Free Essay

Economic Failure

In: Business and Management

Submitted By joetoste
Words 3002
Pages 13
Insight on WorldCom Scandal

Table of Contents

ABSTRACT 2 The importance of accounting conceptual framework 3 Historical Background 5 The Scandal – what happened 6 PENALTIES 7 How the scandal relates to accounting theory 8 RELATION TO POSITIVE ACCOUNTING THEORY 9 Conservatism Principle 9 Lack of Reliability 10 Lack of Relevance 11 Financial Misstatement 11 Conclusion 12 Bibliography 14

Insight on WorldCom Scandal
ABSTRACT
The scope of this paper deals with the WorldCom accounting scandal of the early 2000’s as it relates to elements of accounting theory. The discussion will cover the key reasons that contributed to the collapse of WorldCom. Specifically, this paper will look at: Executive compensation, Earnings Management, and Information Asymmetry. The authors will present arguments that clearly show how each of these three sub-topics played a pivotal role in the scandal. The reader will also see how these reasons are often inter-related, and often overlap each other, the enormity of which caused the company to fall like a stack of dominoes. In particular, information asymmetry was allowed to flourish as the WorldCom executives lavished themselves with huge compensation, all the while keeping the board of directors and investors out of the loop. A poor corporate government structure existed as the board was filled with inept and ineffective individuals who were powerless to stop the pilfering of profits. The end result of these actions can be seen in how the former employees of WorldCom have been victimized the hardest, in terms of their pensions being gutted, as a result of corporate greed.
Agency theory will be used to explain how this failure occurred in terms of information asymmetry, specifically moral hazard, and adverse selection in the relationships between the principal (WorldCom Controller and C.F.O) and agents namely, investors and WorldCom employees.
In conclusion, a summary of the various arguments as well as outlining several important lessons that can be learned, so as to avoid future scandals like WorldCom from reoccurring.
The importance of accounting conceptual framework Before we head into the details of the WorldCom scandal, we should understand the role of accounting conceptual framework in preventing such scandals from reoccurring again. An accounting conceptual framework can be defined as: “a coherent system of inter-related objectives and fundamentals that should lead to consistent standards that prescribe the nature, function and limits of financial accounting and financial statements”(Scott,2012) The main reasons for developing an agreed conceptual framework are that it provides: * A framework for setting accounting standards; * A basis for resolving accounting disputes; * Fundamental principles which then do not have to be repeated in accounting standards.
This conceptual framework is a recent concept. Before setting up the conceptual framework, many accounting standard setters have historically operated without having a conceptual framework. As a result, accounting standards often are disorganized in nature and mainly a response to the issues or scandals. In early 2000, some companies such as, Nortel Networks, Hollinger international in Canada, Enron and WorldCom in the U.S., and Parmalat in Italy faced corporate reporting scandals. Many schemes were uncovered that falsely increased earnings or hide a company's true financial position. Therefore, there were financial lawsuits, fines, and criminal convictions. Investors started to lose confidence in financial reporting and lose their investment. To restore the investor confidence in US public markets, the Sarbanes-Oxley Act was passed by the US congress and sign into law by the president on July 30, 2002.A number of change happened in the financial reporting system to help investors regain confidence in corporate reporting. Investors and creditors rely on the financial statements to make decisions. The lack of an agreed conceptual framework also increases the risk that standards are inconsistent with each other and that there is no overall objective for the preparation of financial statements. The framework can assist users in interpreting information contained within financial statements as it provides an understanding of the principles on which they are prepared. The Framework specifies the qualities that make financial information useful such as, understandability, relevance, reliability and comparability. It also defines the basic elements of financial statements such as, assets, liabilities, equity, income, expenses etc. and discusses the criteria for recognizing and measuring them. According to Amernic& Leon (1984) “judgments based on an objective, internally consistent and generally accepted conceptual framework would provide more useful information to financial statement users than judgment based on subjective factors, which are more difficult to interpret and apply”. Without a conceptual framework, professional accounting judgments are based on personal experiences and biases. Conceptual framework should enhance comparability among companies' financial statements, to solve practical problems and to increase understanding and confidence in International financial reporting systems.

Historical Background Now that we have a good understanding of conceptual framework and its role in setting accounting standard in an attempt to minimize accounting scandals, let us look into the scandals of WorldCom, which pushed for an even stronger conceptual framework.
WorldCom began as a Long Distance Discount Services Inc. (LDDS) during 1983, based in Hattiesburg, Mississippi. In 1985 LDDS appointed Bernard Ebbers (born 1941) to be its CEO. The company became traded publicly as a corporation during 1989 as a result of a merger with Advantage Companies Inc. The company name was changed to LDDS WorldCom during 1995. The company grew rapidly during the 1990s. Among the companies that were bought or merged with WorldCom were Advanced Communications Corp. (1992), Metromedia Communication Corp. (1993), Resurgens Communications Group(1993), IDB Communications Group, Inc (1994), Williams Technology Group, Inc. (1995), and MFS Communications Company (1996), and MCI during 1998
On November 4, 1997, WorldCom and MCI Communications announced their US$37 billion merger to form MCI WorldCom, making it the largest corporate merger of US history.
WorldCom marketed itself as a high-growth company, and revenue growth was clearly a critical component of WorldCom’s early success. In the 1990’s, WorldCom was often cited as a top “growth stock.” Analysts marveled at WorldCom‘s ability to “outgrow an industry that was outgrowing the overall economy,” and Ebbers repeatedly trumpeted the Company‘s impressive record on revenue growth during his quarterly conference calls with analysts. As Ebbers stated in 1998, “[WorldCom’s] industry leading and accelerating revenue growth, combined with a demonstrated track record of margin expansion, are cause for optimism as we continue our relentless pursuit of increasing shareholder value.” This growth was both critical to WorldCom‘s stock market valuation, and to its ability to use its stock as currency for compensation and expansion.
WorldCom traded on NASDAQ under the symbol WCOM before the collapse. At the peak of its performance the stock price traded over $65 per share making it one of the largest companies in terms of market capitalization.
The Scandal – what happened The key players who were involved in the WorldCom scandal were Ebbers the (CEO), Sullivan the (CFO) and Myers the (Contoller). The WorldCom fraud was accomplished in two main ways. First, the accounting department under reported line costs (i.e. interconnection expenses with other telecommunication companies) by capitalizing these costs on the balance sheet rather than properly expensing them. Second, the company inflated revenues with bogus accounting entries from 'corporate unallocated revenue accounts'.
The first discovery of possible illegal activity was by WorldCom's own internal audit department who uncovered approximately $3.8 billion of the fraud in June 2002. The company's audit committee and board of directors were notified of the fraud and acted swiftly: Sullivan was fired, Myers resigned, and the Securities and Exchange Commission (SEC) launched an investigation. By the end of 2003, it was estimated that the company's total assets had been inflated by around $11 billion.
On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection, the largest such filing in United States history. The company emerged from Chapter 11 bankruptcy in 2004 with about $5.7 billion in debt. At last count, WorldCom has yet to pay its creditors, many of whom have waited years for the money owed.
PENALTIES
On March 15, 2005 Bernard Ebbers was found guilty of all charges and convicted on fraud, conspiracy and filing false documents with regulators. He was sentenced to 25 years in prison. Other former WorldCom officials charged with criminal penalties in relation to the company's financial misstatements include former CFO Scott Sullivan (entered a guilty plea on March 2, 2004 to one count each of securities fraud, conspiracy to commit securities fraud, and filing false statements), former controller David Myers (pleaded guilty to securities fraud, conspiracy to commit securities fraud, and filing false statements on September 27, 2002), former accounting director Buford Yates (pleaded guilty to conspiracy and fraud charges on October 7, 2002), and former accounting managers Betty Vinson and Troy Normand (both pleading guilty to conspiracy and securities fraud on October 10, 2002) (MCI, 2006). Ebbers reported to prison on September 26, 2006 to begin serving his sentence.
In summary, WorldCom’s collapse reflected not only a financial fraud but also a significant failure of corporate governance. The Board of Directors played far too small role in the life, direction and culture of the Company. The Audit Committee did not engage to the extent necessary to understand and address the financial issues presented by this large and extremely complex business. Its members were not in a position to exercise critical judgment on accounting and reporting issues, or on the non-traditional audit strategy of their outside auditor. The Compensation Committee dispensed extraordinarily generous rewards without adequate attention to the incentives they created, and presided over enormous loans to Ebbers that were unethical to shareholder interests and unjustifiable.
How the scandal relates to accounting theory An accounting scandal arises with the disclosure of financial misdeeds by trusted executives of corporations. Such misdeeds typically involve complex methods for overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities. The WorldCom scandal reignited the debate over the relative merits of US GAAP, which takes a "rules-based" approach to accounting, versus International Accounting Standards, which takes a "principles-based" approach. The Financial Accounting Standards Board (FASB) announced that it intends to introduce more principles-based standards. The WorldCom scandal case provides sufficient detail to allow for a full discussion of the pressures that lead executives and managers to "cook the books," There was a failure in the company`s internal control systemsand the role played by the auditors. There was weak governance processes performed by external auditors and the board of directors. There was pressure from the higher management to the middle managers who just followed orders that they knew were wrong and unethical.

RELATION TO POSITIVE ACCOUNTING THEORY The effect of corporate performance on disclosure level could be positive, negative, or constant (Lang and Landholm, 1993). The positive relationship is based on assumption that the company will disclose more when it has good or extraordinary performance. This relationship is supported with adverse selection theory which predicts that with certain disclosure cost, high-performed companies will give disclosure while companies below the expectation will not disclose. But WorldCom disclosed voluntarily by the firms in order to expand revenue. It supported negative correlation between performance and disclosure level. Disclosure was also hypothesized that it could reduce expenses cost through the reduction of information gathering cost by investors. This cost reduction could enhance the amount of investors willing to invest on the company.
Conservatism Principle WorldCom ignored the principle of Conservatism which states that, if a situation arises where there are two acceptable alternatives for reporting an item, conservatism directs the accountant to choose the alternative that will result in less net income and/or less asset amount. WorldCom management chose to ignore the credit department’s list of customers who had not paid their bills and were unlikely to do so. The receivables were not written off as uncollectible. In this area, managerial assumptions played two important roles in receivables accounting. They contributed to the amount of funds reserved to cover the bad debts. The lower the assumption of non-collectable bills, the smaller the reserve fund required. The result is higher earnings reflected on the financial statements.
Lack of Reliability Analysts and observers within the Telecom industry typically focus on the line cost expenditure-to-revenue (E / R) ratio as a critical performance indicator. WorldCom management touted a lower E / R ratio (42 percent) than their competitors and consistently struggled to maintain that level during the fraud years (Kaplan and Kiron 2004). To meet analysts’ expectations, management manipulated financial information to increase the appearance of revenue growth, cost reduction, and overall profit. The end result was the largest corporate fraud in U.S. history at $11 billion. WorldCom management utilized various techniques to mask their financial condition, but four in particular drove the major material misstatements: 1. Categorizing operating expenses as capital expenditures 2. Reclassifying the value of acquired MCI assets as goodwill 3. Including future expenses in write-downs of acquired assets 4. Manipulating bad debt reserve calculations.
The cumulative impact of the four techniques resulted in enhanced perceptions of financial position and viability by reducing the key E / R ratio and boosting overall net income from operations. WorldCom began classifying operating expenses as long-term capital investments in 2000. Generally accepted accounting principles (GAAP) dictate that operating expenses must be immediately recognized in the period incurred, unlike capital expenditures, which may be capitalized as assets and depreciated over their useful life. Deferment of these costs artificially inflated reported net income and misled financial statement users. The payments to lease phone network lines from other companies (i.e., allowing access to their networks) are commonly referred to as ‘‘line costs’’ and represent the numerator in the E / R ratio. The fraudulent capital expenditures resulted from manual reclassification of existing operating expense account balances and inappropriate recording of future line-cost transactions.
Lack of Relevance Accounting has been perceived as a medium to provide useful information for economic decision making. However, a number of accounting and business scandals occurred around the world have attracted criticism on accounting. WorldCom was reported scandals and bankruptcy in the world. This case implies that WorldCom had failed to supply accurate information to their investors, and to provide appropriate disclosures of any transactions that would impact their financial position and operating results. The accounting scandal had induced a crisis of confidence in financial reporting practice and effectiveness of corporate governance mechanisms (Bartley 2002; Browning 2002; O’Connell, et al. 2005). In addition, the relevance of accounting regulations in WorldCom accounting scandals had been almost destroyed.
Financial Misstatement WorldCom used a liberal interpretation of accounting rules when preparing financial statements. In an effort to make it appear that profits were increasing, WorldCom would write down one quarter millions of dollars in assets it acquired while, at the same time, it "included in this charge against earnings the cost of company expenses expected in the future. The result was bigger losses in the current quarter but smaller ones in future quarters, so that its profit picture would seem to be improving. WorldCom reduced the book value of some assets by several billion dollars; the company increased the value of "good will," that is, intangible assets-a brand name. This enabled WorldCom each year to charge a smaller amount against earnings by spreading these large expenses over decades rather than years. The net result was WorldCom's ability to cut annual expenses, and boost profits from the acquisition. WorldCom managers believed that users could be fooled by managing earnings.Nevertheless, the financial misstatement led to bankruptcy announcement, 17,000 workers got the push, and the company’s shares dropped from over $60 to less than a dollar.
Conclusion

The world has seen many financial scandals due to misstatement in the financial statements. WorldCom fraud was one of the biggest accounting scandals in the US history. There were many parties involved in WorldCom fraud, such as company management, board of directors, internal audit committee, and external auditor, ArtherAndedrsen, all were liable for this fraud. The WorldCom company management did not follow all GAAP procedures in recognizing revenue and classification of expenses. There were many problems existed in WorldCom operation such as lack of a competitive strategy, weak internal audit committee performance, an aggressive culture that demanded high returns, and the failure to look out for what was best for the stock holder as well as the stakeholders of the company. Also, the competitive culture at WorldCom was followed by loyalty to management with no regards to ethics, honesty, or integrity. The Board of Directors served as an internal control that was a failure on its own part. The Board started to look out for bias rather than fulfill its duty to protect the stake holders. In addition, the collapse of the Internet and Telecomm bubbles led to a continuous decline in the company’s stock price. As a consequence, the company declared bankruptcy and shareholder lost their investment and confidence to invest in the capital market and they could not trust and rely on auditor’s opinion in the financial statements. This scandal is another example that proves that even with the availability of accounting standards and a well-defined accounting conceptual framework, there is high reliance on the moral and ethical behavior of management of the company as well as the audit firm to provide true financial reporting of the company’s performance that can be relied on by the users to make important financial decisions.

Bibliography

Dennis R. Beresford, N. d. K. C. R. J., 2003. REPORT OF INVESTIGATION. [Online]
Available at: http://www.sec.gov/Archives/edgar/data/723527/000093176303001862/dex991.htm
[Accessed 28 07 2013].
News, B., 2005. Worldcom's ex-boss gets 25 years. [Online]
Available at: http://news.bbc.co.uk/1/hi/business/4680221.stm
[Accessed 28 07 2013].
Stefano, T. F. d., 2005. WorldCom's Failure: Why Did It Happen?. [Online]
Available at: http://www.ecommercetimes.com/story/45542.html
[Accessed 28 07 2013].
William R. Scott. (2012) Financial Accounting Theory. 6th ed. United States of America: Pearson Prentice Hall.…...

Similar Documents

Premium Essay

Market Failure

...Invisible hand, Market failure and Government intervention Invisible Hand Invisible Hand, term used in the book “The Wealth of Nations”, by classical economist Adam Smith, to characterize the idea that a guiding force leads individuals seeking their own economic self-interest to act in ways that also benefit society. A vindication of Adam Smith's intuition about the existence of an "invisible hand" bringing consistency and order to the chaos of individual actions - would be remarkable in them. Much of economic theory of the textbook variety is a celebration of the free market system. This celebration has two parts. First, the operation of the price system, in the context of competitive markets, leads to balance between the demand and supply of the different goods and services traded. In other words, flexible prices result in competitive markets clearing. Second, the market-clearing equilibrium - brought about through flexible prices and competitive markets - is a "good thing" in the sense that it is also a point of economic efficiency. In other words competitive outcomes are also efficient ones. The fact that competition leads to efficiency is known as the First Fundamental Theorem of Welfare Economics. The efficient outcome will have been brought about through parsimony in the use of information; the only things that individuals, in making their supply/demand decisions, need to know are the prices of the different commodities. Furthermore, since the efficient outcome...

Words: 1526 - Pages: 7

Free Essay

Entrepreneurship Failure

...Entrepreneurship Failure Background of Petite Palate Company Business enterprises are established to exploit existing and emerging market opportunities. Competition in these markets is expected to stiffen as more entrants come in, raising the number of competing enterprises in the market. Creativity and innovativeness of an entrepreneur pushes the business to the next level. These are the scenarios that Petite Palate Company had to deal in the with U.S baby food industry when it established its operations in the year 2006. The company was set up in Long Island City, New York. Petite Palate specialized in producing baby food, and targeted Northeast and Midwest markets of the United States. At the time the company started its operations, the market had become significantly competitive due to the number of players that had already established operations in prior years. On the same note, the enterprise was essentially a gourmet baby food company that only pursued this line of production, unlike other players who had mixed lines of production for diversity purposes (Lawrence, Lyons & Wallington, 2012). The dedication by the enterprise to gourmet baby food constrained its operational strategies in terms of diversity. The baby food industry and the markets in this industry were experiencing an ever growing trend in terms of operational business enterprises and baby food and baby formula varieties before and during the time Petite Palate started its operations. As a......

Words: 1466 - Pages: 6

Premium Essay

Erp Failures

...Case Study ERP Implementation Failures ERP systems are an integrated software solution that is typically offered through a vendor as packaged software that supports the organization’s supply chain and other business functions, such as, receiving, inventory management, customer order management, production, planning, shipping, accounting, and human resource management. The use of ERP is very widespread across a multitude of industries. As a matter of fact, a report by Computer Economics Inc. states that, “76% of manufacturers, 35% of insurance and health care companies, and 24% of Federal Government agencies already have an ERP system or are in the process of installing one.” Over 60% of Fortune 1000 companies have implemented ERP systems (Hawkins & Stein, 2004). It is not just large firms that are implementing ERP systems, small and medium size companies are making use of ERP systems as well (O’Leary, 2004). ERP systems have expanded across the globe and many of world’s leading companies consider Enterprise Resource Planning (ERP) systems an essential information systems infrastructure to survive and prosper in today’s economy. There are many advantages to ERP systems. Companies that have successfully implemented ERP systems report improvement in management decision making, improvement in efficiency, improvement in information exchange, improvement in performance and productivity levels and improvement in customer service and customer satisfaction, just to name a few.......

Words: 1570 - Pages: 7

Premium Essay

Failure

...Failure As Confucius once said “Success depends upon previous preparation, and without such preparation there is sure to be failure.” Some of history’s most influential people knew exactly what it was like to fail numerous times before they became successful. Walt Disney, one of the most creative and imaginative people was fired by a newspaper company because he was said to have “lacked imagination and had no good ideas.” Abraham Lincoln one of the most influential leaders of the United States, had multiple failed business attempts, and while in the armed forces went to war as a captain and was degraded to a private when he returned.(Michalko, 6,8) Success takes hard work, dedication, long hours, pain, and a lot of disappointment. If some of the most influential people in American history have failed then why are others so afraid of it? When I asked a group of people about what they feared most when they tried something new most of them replied “failing.” When asked why, they didn’t really know. They just didn’t like the idea of not being successful. Successful people like to achieve high standards; they become so afraid of failure that it turns into a handicap. We let the fear hold us back from our true potential. This fear causes some people to not try something altogether because they are so afraid of the feeling associated with not accomplishing something. Today, we live in a society where failing or messing up is viewed as unacceptable, people want to do something...

Words: 1349 - Pages: 6

Premium Essay

Market Failure

...Jordan Alexander February 14, 2012 Economics Essay – Market Failure 1. Markets fail when they under or over allocate resources of production or consumption, relative to the best interests of society. Market failure occurs due to four main factors: the existence of externalities, asymmetric information, the abuse of monopoly power, and inequalities and wealth and development. The existence of externalities means that the market mechanism does not always work efficiently. Markets run on a mechanism that only takes into account the private benefit and cost for a good. Besides the marginal private cost and marginal private benefit, there are the marginal social cost and marginal social benefit, which are external. As a result, governments must find responses to try to solve these market failures. 2. Externalities are the effects of market activities on other people that are external to the market. They are either positive externalities or negative externalities. When the social benefit of a good equates the social cost, it is known as the social optimum. Goods that have large positive externalities can either be public goods or merit goods. Public goods are non-rivalrous and non-excludable, while private goods, such as a merit good, are rivalrous and excludable. When a good has large positive externalities, the government should support its production. When a good has large negative externalities (demerit good), the government should limit or stop its production......

Words: 1706 - Pages: 7

Free Essay

Failures

...A distributed system is a collection of computers connected to a network of distributed middleware (software connecting client and database: software that manages the connection between a client and a database) . This allows the computers to communicate to each other and also share resources. While allowing the user to use the computer as he or she would use a single integrated computing facility. Examples of failures in a distributed system include, stop failure, Halt failure, Network Failure, and Distributed File System Namespace access failures. Distributed File System Namespace access failures in Windows On Windows Vista and later one of the following error messages may occur: Windows cannot access \\\ The connection may fail due to any of the following reasons: Failure to connect to a domain controller to obtain a DFSN namespace referral, Failure to connect to a DFSN server, Failure of the DFSN server to provide a folder referral. This error typically occurs because the DFSN client cannot complete the connection to a DFSN path. To resolve the issue , evaluate network connectivity, name resolution, and DFSN service configuration (How to troubleshoot Distributed File System Namespace , 2010). Evaluate Connectivity "connectivity" refers to the client's ability to contact a domain controller or a DFSN server. If a client cannot complete a network connection to a domain controller or to a DFSN server, the DFSN request fails. Use the following tests to......

Words: 795 - Pages: 4

Free Essay

Market Failure

...Market Failure An Economic Analysis of its Causes and Consequences Vani K. Borooah * Professor of Applied Economics University of Ulster February 2003 * School of Economics and Politics, University of Ulster, Newtownabbey BT37 0QB, Northern Ireland (VK.Borooah@ulst.ac.uk). I am grateful to the Department of Finance and Personnel (Northern Ireland) for supporting this work though, needless to add, I alone am responsible for the contents of this paper and, indeed, for any of its deficiencies. 1. Introduction Much of economic theory of the textbook variety is a celebration of the free market system. This celebration has two parts. First, the operation of the price system, in the context of competitive markets, leads to balance between the demand and supply of the different goods and services traded. In other words, flexible prices result in competitive markets clearing. Second, the market- clearing equilibrium - brought about through flexible prices and competitive markets - is a "good thing" in the sense that it is also a point of economic efficiency1. In other words competitive outcomes are also efficient ones. The fact that competition leads to efficiency is known as the First Fundamental Theorem of Welfare Economics2. These results - which are, of course, a vindication of Adam Smith's intuition about the existence of an "invisible hand" bringing consistency and order to the chaos of individual actions - would be remarkable in themselves. But there is more. The......

Words: 14595 - Pages: 59

Free Essay

Failure

...The ABC’s of Failure – Getting Rid of the Noise in Your System For the past 40 years, I have observed many companies, including DuPont (where I spent 27 years) pursuing planned maintenance with the standard tools of planned maintenance: inspections, planning, scheduling, materials procurement, CMMS systems, etc. with the same results. They succeed for a while and get their percent planned and scheduled maintenance up to the 80+ only to see that drop back later to 60 I am amazed how many of the companies we work with have had this experience. This pattern of behavior has led us to conclude that the reason for this experience is that only 60% of the normal work of maintenance is inherently plannable. The rest of the work is created by random acts of what we are now calling care-lessness. The sites where we see people break this pattern and achieve 92% to 96% planned maintenance for the long term without regressing, are the ones who eliminate the inherently unplannable work. Of course, this cannot be done by maintenance alone. Everyone who does work at a site contributes to the defects that create the unplannable work, and therefore everyone must participate in eliminating the defects that create the 40% of the work that is unplannable. In the diagram below we attempt to more clearly articulate the true significance of Defect Elimination by outlining the ABC’s of failure. Fundamentally, failures happen because things that exist are not perfect. To reduce failures we must......

Words: 6229 - Pages: 25

Premium Essay

Failures

...During the design and implementation of a reliable distributed system is a very important. The failure of this system can result in easily repairable errors, such as hardware, software, or catastrophic meltdowns where hardware overloads, hardware crashes that were not protected. Faults can occur in any of the components of a distributed system. There are four types of failures more commonly known as compute cluster which allows applications to run on more than one computer (node). Data centric systems that involve high volumes of access are more difficult to make fault tolerant. They require failure monitoring software and a special configuration. These types of systems are high availability clusters that allow two or more computers and a set of shared disks. Any application can be installed on the shared disk which allows all other computers access, with certain restrictions designated for each user or pc. The running application's node has exclusive access to the application's data on disk. Specific applications may run very well from this type of system. The application may fail on the shared disk and the nodes exclusive access is terminated and is granted to another node in the cluster. The application is restarted on a new node, which the user will notice a slight interrupt and lose of some data. Design issues are very important in utilizing the multiplicity of processors and storage devices transparent to users. In a conventional, centralized system the user interface...

Words: 279 - Pages: 2

Free Essay

It Failure

...Jennifer Ventura ACCT. 4100.001 February 26, 2015 IT Failure- Target Breach IT failures have become more and more prevalent these past few years, or at least now that they’re publicized more often since they are now associated with our personal information. Before we heard about breaches and hacking, we would think of IT failures in a different sense such as a stores system not working properly or even their website not responding. We are often reminded that we are lazy creatures and with that we tend to think about how to make are lives simpler not safer. When we stand in line at the store we never stop to think about how secure our purchases are while using our debit/credit cards. Well that’s not the case now, in late November of 2013 that all changed for us. Target experienced one of the largest retail breach back in 2013 when it was discovered that there was malware found in their systems from a third party affiliate (Riley, Elgin, Lawrence, and Matlack, 2014). The breach occurred between the days of November 27th and December 15th (“Data Breach FAQ,” 2015). Meaning this massive breach went on for a total of 19 days, which leads to the question: How could Target allow this to go on for over two weeks without noticing? This was a very well thought out attack because it was one of the busiest seasons of the year, catching Target off-guard. Despite the fact that, it was such a busy time, it does not excuse the fact that Target made a tremendous error. Prior to this...

Words: 827 - Pages: 4

Premium Essay

Market Failure - Economics

...Q1. Market failure occurs when resources are not allocated in the most efficient way to achieve highest possible social welfare. In a free market society certain goods and services would not be provided by the private sector as they would not be profitable enough for the companies producing them. As a result, society as a whole would suffer. The government steps in to provide the goods and services required by society that private firms will not provide. These public goods include street lighting, emergency services and public spaces eg parks. These services are paid for by the government which collects the funds through taxation. Merit goods are also funded or subsidised by the government. These are goods or services which people would generally not choose to pay for or think to save for which the government thinks are important ie education, libraries, NHS medical treatment. In the UK every child has the right to an education but many households would not be in a position to pay for it. Likewise, before all prescriptions were free in Scotland, there were still some who qualified for free prescription which were funded by the government ie low income households including those in receipt of certain benefits, elderly people of pension age, and children under the age of 16 or 16 and 17 year olds who were still in education. The presence of externalities can contribute to market failure where the actions of a firm leads to a greater social cost ie the presence of lead in......

Words: 1051 - Pages: 5

Premium Essay

It Failure

...are a few major features that were supposed to be a big hit with this phone and the pre-installed software. One of them is having the ability to see live post from the news feed of your Facebook wall popping up every time you turn on your phone. Another is being able to use Facebook messenger while also exploring other applications within the phone. Critics believe that these features are some of the very reasons that the phone wasn’t successful, and maybe they were right. Why would you want to be bombarded by one application 24/7 when you can simply turn on your phone and access that application in seconds just like the other millions of applications that Android users have access too? From the research done, I believe the phone was a failure before it even hit the market. There was no excitement after Mark Zuckerberg, founder of Facebook, unveiled Facebook Home to the public on April 4, 2013. “The event, in fact, seemed like a non-event.  The stock ended the day slightly up, no one raved, yet no one trashed Zuckerberg or his company.” (Satell, 2013) If Facebook Home was not a big hit then how could a basic HTC device that is preloaded with Facebook Home be a big hit? Especially when the same day the phone was released you could download the Facebook Home application on other, more high-tech Android devices such as HTC One, Samsung Galaxy S4, and Note II. On the release date of the HTC First, AT&T had the phone set at a price of $99 if the customer signed a two-year......

Words: 828 - Pages: 4

Premium Essay

Market Failures

...Market Failures by Erik F. Meinhardt This section sets out to define and describe market failures, how government intervention prevents them or minimizes their effects, and the arguments against government intervention. I. Definitions and descriptions Market failure occurs when free markets do not bring about economic efficiency, that is to say when a Pareto sub-optimal allocation of resources exists in a particular economy. Market failures remain one of the best reasons for government intervention within an economy on moral and economic grounds, arguably, in the best interest of the public. The following are detailed descriptions of several market failures in no particular order: A. Public goods—Public goods are goods wherein the consumption of them does not necessarily prevent another person from also consuming it, nor does that consumption make less of the good available for consumption by others. Scholars commonly present breathable air as an example of a public good for virtually everyone has access to consume it and its consumption does not limit the amount available. Public goods pose a problem for the market because by their nature it cannot provide for them. The private sector will not make a profit from a good which everyone can enjoy whether or not they pay for it. The lighthouse example comes to mind: no matter who pays for the construction of a lighthouse on a particular island, every passing ship will benefit from the protection it provides and...

Words: 1536 - Pages: 7

Free Essay

How Far Do You Agree That Mussolini’s Economic Policy in the Years 1922-39 Was a Complete Failure?

...do you agree that Mussolini’s economic policy in the years 1922-39 was a complete failure? Having come to power in 1922, an immediate concern for Benito Mussolini was the current state of the Italian economy, specifically its obvious inability to support military expansion and move into a state of total war, with the aim of creating and developing an Italian Empire, which was Mussolini’s chief aspiration. Furthermore, the weak economy maintained and strengthened the north-south divide, due to its negative effects being focused on the poorer south, while some northern industrialists benefited from the increased focus on production. Therefore, in order to counter the depression and prepare the Italian economy for conflict, Mussolini employed several policies, in order to stimulate the financial system and cut public spending, specifically increasing production and revitalising the Lira. As well as revaluating the inflated currency, these policies included boosting food production and converting to self-sufficiency, or autarky, all the while promoting nationalism and strengthening commitment to the regime. Whether these were a success is debatable, while Italy did convert to total war in 1939, the consequences were far reaching and crippling. Therefore a deep, detailed analysis, of Mussolini’s policies, their aims and effects, is necessary in order to gauge to what degree, if any, his economic policies failed. An example of Mussolini’s economic policy would be the sharp......

Words: 1676 - Pages: 7

Free Essay

Economics - Market Failure

...Environmental Market Failure Negative Externalities Costs imposed on a 3rd party not involved with the consumption or production of the good (the external cost)  Divergence between private and social cost  MSC=MPC+MEC  The MEC = the negative externality  The free market price is less than the optimum price leading to over consumption  Welfare loss Q: The market generated quantity (where privates crosses private) Q1: The optimum quantity (where social crosses social) Over consumption of Q-Q1 Unequal Distribution Effects  Citizens in poor countries are more likely to be affected by the consequences of global warming that those in rich countries  E.g. drought/flooding  They are also a lot less likely to have consumed the goods and services which caused the global warming  And a loss less able to protect them selves e.g. through insurance policies  There are inequities between those who contribute to global warming and those who suffer from it  Citizens of developed (polluting) countries pay less for their goods and services than the social costs of their production  MSC=MPC+MEC Government Intervention to correct Environmental Market Failure 2 main types:  Market based measures Designed to modify the price mechanism using strategies such as taxes and subsidies  Government regulation Sometimes referred to as “Command and Control”, designed to create incentives for firms to reduce......

Words: 1530 - Pages: 7