Accounting and Auditing Processes

Justin Denman Accounting and Auditing Processes March 4, 2000 Writing Assignment #1 Revenue Recognition Policies The purpose of this paper is to compare the revenue recognition policies of two companies in the search, detection, navigation, guidance, and aeronautical systems industry. The two companies I have selected are Aerosonic Corporation, and Esco Electronics Company. Esco Electronics Company is engaged in the design, manufacture, sale and support of engineered products. These products are used principally in filteration/fluid flow applications, electromagnetic compatibility (EMC) testing, and electric utility communications and control systems. The filtration/fluid flow and EMC testing products are supplied to a broad base of industrial and commercial customers worldwide.

At the present time, electric utility communications systems are marketed primarily to customers in North America. The four primary industry segments of Esco are Filtration/Fluid Flow, Test, Communications, and other. In order for Esco to conform with generally accepted accounting principles, management must make careful estimates in preparing the financial statements. These estimates are for anticipated contract costs and revenues earned during the life of the contract. These amounts affect the reported amounts of assets and liabilities on the company’s financial statements. Actual results could differ from these numbers. Revenues are recognized on commercial sales when products are shipped or when services are performed. Revenue on production contracts are recorded when specific contract terms are fulfilled. These amounts are determined either by the units of production or delivery methods. Revenues from cost reimbursement contracts are recorded as costs are incurred, plus fees earned. Revenue under long-term contracts in which the previous two methods are inappropriate, the percentage-of-completion method is used. Revenue under engineering contracts are generally recognized as certain “milestones” are attained. The percentage-of-completion method recognizes a portion of the estimated gross profit for each period based on progress to date. Progress to date is based on three factors.



These three factors are the costs incurred to date, the most recent estimate of the project’s total cost, and the most recent gross profit percentage. Progress to date is assumed to be the proportion of the project’s costs incurred to date divided by total estimated costs. This fraction is known as the estimated percentage of completion, and is the estimated percentage of completion. However, he biggest flaw with this method is that it only deals with costs. This means that there may not be strong correlation between physical progress and costs incurred. Conceptually, one would want to match revenues when the earnings process is judged to be complete. Since costs don’t necessarily mean physical completion, the revenues may not represent actual completion. However, this method does match all revenues with appropriate expenses. The audit risks associated with this method is that cost incurrence could be accelerated to increase the estimate of the percentage completed. Let’s say Esco is performing a three-year contract. For simplicity, let’s say the contract price is $1000. The first year of the contract, actual costs incurred to date is $200, and the estimated remaining costs is $400. This would call for a projected $400 gross profit on the entire project ($1000-$600). To figure out the gross profit for the first year, you would take the actual costs to date ($200) and divide that by the estimated total cost ($600). This equals the estimated percentage of completion (33%). You would then take this number and multiply it by the total project gross profit (33%*$400), and that would be the gross profit earned to date. In subsequent years, you would take the profit earned to date and subtract from it the gross profit recognized in previous years.

The next company I’d like to talk about is Aerosonic Corporation, who is in the same industry as Esco. The primary business of Aerosonic Corporation is to manufacture and sell aircraft instruments to government and commercial users from its plants in Florida, Virginia, and Kansas. Prior to 1996, the company also sold non-munitions components for artillery projectiles to the U.S. government and automotive and truck parts to commercial customers. The company’s customers are worldwide. Aerosonic generally recognizes revenue from sales of its products on the accrual basis on the date such products are shipped. In certain circumstances, the U.S. government accepts title of products, even though the products are on the Company’s premises. When the U.S. government accepts title in writing, and assumes all risks associated with those products, then the Company records these items as sales. Like Esco, Aerosonic follows the percentage-of completion method to account for long-term engineering contracts. Revisions in costs and revenue estimates are reflected in the periods in which the revisions are made. Provisions for estimated losses are determined without regard to the percentage-of-completion. Like Esco, Aerosonic’s financial statements are based heavily on management’s estimates. To auditors, this raises a red flag. Auditors must be careful when conducting the audits of these particular companies. It is rather easy, and conceivable for management to manipulate earnings to meet projected totals. Another important area is that a company like Aerosonic has one major customer, and that is U.S. government. Another important factor is that Aerosonic recognizes revenue when title transfers to the government. Since the two parties are closely related in a business sense, Aerosonic may have the incentive to push titles of products to the government to meet target revenues. Auditors should take care in determining whether or not the financial statements conform generally accepted accounting principles.

Abouts On The Great Depression

To my amazement the Great Depression serves as a natural debating point

that "justifies" or "refutes" various economic policies. The Great Depression

and the New Deal are complex topics that are open to many interpretations.  The

Great Depression was the worst economic slump ever in U.S. history, and one

which spread to virtually all of the industrialized world.

        Seeing the order in which events actually occurred dispels many myths

about the Great Depression. One of the greatest of these myths is that

government intervention was responsible for its onset. Truly massive

intervention began only under the presidency of Franklin Roosevelt in 1933, who

was sworn in after the worst had already hit. Although his New Deal did not cure

it, all the leading economic indicators improved during his tenure.

        To understand the Great Depression, it is important to know the theories

of John Maynard Keynes. Keynes is known as the "father of modern economics"

because he was the first to accurately describe some of the causes and cures for

recessions and depressions.

        In a normal economy, Keynes said, there is a circular flow of money. My

spending becomes part of your earnings, and your spending becomes part of my

earnings. For various reasons, however, this circular flow can falter. People

start hoarding money when times become tough; but times become tougher when

everyone starts hoarding money. This breakdown results in a recession.

        To get the circular flow of money started again, Keynes suggested that

the central bank, the Federal Reserve System,  should expand the money supply.

This would put more money in people's hands (through the multiplier effect),

inspire consumer confidence, and compel them to start spending again.

        A depression, Keynes believed, is an especially severe recession in

which people hoard money no matter how much the central  bank tries to expand

the money supply. In that case, he suggested that government should do what the

people were not: start spending money. He called this "priming the pump" of the

economy. I think that most economists believe that only massive U.S. defense

spending in preparation for World War II cured the Great Depression.

        After the success of Keyne's economic beliefs were proven, almost all

free governments around the world became Keynesian. These policies have

dramatically reduced the severity of recessions since then, and appear to have

completely eliminated the depression from those who follow such economic beliefs

throughout the world.

                               Events of the 1920s

        The Roaring Twenties were an era dominated by Republican presidents:

Warren Harding (1920-1923), Calvin Coolidge (1923-1929) and Herbert Hoover

(1929-1933). Under their conservative economic philosophy of laissez-faire

("leave it alone"), markets were allowed to operate without government

interference. Taxes and regulation were slashed dramatically, monopolies were

allowed to form, and inequality of wealth and income reached record levels. The

country was on the preferred gold standard, and the Federal Reserve was not

allowed to significantly change the money supply. Many try to blame the

worsening of the Depression on Hoover, for supposedly betraying the laissez-

faire beliefs.

        As this time line will show, almost all of Hoover's government action

occurred during his last year in office, long after the worst of the Depression

had hit. In fact, he was voted out of office for doing "too little too late."

The only notable exception to his earlier idleness was the Smoot-Hawley tariff

of 1930.

        But much more important, the economy was clearly turning downward even

before Hoover took office in 1929. Entire sectors of the economy were depressed

throughout the decade, such as: agriculture, energy and mining. Even the two

industries with the most spectacular growth - construction and automobile

manufacturing - were contracting in the year before the stock market crash of

1929. About 600 banks a year were failing. Half the American people lived at or

below the minimum subsistence level. By the time the stock market crashed, there

was a excessive amount of goods on the market, and inventories were three times

their normal size. The fact that all this occurred even before the first act of

government intervention is a major refutation of laissez-faire ideology.

                       TIMELINE OF GENERAL EVENTS

                                      1920s

•During World War I, federal spending grows three times larger than tax

collections. When the government cuts back spending to balance the budget in

1920, a severe recession results. However, the war economy invested heavily in

the manufacturing sector, and the next decade will see an explosion of

productivity... although only for certain sectors of the economy.

•An average of 600 banks fail each year.

•Agricultural, energy and coal mining sectors are continually depressed.

Textiles, shoes, shipbuilding and railroads continually decline.

•The value of farmland falls 30 to 40 percent between 1920 and 1929.

•Organized labor declines throughout the decade. The United Mine Workers Union

will see its membership fall from 500,000 in 1920 to 75,000 in 1928. The

American Federation of Labor would fall from 5.1 million in 1920 to 3.4 million

in 1929.

•"Structural unemployment" enters the nation's vocabulary; as many as 200,000

workers a year are replaced by automatic or semi-automatic machinery.

•Over the decade, about 1,200 mergers will swallow up more than 6,000 previously

independent companies; by 1929, only 200 corporations will control over half of

all American industry.

•By the end of the decade, the bottom 80 percent of all income-earners will be

removed from the tax rolls completely. Taxes on the rich will fall throughout

the decade.

•By 1929, the richest 1 percent will own 40 percent of the nation's wealth. The

bottom 93 percent will have experienced a 4 percent drop in real disposable per-

capita income between 1923 and 1929.

•The middle class comprises only 15 to 20 percent of all Americans.

•Individual worker productivity rises an astonishing 43 percent from 1919 to

1929. But the rewards are being funneled to the top: the number of people

reporting half-million dollar incomes grows from 156 to 1,489 between 1920 and

1929, a phenomenal rise compared to other decades. But it is still less than 1

percent of all income-earners.

                                      1922

•The conservative Supreme Court strikes down federal child labor legislation.

                                      1923

•President Warren Harding dies in office; his administration seemed to me, to be

one of the most corrupt in American history. Calvin Coolidge, who is squeaky

clean by comparison, becomes president. Coolidge is no less committed to

laissez-faire and a non-interventionist government. He announces to the American

people: "The business of America is business." •Supreme Court nullifies minimum

wage for women in District of Columbia.

                                      1924

•The Ku Klux Klan reaches the height of its influence in America: by the end of

the year it will claim 9 million members. It will decline drastically in 1925,

however, after financial and moral scandals rock its leadership.

•The stock market begins its spectacular rise. Bears little relation to the rest

of the economy.

                                      1925

•The top tax rate is lowered to 25 percent - the lowest top rate in the eight

decades since World War I.

•Supreme Court rules that trade organizations do not violate anti-trust laws as

long as some competition survives.

                                      1928

•The construction boom is over.

•Farmers' share of the national income has dropped from 15 to 9 percent since

1920.

•Between May 1928 and September 1929, the average prices of stocks will rise 40

percent. Trading will mushroom from 2-3 million shares per day to over 5 million.

The boom is largely artificial.

                                      1929

•Herbert Hoover becomes President. Hoover is not as committed to laissez-faire

ideology as Coolidge.

•More than half of all Americans are living below a minimum subsistence level.

•Annual per-capita income is $750; for farm people, it is only $273.

•Backlog of business inventories grows three times larger than the year before.

Public consumption seems to be markedly down.

•Freight carloads and manufacturing fall.

•Automobile sales decline by a third in the nine months before the crash.

•Construction down $2 billion since 1926.

•Recession begins in August, two months before the stock market crash. During

this two month period, production will decline at an annual rate of 20 percent,

wholesale prices at 7.5 percent, and personal income at 5 percent.

•Stock market crash begins October 24. Investors call October 29 "Black

Tuesday." Losses for the month will total $16 billion, an astronomical sum in

those days.

•Congress passes Agricultural Marketing Act to support farmers until they can

get back on their feet.

                                      1930

•By February, the Federal Reserve has cut the prime interest rate from 6 to 4

percent. Expands the money supply with a major purchase of U.S. securities.

However, for the next year and a half, the Fed will add very little money to the

shrinking economy. (At no time does it actually pull money out of the system.)

Treasury Secretary Andrew Mellon announces that the Fed will stand by as the

market works itself out: "Liquidate labor, liquidate stocks, liquidate real

estate… values will be adjusted, and enterprising people will pick up the wreck

from less-competent people."

•The Smoot-Hawley Tariff passes on June 17.

•The first bank panic occurs later this year; a public run on banks results in a

wave of bankruptcies. Bank failures and deposit losses are responsible for the

contracting money supply.

•Supreme Court rules that the monopoly U.S. Steel does not violate anti-trust

laws as long as competition exists, no matter how negligible.

•Democrats gain in Congressional elections, but still do not have a majority.

•The GNP falls 9.4 percent from the year before. The unemployment rate climbs

from 3.2 to 8.7 percent.

                                      1931

•No major legislation is passed yet addressing the Depression.

•A second banking panic occurs in the spring.

•The GNP falls another 8.5 percent; unemployment rises to 15.9 percent.

                                      1932

•This and the next year are the worst years of the Great Depression. For 1932,

GNP falls a record 13.4 percent; unemployment rises to 23.6 percent.

•Industrial stocks have lost 80 percent of their value since 1930.

•10,000 banks have failed since 1929, or 40 percent of the 1929 total.

•About $2 billion in deposits have been lost since 1929.

•Money supply has contracted 31 percent since 1929.

•GNP has also fallen 31 percent since 1929.

•Over

A Senator's Pain

Tommie Porter

        English Com. 2  Sec. 19

        Dr. Chichester

        12/11/95

        Paper 4 - Final Draft

        Most Californians know exactly what they were doing when the historical

were read that acquitted the four LAPD officers, and sparked the civil unrest in

Los Angeles.  Anna Deavere Smith does an excellent job representing Los Angeles

citizens in her theatrical piece entitled Twilight: Los Angeles 1992.  Smith

writes, "Every person I include in the book, and who I perform, has a presence

that is much more important than the information they give" (Smith: xxiv).  In

this statement Smith tells the reader that the facts each character gives is not

as important as his her presence, because anyone can give facts about an event.

Smith wants the reader to pay close attention to the feelings expressed by each

individual she interviewed, because feelings tell more about a person and an

event than the facts.  In Twilight: Los Angeles 1992 the monologue by Bill

Bradley entitled "Application of the Law" contributes more to Smith's piece than

does the monologue by Elaine Brown entitled "Ask Saddam Hussein," because when a

Senator notices the reality of racism it seems authentic.  Although both Bradley

and Brown give similar information it is ironic that a white Senator showed more

anger toward racism than the former Black Panther.

        When Senator Bradley begins telling his story his he points out how our

society still has inequalities as he says, "I mean, you know, it's still...

There are people who are, uh, who the law threats in different ways" (Smith:

214).  The following statements Bradley makes during his interview shows his

anger for racial differences.  When Bradley informs the reader about an African-

American Harvard Law School student who experienced unjust treatment by the

police.  Bradley's anger is expressed through his statement, as he says, "He

pulls over.  Police car pulls in front...behind...beside of him.  Police jump

out, guns, pull him out of the car, throw him to the floor, put a handcuff on

him...All the while pointing a gun out at him" (Smith: 215).  It is not fair

that this African-American Law School student has to put up with racism just

because his skin color and the "well-to-do" neighborhood he was driving through.

Bradley's anger shows the reader that racism should not exist because our

Constitution says, "all men are created equal."  Bradley is an important

character to Smith's theatrical piece because he is a white Senator who can help

influence decision making.  Bradley lets the reader know that he is doing all he

can to make the "theory" of equality a reality for all races.

        Unlike Senator Bradley, Elain Brown's reality was growing up as a black

woman in an "unequal" society.  In Brown's interview she tries to convince young

brothers to pick up the books instead of the guns.  Brown a former Black Panther

leader shows a personal sympathy for Jonathan Jackson, as she says, "I think

that this idea of picking up the gun and going into the street without a plan

and without any more rhyme or reason than rage is bizarre and so, uh...And it's

foolish" (Smith: 228).  Brown's contribution to Smith's theatrical piece is

limited because she does not show the authentic anger like Senator Bradley.

        Even though both Senator Bill Bradley and former Black Panther leader

Elaine Brown gave similar messages, their presence affects the reader in a

different way.  After reading Bradley's monologue, I felt elated and anger.

When Bradley questioned the partner at the law firm as he ask, "What did the

partner of the law firm do on Monday?  Did the partner call the police

commissioner?" (Smith: 216).  When Bradley begins asking question he lets the

reader know that he is also bother by racism.

        Yet in Brown's monologue racism is not the problem.  Brown wants to

convince the reader that guns are not worth his or her life.  Brown tells the

reader, "all one has to do is ask, to ask the Vietnamese or Saddam Hussein about

the power...of the United States" and how they take down threats (Smith: 228).

Brown wants young brothers to realizes how important their lives are to our

society.

        In Twilight: Los Angeles 1992 when Anna Deavere Smith says, "Every

person I include in the book, and who I perform, has a presence that is much

more important than the information," Bill Bradley and Elaine Brown are just a

few of the characters Smith is describing.  Bill Bradley was a white Senator who

people might have thought would have agreed with the actions of the LAPD but

ironically he was angry.  Senator Bradley's monologue contributes more to

Smith's theatrical piece because of this irony.  I wonder what our world would

like if we had more Senator's like Bill Bradley?

A Role of Ethics and Social Responsibilities in Management

Ethics can be defined as a process of evaluating actions according to

moral principal of values(A.Alhemoud). Throughout the centuries people were

trying to choose between profit and moral. Perhaps, some of them obtain both,

but every time it could have roused  ethical issues. Those issues concern

fairness, justice, rightness  or wrongness; as a result it can only be resolved

according to ethical standards.

        Setting the ethical standards for the way of doing business in

corporation is primarily task of management. Corporations have to maintain the

same standards as an individual person and, in addition, corporations, as

organizational units, have their own social responsibilities toward customers,

employees and society. However, any business should keep it's original purpose

of functioning - making profit. Balancing the traditional standards of

profitability and burden of social responsibilities is not an easy task. In

recent years it has been a trend of setting standards of corporate ethics

according to high degree of morale.

        To be able to keep the ethical standards management must follow the law.

However, there are some complications in enforcing it. The law affects and is

affected by social forces and prevailing ethical standards. "Although the law

can codify societies ethical ____________________________________________________

____________________ Alhemoud, Ali  " Management Ethics is Smart Business."

values, ethical decision making transcends the law in that 1) the law deals with

actions not with thoughts, and therefore it does not (and cannot) codify all

ethical requirements; and 2) an individual or a group may perceive a given law

as immoral, not as a guide to ethical behavior." ( A. Alhemoud). How, then, a

company can ensure that its code of ethics is both followed and enforced ?  " .

..Defense firm such as General Dynamics and TRW, and an information company, Dun

& Broadstreet, have appointed internal ethics officers or ombudsmen.  Whether

employees have faith in these safeguards against corporate retaliation is hard

to tell, though it is one step forward (The Economist August 19 1995)

        The ethical codes of corporations that that get so important nowadays

also did not  come into being at once. They emerged from individual ethical

standards and corporate consciousness.  Moreover, the public demand  for

prosecution of any violations of corporate, professional and business ethics has

been increased. Finally, mass media made possible for society reveal secrets

that were kept from public before. So, the business conduct regulations were

created to "draft guidelines for ethical conduct, develop a process for

monitoring business practices and recommend ways to correct questionable

activities." (J.Byrne) All these measures were taken to balance various social

responsibilities with the high degree of moral and sense of attainment.

        Unfortunately, cooperation of unethical behavior of a manager with a

journalist may lead to an undesirable results. "Early in December  1995 , Smart

Money's editor-at-large James J. Cramer wrote an article for his monthly column;

Unconventional Wisdom, __________________________________________________________

______________ Alhemoud, Ali "Management Ethics is Smart Business."

Recommending four  $2 to $6 "oprahn" stocks.  Trading records show that at the

at the peak, Cramer's  firm had paper profits of more than  $2 million on the

stocks. The gain occurred because he had adopted at least three of the "oprhan"

sometimes before writing the article. Cramers article said that he was buying

one of the stock but did not disclose that"(F.Lalli). Clearly, neither the

management nor the editors had in any way cared of conducting  the ethical

behavior and as the result  the innocent investors were hurt.

        On the other hand, being ethical can be clever marketing strategy.

Increasingly, consumers are swayed by  "non-commercial" factors, such as whether

the product harms the environment . "Firms such as Ben & Jerry's, an ice cream

maker and Body Shop international, a cosmetics retailer, have enforced their

brands by publicizing their ethical standards...Calmins Engine , a maker of

diesel engines , made the product greener while lobbing for stricter pollution

laws. Dp Pont, a leading producer of ozone damaging CFCs, became an early member

of anti-CFCs lobby  partly because it knew it was well ahead of its rivals in

developing alternative."( The Economist December 23 1996)

        But ethical self promotion can backfire. As in the case of  Body Shop

company that was publicly enforced to rephrase a statement that its product were

not tasted on animals (Some other companies did that in the past). This accident

made many consumers to question Body Shop ethical standards.

        Another interesting issue in corporate management is social

responsibilities. Social ________________________________________________________

________________       Frank Lalli "A Question of professional ethics"

responsibilities can be defined as set of obligations an organization has to

protect and enhance the society in which it functions.(Ricky W. Griffin.

"Management"). There are a few main components of social responsibilities.

        Any business has responsibilities to its customers. The paramount duty

in this respect is to provide  customers with quality and safe products.

Unfortunately, not all businesses follow this rule. The example of such

deception is tobacco industry, which delibelatry manipulated with the level of

nicotine in cigarettes. Despite of declaration of managers, scrutinize research

made it clear that industry tried to maintain the addictive level of nicotine.

The purpose of it was far from humanistic - addicted smokers kept buying

cigarettes, making the industry prosperous and profitable. There has been a

number of other different customers' abuses such as sale of fruits with

overdosed chemicals, breast implants for women and etc.

        Though, the responsibilities to its customers is crucial point of

management, the way managers treat employees is another parameter of evaluation

of companies ethical well- being.  Unfortunately, the most concern of  managers

is theirs own job rather than theirs employees.

        Another problem is equal employment opportunities for everyone. Although

a lot was done to destroy the system that kept women and minorities away from

the top management positions, many corporations still rely on white men's

stereotypes and prejudice. Women are considered just as accessories for men and

are not treated equally.

        In fact, firms attitude toward employees often determines the way

employees feel about company. As a rule, corporate code of ethics contains the

pattern of behavior, an employer expect from employee.

        Another responsibilities of the companies' management is to stockholders.

This usually rises a so called "agent problem" (Dyckman, Intermediate

Accounting). Managers are in control of the property stockholders. However, the

interests of these two groups may not be the same. As manager is looking for

more power and prestige, they can tend to less profitable operations. Also

corporate officials may vote for high salaries and bonuses for themselves,

decreasing the dividends of stockholders by that.

        There is no particular solution for all of these issues. There is only

hope that ethical standards and social responsibilities would guide every

manager throughout his/her career. "Professional conduct should be governed by a

code of ethics that reflects positively on the practitioner and managerial

profession. Simply stated, nothing should prevent a manager from maintaining

high ethical standards and social responsibility in the quest for high

performance and quality."

401k Plans

There are many economic issues facing the nation today.  While some are extremely important in determining how the economy is balanced, others are not.  Although this is true, that does not necessarily make these lesser important issues obsolete.  Take, for example, the recent issue of corporate leaders matching contributors to the 401(k) plan with company stock, instead of with cash.  Though this is a relatively National issue, it still greatly affects a large number of people in foreign areas as well as you and me.  Because of this effect on such a large number of people, it is necessary that this issue be discussed, as will happen within the next few paragraphs.

      In the way that a 401(k) stock matching plan is set up; timing is everything.  In a basic 401(k) plan employees put forth a set amount of dollars (usually pre-determined personally by the employee) before taxes are withheld  This portion of  the employee's paycheck is put toward his or her retirement.  What some companies prefer to do in order to make the 401(k) plan more attractive for employees, is to match each employee's investment in the plan by a certain percent.   Here is where the problem comes in.  Though some companies match contributors either with cash or with a direct credit to the plan, other companies match with corporate stock.  According to Richard Sasanow, a former assistant of public communications  at Ernst and Young, "many experts consider this to be one of the riskiest investments for a 401 (k)-but may be worth it if you think your company has a great future." (Sasanow, 45)  A recent survey shows that 18 percent of all companies made their matching contributions this way.  Now for small, fast-growing businesses this would not seem as much of a risk since these companies' stock are generally on the increase.  But for some large corporations,  this is a great risk for employees since a lot of their retirement money is now based on how well the company does.
 

      Some say that because contribution matching is now based on how well the company does, then employees will strive to do a more efficient job in order to increase the overall stock price of the company, which, in turn, will increase the amount of retirement they will receive.  Now the problem of timing comes in again.  Mr. Jim Davenport,  a Staff Writer for The State Newspaper uses a good example:  "An imaginary worker for an oil company  was looking forward to retiring at the end of the week.  His 401(k) is fat and has been getting fatter thanks to company stock.  On Tuesday, an oil tanker has a major spill and the stock market trashes the company's stock.  By Friday, retirement may look a lot less attractive."  Because that employee had no role in the oil spill, it is safe to say that the idea of employees working harder to increase stock prices is unattainable because of outside forces that employees have no control over.  Now this employee is hurt even though stock prices have been generally rising over the past few years.

      Sasanow agrees:  "In the case of companies like PanAm, Eastern Airlines or Carter Hawley Hale, which all went bankrupt, employees with company stock got the double whammy because their pension funds went bust and so did their stock.

      Though it may seem that employees are virtually powerless against how their company might invest their money, this is not altogether true.  There are rules set forth from the Internal Revenue Service and the U.S. Department of Labor that control how employers  construct their 401(k) plans.  These rules require companies that run their own retirement plans to act in the best interest of the employee.  This seems like the employees have an advantage over the employers now.  But what the rules don't say is how specific the company must be when acting in the best interest of the workers.  There are obviously some specifics that must be compromised should a court case come about. 

      There are many important economic issues that face the lives of each American each day.  Some are large and some are small.  No matter what the size, it is important to take into account that these issues affect a large number of people, no matter what the situation.  The recent issue of corporate stock matches is one that has affected a lot of people both locally, nationally, and internationally.  Based on the information gathered, it is safe to say something needs to be decided on how to handle company matches on 401(k) plans.  The best decision would be to leave it up to the court to decide what is in the best interest of the people and have every company and employee abide by those precedents.  It seems that is the only fair way.

Bibliography

Sasanow, Richard.  The 401 (k) Book.  New York:  Henry Holt and   Company, 1996.

Davenport, Jim.  The State.  May, 1995