than 1,800 employees in less than a decade , and at same time, the company expanded its the size of the company in three different locations. The rapid development of company made the management adjusted their operations instead of monitoring company operations. †¢Estimation of Accounts: The high inherent risk accounts include Accounts receivable/ payable, inventory, and property, plant, and equipment. But all the accounts’ computation is based on estimation which led the numbers are very unreliable and subjective. †¢Cash Flow Pressures: Comptronix suffered net losses from 1986. Until the company attracted a venture capitalist, the company was able to generate strong sales and profits. Prior to 1989, Comptronix had generated only two consecutive years of profit after several years of net losses. cash flow of financial statement cannot cover many years of recurring losses. The management has motives to make up operating accounts to look perfect to attract more  investors. 3. Another component of the audit risk model is control risk. Describe the five components of internal control. What characteristics of Comptronix’s internal control increased control risk for the audits of the 1989-1992 year-end financial statements? Five components of control risk are: control environment, risk assessment, control activities, information and communication, and monitoring. Control environment set the tone of an organization by influencing the control consciousness of people. Risk assessment is management’s process for identifying, analyzing, and responding to the risks. Control activities are policies and procedures that help ensure that management’s directives are carried out. Information is needed at all levels of an organization to assist management in meeting the organization’s objectives. Monitoring of controls is a process to assess the quality of internal control performance over time. The information and communication is seriously weak in that he three executives were able to perpetrate the fraud by bypassing the existing accounting system. They could record the fictitious entries manually and other employees were excluded from the manipulations to minimize the likelihood of the fraud being discovered. Besides, the weak control activity and monitoring is represented by the fact that Mr. Shifflett or Mr. Medlin could approve payments based solely on an invoice. Therefore, the fraud team was able to bypass internal controls over cash disbursements. Internal controls were also insufficient to detect the manipulation of sales and accounts receivable. Mr. Medlin had the ability to access the shipping department system. 4. The board of directors, and its audit committee, can be an effective corporate governance mechanism. Discuss the pros and cons of allowing inside directors to sere on the board. Describe typical responsibilities of audit committees.What strengths or weaknesses were present related to Comptronix’s board of directors and audit committee? As shareholders have limited access to the sufficient information, they are hard to monitor the daily transactions and management. They would delegate the responsibilities to the board of directors. Then, board of directors require inside directors to provide sufficient information in order to make decisions those are in the maximum profits of shareholders. However, if the inside directors have improper purposes, it’s easily to be a manipulation tool for management. Audit committee is responsible for ensuring that the company’s financial statements and reports are accurate and use fair and reasonable estimates. More specifically, it is charged with overseeing the financial reporting and disclosure process, monitoring choice of accounting policies and principles, overseeing hiring, performance and independence of the external auditors, oversight of regulatory compliance, monitoring the internal control process, overseeing the performance of the internal audit function, and discussing risk management policies and practices with management. The control environment is significantly influenced by the effectiveness of its board of directors or its audit committee. Factors that bear on the effectiveness of the board or audit committee include the extent of its independence from management, the experience and stature of its members. However, among the seven individuals in Comptronix board of directors, five members are either inside directors or directors had close affiliations with management. In addition, the primary responsibility of the board of directors is to protect the shareholders’ assets and ensure they receive a decent return on their investment. Board members act as trustees of the organization’s assets and must exercise due diligence to oversee that the organization is well managed and that its financial situation remains sound. But the composition of Comptronix’s board of directors obviously lacks objectivity. A qualifying audit committee should be composed of independent directors who are not officers or employees of the organization and who do not have other relationships that impair independence. However, The audit committee of  Comptronix is made up two outside directors and one gray director, which would inevitably impair the independence. What’s more, to qualify, the committee must be composed of outside director with at least one qualifying as a financial expert. Nevertheless, for Comptronix Corporation, there is no indication of whether any of these individuals had accounting or financial reporting backgrounds. Lastly, the audit committee met only twice during 1991, it was not efficiently and sufficiently to monitor and oversee the financial reporting. 5. Public companies must file quarterly financial statements in Form 10-Qs, that have been reviewed by the company’s external auditor. Briefly describe the key requirements of Auditing Standards (AU) Section 722, Interim Financial Statements. Why wouldn’t all companies (public and private) engage their auditors to perform timely reviews of interim financial statements? The term interim financial information means financial information or statements covering a period less than a full year or for a 12-month period ending on a date other than the entity’s fiscal year end. A review consists principally of performing analytical procedures and making inquiries of persons responsible for financial and accounting matters, and does not contemplate (a) test of accounting records through inspection, observation, or confirmation; (b) tests of controls to evaluate their effectiveness; (c) the obtain net of corroborating evidence in response to inquiries; or (d) the performance of certain other procedures ordinarily performed in an audit. The decision to have a review engagement is a joint decision of the client and auditor. So a review would be performed when the benefits to the auditor and to the client exceed the costs to both parties. In general, firms with high complexity are more likely to be reviewed than firms with low complexity. Firms with high growth opportunities a less likely to be reviewed than those with low growth opportunities for they may be associated with higher information and litigation risks. And it’s also about the firms’ audit assurance and insurance needs. 6. Describe whether you think Comptronix’s executive team was inherently dishonest from the beginning. How is it possible for otherwise honest people to become involved in frauds like the one at Comptronix? We don’t think Comptronix’s executive team was inherently dishonest from the beginning. In opposite, we think there are two main reasons for the company committed the fraud. The first is its weak internal control. First comes to the company’s board of director. The board of directors is responsible for overseeing the actions of management. Factors that bear on the effectiveness of the board include the extent of its independence from management, the experience and stature of its members, the extent to which it raises and pursues difficult questions with management, and its interaction with the internal and external auditors. the audit committee of the board of directors should be composed of independent directors who are not officers or employees of the organization and who do not have other relationships that impair independence. In addition, the audit committee should have one or more members who have financial reporting expertise. However, Comptronix’s board of directors consist of the CEO and the COO of the company, And two of the other five directors who had close affiliations with management, one served as the company’s outside general legal counsel and the other who served as vice president of manufacturing for a significant customer of Comptronix, and one of the remaining outside directors who was a partner in the venture capital firm that owned 574,978 shares (5.3%) of Comptronix’s common stock, the second outside director who was the vice chairman and CEO of the local bank originally loaning money to the company, and the third outside director who was president of an international components supplier based in Taiwan. And there was no indication of whether any of these individuals had accounting or financial reporting backgrounds. 28.6% of the board consisted of inside directors. And even all of the board of directors disobey the independence and  effectiveness of the formation of the board of directors. The interest relationship with the company increased the potential risk for the management to commit fraud. The second reason is the huge pressure of harsh competition for the companies in the industry. The fraud was motivated by the loss of a key customer in 1989 to the three executives’ former employer, SCI. Since the first manipulation of the financial statement, they were forced to manipulate the other years and evidences to hide the manipulation, which created a vicious circle. In conclusion, the weak internal control system provided a good environment for the commission of fraud. The huge pressure of the company brought the motivation of the fraud. Both of them played important roles for the honest people to become involved in frauds. 7. Auditing Standards (AU) Section 316, Consideration of Fraud in a Financial Statement Audit, notes that three conditions are generally present when fraud occurs. Research the authoritative standards for auditors and provide a brief summary of each of the three fraud conditions. Additionally, provide an example from the Comptronix fraud of each of the three fraud conditions. (1) Three fraud conditions First, management or other employees have an incentive or are under pressure, which provides a reason to commit fraud. Second, circumstances exist—for example, the absence of controls, ineffective controls, or the ability of management to override controls—that provide an opportunity for a fraud to be perpetrated. Third, those involved are able to rationalize committing a fraudulent act. Some individuals possess an attitude, character, or set of ethical values that allow them to knowingly and intentionally commit a dishonest act. (2) Examples The incentive for top company executive to do fraud is that after the company went public, the company needed an increasing number for profit on the income statement, to attract more investors and make the stock price higher and higher. One of the opportunities for fraud perpetrated in Comptronix is that their internal controls were so insufficient. The three executives had so many authorities to get access to various accounts. They can get control of both checks and accounts payable, which enable them to make fake equipment purchasing recording. Because Comptronix`s quarterly filings were unaudited, the executives were successful in manipulating quarterly financial statements. After they successfully manipulated 1989 year-end sales and receivables, they thought their performance may not be discovered by external auditors and SEC, so they began recording fictitious quarterly sales frequently. 8. Auditing Standards Section 316, Consideration of Fraud in a Financial Statement Audit, notes that there is a possibility that management override of controls could occur in every audit and accordingly, the auditor should include audit procedures in every audit to address that risk. a. What do you think is meant by the term â€Å"management override†? Management override of internal controls is the intervention by managers in handling financial information and making decisions contrary to internal control policy. Managers may think they have the ability to operate outside of the internal controls, but this is not true. b. provide two examples of where management override of controls occurred in the Comptronix fraud. For example, Mr. Medilin, as controller and treasurer, has the authorization to manipulate both sales documents and accounts receivable documents. Thus he can enter bogus sales into the accounting system then make fake accounts  receivable to overstate the company`s earnings. Moreover, in order to overstate the equipment and accounts payable, the three company executives cut fake checks to the bogus accounts payable vendors associated with the fake purchases of equipment. However, the check preparing and recording of equipment purchases jobs should be distributed to different staff. Handling these two jobs at the same time by same executives provide them opportunity to make overstated recording of equipment purchasing. c. Research AU Section 316 to identify the three required auditor responses to further address the risk of management override of internal controls. Three required auditor responses to further address the risk of management override: (1) Examining journal entries and other adjustments for evidence of possible material misstatement due to fraud. (2) Reviewing accounting estimates for biases that could result in material misstatement due to fraud. (3) Evaluating the business rationale for significant unusual transactions.

Punjab -The Gateway to Serenity

Pakistan is a multicultural society when you visit its urban centers especially Karachi but in the rural areas, it is certainly influenced by one culture and that is the culture of Pakistan first and then the province in which the village is situated. The province of Punjab, one of the largest provinces, has the riches village life and for a first time visitor to Pakistan, it is best to start with Punjab to learn more about village life. People in villages speak the native language of the province and not Urdu, which is the native language of Pakistan. While people understand Urdu, they would prefer to communicate in the regional language. They are very hospitable and what makes them endearing to a visitor is their spontaneity and unaffected behavior. They welcome guests with open arms but are very rigid about their own moral and social codes. Since most of them follow the Islamic religion, they prefer the moral code that comes with being a Muslim. There are no large or small restaurants in the villages. If there is anything even remotely close to a restaurant that's what they call a hotel where they serve food on wooden seats or charpoi (a bed made of jute). Women are expected to dress modestly and most girls are married off very young. Men are not the sole breadwinners and women are allowed to work in the fields with the men. In fact more women choose to work than stay at home. Schools are few and quality of education is low. These schools are run by the state but children still manage to gain required primary education from these schools. Village life in Pakistan is rich and there are many cottage industries that provide most of the handicrafts that are even exported to western countries.

Annotated Bibliography On Junk Food - 1785 Words

Qihua Zhu Jon Meeder ESL 408LEC S Mar 30, 2015 Annotated Bibliography Cobb, Vicki. Junk Food. Minneapolis: Millbrook, 2006. Print. Cobb’s book described six kinds of junk food (popcorn, corn chips, chocolate, candy, potato chips, and soda) to the readers with background, description and the science involved in making junk food and its nutritional value. This book also wrote why the junk food tastes good and what is the proper size it should be in the chemistry way. This book not only used a chemical way to analyze junk food but also offered scientific evidence of the disadvantage about junk food. It gave hands-on science writing so that it increase the reliability and readability to the research paper. Datar, Ashlesha, and Nancy Nicosia. Junk Food in Schools and Childhood Obesity. Journal of Policy Analysis and Management: N/a. 2012. Print. 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