Chapter 3 - Processing Data through the Accounting System

http://www.nationalpost.com/Morgan+needs+stars+align/4141820/story.html

Summary:

Morgan Stanley boss, James Gorman was only trying to fulfill Wall Street bank’s attempt at perfection. But might’ve not necessarily done it in such an ethical way because they’re trying to improve their credit profile but wiped US$945-million from revenue. Even though an accounting rule reinforced firms to mark to market any changes in the prices of their own liabilities and it shouldn’t change or affect any earnings account. From there on, the firm displays glitches in investment bank’s payout ratio droppings to look more in line with Goldman Sachs, and playing catch-up on rates and foreign exchange from an offset in all their revenue leaving the business with a US$29-million loss. This all seems too unfortunate for the matter, but Morgan Stanley still acknowledges Gorman’s work as the firm had a good 12 months and are now recovering and receiving profits with a steady progress towards 20% pre-tax margin.

Connection:

From this article and the textbook, the connection that is made is through the article’s accounting rule and the earnings account. The accounting rule stated in the article that firms are being forced to do: “to mark to market any changes in the price of their own liabilities” as a “handy way to assess differences in a firm’s quarterly credit profile for those too lazy to check out bond and credit default swap charts”. But to be able to do proper accounting practices, there shouldn’t be any “lazy or short-cut” ways to record transactions. The only way is to actually record them, because the whole point is to determine how transactions should be recorded and how the presentation of items are to be easily understood to the people who reads them. It also ensures any problems that later comes up, to help back themselves up.

Reflection:

I think that James Gorman could’ve handled their financial issues differently because with the losses that have came up under his management and decisions have also impacted the way other firms or people look upon the Morgan Stanley firm. Sure the firm is now recovering from their mistakes and downfalls but now they have provided a negative image of themselves that other people might view them differently from what they were known to be before. The doubt that Morgan Stanley created to their followers is now greater than before all their financial crisis’s were happening. It really brought out the firm’s immoral choices to a different understanding to the public and other firms. All there is to say is, at least they’re going through a rebuilding plan to regain their name.