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Benefits and detractors of credit risk


The objective of this research is to examine the control of credit risk threat in financial institutions. Credit risk control in financial institutions starts with the organization of sound lending principles and an efficient structure for handling threats (Jorion, 1997). Guidelines, industry-specific requirements and recommendations, together with risk focus boundaries are designed under the guidance of risk control committees and departments (Bluhm, Overbeck & Wagner, 2016).

Credit risk, also known as counterparty threat is the possibility of loss due to a debtor’s non-repayment of a loan or other history of credits (either the principal or interest (coupon) or even both). Also, credit risk threat is most simply defined as the potential that a financial loan client or counterparty won’t succeed to meet their responsibilities with respect to agreed terms.

In most financial institutions, financial loans are the biggest and most obvious source of credit rating threat. However, other sources of credit risk exist throughout other sections and products of a bank. They consist of actions in the financial and trading books, and those both on and off the balance sheet. Banks are progressively experiencing credit risk threat or counterparty threat in various financial instruments they offer other than financial loans. These consist of bankers’ acceptances, interbank dealings, trade financing, forex trading dealings, economical futures trading, trades, ties, stocks, options and the agreement of transactions.

Credit risk research (finance risk research, loan default rate analysis) and credit risk control are important to banks which provide economical loans to businesses and individuals. Credit risk can occur for various reasons: bank mortgages (or home loans), automobile purchase economical situation, credit card buys, installment purchases, and so on. Credit loans and trading facilities are situations that have the danger of leading to losses due to defaults. To know the danger level of credit users, credit providers normally collect large amount of information on debtors. Mathematical techniques can be used to analyze or determine threat stages involved in credits, economic situations, and economical loans, thus standard threat stages. While banks have faced prolems over the years for a multitude of factors, the major cause of serious banking problems continues to be proportional to lax credit standards for debtors and counterparties, poor portfolio threat control, lack of attention to changes in economic factors (interest prices, inflation prices, etc.)

In modern times, the flow of credit in global marketplaces has slowed from a glacial pace to a virtual standstill and credit marketplaces threaten to stay that way despite immense amounts of cash being pumped into various economies by their government authorities and central banks around the world. Credit risk is a problem faced by economical institutions all over the entire world and the question mostly asked is “what will it take for financial institutions to regain enough confidence in the economic climate to get credit score marketplaces moving again?”


Both policymakers and writers have placed significant fault for the Panic of 2008 – the international economic trouble that achieved full strength in that year – on over-the-counter (“OTC”) derivatives (Gerding, 2009). In turn, legal and policy reactions to the problems, such as the Dodd-Frank Act, have presented many new limitations on these particular economical equipments. Among other things, the Dodd-Frank Act prevents future government relief of certain organizations that trade in derivatives, requires the main cleaning of many derivatives, and allows government authorities to set new security specifications for types that are excused from those main cleaning specifications (Gerding, 2009).

Yet, a research of both the role of types in the economic problems and the new rules regulating derivatives, must avoid artwork with too wide concepts. Several misunderstandings endanger to mix up both the most serious threats resulting from derivatives and the regulating reaction. A certain varieties of derivatives – especially credit score types – cause particular concerns because of their ability to increase make use of throughout the economic system. Credit derivatives  are a form of mixture, whose value is based on the money risk of another firm or economical instrument (Omarova, 2009) . However, the full economic consequences of the higher make use of from credit score types are often themselves not fully fleshed out. Many commentators have focused on how improved make use of, whether arising from credit score types or otherwise, magnifies the frailty of banking organizations. To be sure, excessively utilized banking organizations represent an important concern.

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Moreover, by linking one standard bank to another, credit score derivatives can increase counterparty threat, or the threat of one party to economical transaction defaulting on its obligations. The web created by banking organizations entering into complex credit score derivatives with one another in series raises the specter of utilized organizations falling like dominoes (Huang & Huang, 2012). The potential incidents of failing banks and other economical firms represents one form of system threat. It was this scenario that apparently animated the extraordinary federal bailout of the insurance giant AIG, which had underwritten hundreds of billions of dollars in credit score derivatives that proved assures to other large banking organizations. The emerging failure of the firm left a myriad of other banking organizations with enormous exposure (Posner, 2009).

Yet this potential domino effect of counterparty risk is but one side of the coin of the consequences of credit score derivatives and their ability to lead to leverage. What the above research, however briefly summarized, fails to capture are the macroeconomic results of credit score derivatives. Writers need to aim to move beyond the research into the counterparty risk of derivatives to explore these macroeconomic results. By allowing banking organizations – those organizations that borrow to lend – to enhance make use of, credit score derivatives can operate to boost the overall amount of assets in markets. This increase in assets can be thought of as helping the overall supply of money in a market, which can have a number of significant economic effects (Posner, 2009). By improving leverage and assets, credit score derivatives can fuel rises in resource costs and even bubbles. Rising resource costs can then mask mistakes in pricing credit score derivatives and in assessing the risk of make use of in the economical state. Furthermore, the use of credit score derivatives by banking institutions can contribute to a cycle of leveraging and deleveraging in the economy.

Advantages of credit risk

Many types of credit rating threats exist, which sometimes are known as in specific terminology. Any improvement in costs associated with a client not paying as decided can be loosely classified as credit rating threat. For example, even if credit cards customer does end up not paying his bill, if the lender has to make selection calls or resort to a selection agency, this increment on price is a version of credit risk. More specifically, “default risk” is the danger that the celebration does not and cannot pay as decided (over and above a simple increment in selection cost) and is sometimes generally known as “counter-party threat.” When the client is a government, credit rating threat is often generally known as “sovereign threat.”

Companies, government authorities and all types of lenders take part in credit ranking research to determine to what level they face credit ranking risk associated with their investment strategies. In with a weight of the pros and cons for making a certain type of investment, firms utilize in-house applications to recommend on reducing and preventing threat (or shifting it elsewhere) or use third party help, like analyzing ranking agencies’ estimates of credit reliability from companies like Standard & Poor’s, Moody’s, Fitch Scores and others. After banks using their models and the advice of others to position customers according to the threat, they apply this knowledge to reduce credit ranking threat.

Creditors use a variety of means to lessen and control credit score threat. One way lenders decrease credit score threat is by using “risk-based pricing,” in which lenders charge higher rates to debtors with more perceived credit score threat. Another way is with “agreements,” whereby lenders apply stipulations to credit, such as debtors must periodically report on their finances, or such that debtors must repay the financing in full after certain events (like changes in the customer’s debt-to-equity ratio or other financial debt ratios). Another method is diversification, which can decrease credit score threat to lenders as well as a diversified client pool is less likely to standard simultaneously, leaving the creditor without hope of recovery. Besides these, many companies utilize credit score insurance or credit score derivatives, such as “credit standard swaps,” in an attempt to transfer threat to other companies.

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In this report we have been able to define credit risk that is faced by financial institutions. These are threats whereby the bank clients can either default in the financial obligations to the bank or the bank having to incur additional costs so as to recover from the client. Credit derivatives have also been looked at. Their effect on interest rates has also been expounded on. Credit risk has also its own advantages. Financial institutions that embrace it and put in place strict strategies to contain it will be prosperous.


Bluhm, C., Overbeck, L., & Wagner, C. (2016). Introduction to credit risk modeling. Crc Press.

Gerding, E. F. (2009). Deregulation pas de deux: Dual regulatory classes of financial institutions and the path to financial crisis in Sweden and the United States. NEXUS, 15, 135.


Huang, J. Z., & Huang, M. (2012). How much of the corporate-treasury yield spread is due to credit risk?. Review of Asset Pricing Studies, 2(2), 153-202.


Jorion, P. (1997). Value at risk (pp. 1-4). McGraw-Hill, New York


Omarova, S. T. (2009). The Quiet Metamorphosis: How Derivatives Changed the’Business of Banking’. University Miami Law Review, 63, 1041.

Posner, R. A. (2009). A failure of capitalism: The crisis of’08 and the descent into depression. Harvard University Press


Performance Management system

Growth and development analysis of a human being

It has been written previously that one is born with their traits. Writers have also indicated that traits are passed from one generation to another. I however believe this to be untrue. There are those traits that one is born with and those that one learns as they grow up.

We cannot take for granted the interactions one has with other human beings and nature. This has a way of changing us. The way we think and believe is highly contributed by the people we interact with and our backgrounds. In this paper we will discuss how I grew up to procrastinate and also a perfectionist. I believe I grew into this.

I push myself and others to do a perfect task and at the same time do the hard tasks the last minute.

Procrastination is evading the performance of a job which needs to be achieved. It is doing the more enjoyable tasks first, or doing those tasks that are less urgent as a substitute to more vital ones. This means that one puts off the difficult tasks first. Everyone has been accused of procrastinating at one point or another. However, more than 20 % of the population is said to procrastinate frequently. Procrastination can be defined as their way of life.

Performance management his highly done, in line with the goals and objectives of the organisation while at the same time ensuring that the strengths and weaknesses of employees have been established.  Meeting business goals and objectives is the essential reason for there being any organisation.

For this to be achieved there needs to be periodical measurements of the progress towards achieving these goals and objectives. The goals and objectives of the organisation need to have been communicated to all employees so that the company can soldier on as one team.  After this communication has been done, the achievement of these objectives needs to be measured appraised and relevant actions taken from time to time. The performance management process is part of the entire business since its inception till the day that it closes business.

Procrastination is said to reflect our struggle with self-discipline and control. It also shows our inability to predict our feelings for the next day. To critic this statement and belief I would say that procrastinators are good at making choices and prefer lesser demanding tasks as compared to the difficult tasks. Critics can also be quoted saying that procrastinators claim that they achieve better results when under pressure. More often than not that’s the way procrastinators qualify tasks and then work towards achieving them.

Personally, I have in many occasions preferred to avoid negative emotions so as to delay stressful tasks. So as to achieve more with limited I prefer doing the difficult tasks under pressure. This has enabled me to save time over the years.

Psychologists have cited such abehavior as a way of dealing with anxiety that is associated with finishing a task. Anxiety can get you to start working on a task either early or late (Steel, 2010). The focus should therefore be more of impulsiveness. Anxiety can only cause you to late on a task if it is impulsive.




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Steel, P. (2010). The procrastination equation: How to stop putting things off and start getting stuff done. Random House Canada.



Advantages of Debt

Debt and deficits

A deficit is a difference between income and expenditure where spending is higher than income. Once you have a deficit, it means you have to borrow to cover it. This situation leads to debt. Governments borrow by selling securities to the public.

I believe that there is good debt and bad debt. There are many journals on this topic. One writer says debt is not the problem and the next predicts that debt will ruin civilization (Hanson, 2006). Common sense is you spend what you have and save the rest. However, this is not normally the case all the time. Many people who do well with money have something in common: they know what they want (Gerber, 2012).  It all matters with why you have a deficit and opting for a debt. Good debt is one that is a sensible investment in your future. It will leave you better financially in the long run. Taking a student loan, investing in business, getting a mortgage or buying a car that will bring income is good debt. Purchasing a luxurious house, purchase an extra car or borrowing to meet day to day expenses is bad debt.





Gerber, L. (2012). Top 10 Tips for Developing Money Management Skills. The Rosen Publishing Group.

Hanson, J. (2006). Good Debt, Bad Debt: Knowing the Difference Can Save Your Financial Life. Jon Hanson.


Accounting Information System

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A  credit union is developing a new AIS. The internal auditors suggest planning the systems development process in accordance with the SDLC concept. The following nine items are identified as major systems development activities that will have to be completed.


  1. Arrange the nine items in the sequence in which they should logically occur.


  1. User specifications
  2. Technical specifications
  3. Systems survey
  4. Programming
  5. System test
  6. Post-implementation planning
  7. Implementation planning
  8. conversion
  9. User procedures and training

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  1. One major activity is to convert data files from the old system to the new one. List three types of file conversion documentation that would be of particular interest to an auditor. (CMA Examination, adapted)


  1. Parallel running
  2. Phased conversion
  3. Direct changeover

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Accounting Lessons Day 1 Experience

My first week in college was just a nightmare. It all started after admission to college. I had just completed my High School education and was on a high gear to keep the momentum of working hard in school.

Having performed well in High School, I knew accounting was my course since I always dreamed of being an accountant or an auditor since my lower grade classes. I was convinced that accounting was for focused and dedicated individuals from the examples of the bankers in our local town. And hence, I had to follow suit and pursue my dreams.

On my first day at school, I had a timetable for my first accounting class, Introduction to accounting, indicating the scheduled class was in AH 1 from 9 a.m- 11 a.m. By 8;30 a.m, I embarked on moving to the indicated venue to attend my first class. Upon arrival, I could see fresh faces of students, who looked new from their faces, books and uniform.

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I had to confirm from a few friends if I was in the right class, and there I was. After a couple of minutes, a tall, dark and slim man entered the class and greeted us. From the look of things, he appeared to be the tutor as he put his books on the teacher’s locker.

He welcomed us in a polite way, briefing us on some few tips of surviving in accounting classes and life around the campus. The tall man introduced himself as Mr. Jones, and was to take us through most of the units in accounting in the course of our study.

Mr. Jones appeared composed and even took us through some few tips of excelling in our accounting lessons. I was so much excited being in my dream class for my dream course. Abruptly, the teacher shouted, “Stop! Has anyone seen my car?” The whole class went silent since no one could comprehend what was going on and it was just our first class.

Mr. Jones perused through his books as he searched for something, though no one was sure what he was looking for. All of a sudden, he called the class off as he said he had forgotten his car at the restaurant, about twenty miles away.

There was a loud thunder as the class laughed at how our tutor had forgotten his car and had to rush back to collect it. We later learnt that Mr. Jones was mentally unstable and experienced such moments on many instances in the middle of his classes.

However, he was highly regarded by the rest of the school for his deep knowledge in accounting concepts and skills. That was how our first accounting class ended as the classed laughed off at Mr. Jones, our newest joke in campus.



Community Teaching Plan

Note: This is an individual assignment. In 1,500-2,000 words, describe the teaching experience and discuss your observations. The written portion of this assignment should include:
1.Summary of teaching plan
2.Epidemiological rationale for topic
3.Evaluation of teaching experience
4.Community response to teaching
5.Areas of strengths and areas of improvement

Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required.

This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion. 

You are required to submit this assignment to Turnitin. Please refer to the directions in the Student Success Center.


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Topic: Community Teaching Plan

A disaster is portrayed as an occasion that causes extraordinary harm and death toll. A disaster can be a quake, surge, fire, blast, sea tempest, or any occasion that is calamitous to framework and claims lives. Disasters influence the lives of a huge number of individuals consistently. Being readied for a disaster can diminish dread and tension. Being readied can likewise diminish the measure of misfortunes that can happen. People and families need to recognize what to do in the case of a disaster like a tropical storm (“FEMA,” “n.d”). Groups that comprise of army installations face diverse dangers identified with disasters. They are at expanded danger for atomic mishaps and demonstrations of terrorism. Thus, disaster readiness for the groups of Hampton Roads Virginia would be important for the group social insurance medical caretaker to give.

Epidemiological Rational for Topic

The zone of Hampton Road is situated on the eastern bank of Virginia. Being a coastal area, Hampton Roads is defenseless against solid tempests and tropical storms. Hampton Roads is one of the top zones in the nation at danger for tempest surges coming about because of a class 5 storm. A Category 5 sea tempest could bring about $39 billion worth of harm to homes and encompassing zones in Hampton Roads (“Hurricanes and Storms,” “n.d”). Families would be managing damage, demise and loss of property. Hampton Roads has enormous maritime, Air Force, Army, Marine Corps and Coast Guard army bases. This military vicinity puts the general population of Hampton Roads at expanded danger for man-made calamitous disasters.

Planning Before Teaching

The community wellbeing nurse would initially need to evaluate the location. Realize what regions are at the most astounding danger for sea tempests and what ranges are nearest to the numerous army installations. The nurse would need to get comfortable with the territory’s present clearing arrangement and safe-zone zones. The nurse would need to find out about the notice alarms that may utilized as a part of the zone and the crisis numbers or radio stations that give upgraded data. The nurse would need to get ready data by utilizing power focuses and leaflets as a part of distinctive dialects and, if relevant, age particular. Data in regards to when to empty, where to go and what things to have prepared in a first aid kit would be incorporated into the force focuses and leaflets (“Virginia Gov,” 2013). The nurse would need to investigate subsidizing and conceivable gifts that may offer individuals from the community some assistance with putting together their first aid pack. Including zone organizations in the arranging and conceivable gift of supplies could be advantageous. The nurse ought to include neighborhood police, flame and clinics in the arranging. Surveying for an area for the educating to be given would need to be finished. The region for the educating would need to be substantial and effectively available to individuals from the community. The nurse would need dialect mediators accessible amid the instructing to guarantee that the data is comprehended by all. The date and time for the instructing would need to be set too. Setting the date and time for greatest participation is critical keeping in mind the end goal to include most or all community individuals. The nurse would need to strengthen to the community that being readied can spare lives.

Nursing Diagnosis

* Risk for emotional imbalance identified with uneasiness of normal or man-made disaster

* Ineffective community adapting

* Readiness for upgraded community adapting.

Readiness for Learning

Confirmation of learning status, concerning disaster, is clear in a community when the individuals search out information and set themselves up for any conceivable circumstance. There are different stages to experience before receiving or keeping up the obligation and information that run with being readied for a disaster of any sort. The pre-pensive stage could be depicted by saying the community is ignorant that a potential danger exists. The pensive stage is the place the community individuals may pondering what steps should be taken keeping in mind the end goal to be arranged. Amid the activity organize, the community effectively plans for and is prepared for a disaster. In the support organize, the community proceeds with the scholarly conduct so they are constantly arranged (“Euromed Info.,” “n.d.”).

The community hints at gathering so as to be readied a unit of crucial needs, making a family arrangement, staying educated and helping other community individuals. Community individuals can clarify and show others about arranging. Their conduct is consistent by communicating the information they have learned. Community individuals, why should prepared learn and help, are additionally ready to recognize new sources and approaches to upgrade information in disaster making arrangements for their community. It is imperative to know precisely what to do preceding, amid, and after a crisis or disaster. Being appropriately arranged can have all the effect when seconds tally.

Learning Theory and Goals

General wellbeing nurses work to distinguish wellbeing or security issues, and in addition hazard elements, in a home, workplace and community by working with community pioneers, doctors, folks and instructors. They execute and oversee mediation projects to address and revise issues, and also anticipate future issues and hazard components (“Public Health and Community Nursing,” 2013). Keeping in mind the end goal to help a community overall, the nurse must survey the community’s needs and decide their learning styles to give powerful instructing.


Hampton Roads, situated in Virginia, has an extremely fascinating land design. The range is split into two districts, referred to local people as the Peninsula and the Southside. The Peninsula constitutes the eastern piece of the city and is isolated from the Southside by a harbor. Truth be told, the Hampton Roads Harbor is one of the biggest on the planet otherwise called Chesapeake Bay (“Hampton Roads Geography,” 2003-2011). This is a high-hazard zone for characteristic disasters, for example, storms, surges, quakes, and artificial terroristic assaults.


Hampton Roads is a various populace contained regular citizen and military individuals from generally Caucasian and Black ethnicity. The community nurse will utilize Cognitive Theory of Multimedia Learning. As per Mayer, this hypothesis depends on three primary suppositions: in the first place, he trusts that there are two channels, sound-related and visual for handling data; second, that there is constrained channel limit and third, that learning is a dynamic procedure of sifting, selecting, arranging, and coordinating data (Mayer, 2007-2013). The community nurse and other multidisciplinary groups will give beautiful handouts representations of fundamental needs amid a characteristic disaster or synthetic occasion. There will be bulletins posted all through the community with the location of spot, particular dates and times of sorted out educating. The community nurse will assemble power focuses with particular data, for example, first aid kits, transportation accessible amid turbulent circumstances, and exit arranges and courses. The community nurse will likewise show what dangers the community faces when they choose to stay behind to “ride it out” the same number of community individuals would say. The community individuals will be given the chance to make inquiries and connect with pioneers to guarantee the material was secured in a way that was retainable. The objectives are to have community individuals instructed, prepared and arranged for a potential regular disaster and/or terroristic assault in the Hampton Roads zone.


Solid individuals 2020 (HP2020) have a continuum of objectives to be accomplished by 2020 and past years to come. In this lesson, the community nurse will utilize “readiness” for a community objective. Arranging ahead can keep you and your family safe if there’s a crisis, similar to a characteristic or man-made disaster. Samples of crises include: common disasters like surges, tornadoes, seismic tremors, influenza pandemics (influenza episodes that spread the world over), power outages (where vast territories lose power) and terrorist assaults. Crises can happen whenever. It’s vital to ensure you and your family is prepared. This is what you can do: get a crisis supply unit, make a family crisis arrange, and realize what to do in these diverse sorts of crises (“Preparedness,” 2013).


Keeping up a sound situation is key to expanding personal satisfaction and years of solid life. Comprehensively, about 25 percent of all passings and the aggregate malady weight can be ascribed to natural variables. Natural elements are assorted and extensive. They include: introduction to perilous substances noticeable all around, water, soil and nourishment, regular and mechanical disasters, physical dangers and healthful inadequacies. Poor ecological quality has its most noteworthy effect on individuals whose wellbeing status is as of now at danger. Along these lines, ecological wellbeing must address the societal and ecological components that improve the probability of presentation and infection identified with a characteristic or man-made disaster (“Environmental Health,” 2013).


Today’s populace, from the exceptionally youthful to the elderly, needs to figure out how to utilize a PC and have mobile phones with web and messaging abilities. Subsequently, the community nurse gave sites and phone numbers to community individuals to enlist and get upgraded data on issues relating to their range. The nurse likewise gave power focuses, brilliant flyers, and refreshments and snacks for all going to. Different speakers shared extraordinary stories to catch the gathering of people’s consideration. Towards the end, the community individuals were allocated time for inquiries.

Evaluation of Objectives, Goals, and Teacher

The Hampton Roads zone is situated on the eastern shoreline of Virginia. This makes Hampton Roads distinguishable to common or man-made disasters. The community nurse can educate the community on the best way to get ready for a disaster. Circulating disaster units that incorporate an emergency treatment pack, spotlights, batteries, water, and canned nourishment with a can opener, covers and rain rigging will set up the community for a tropical storm. Advising the community of Hampton Roads that most sea tempests happen in the middle of August and October will assign a time period for the natives to be arranged. Having the community wellbeing nurse confirm that the surge territory maps are posted all through the community will guarantee that natives know where to discover haven when flooding happens. The Hampton Roads range is populated with an army installation and military work force. This makes Hampton Roads at danger for atomic weapon mischances. Give instruction to the community, that when an atomic weapon mishap happens, a siren will be sounded for departure. Urge nationals to bring their disaster unit with them and give natives materials to add to a departure arrangement. The community nurse will clarify that the clearing arrangement ought to incorporate course and last destination. Giving training, for those that choose to stay in their homes, will incorporate don’t turn on aeration and cooling systems, heat pumps, or fans. Close all windows, entryways and vents. As the educator, the community wellbeing nurse will guarantee all nationals comprehend disaster readiness and will be arranged amid storms and man-made disasters. The objective being for all subjects to be arranged by have a disaster unit prepared for when tropical storm season happens and if an atomic weapon mishap happens.

Barriers and Strategies to Overcome Barriers

There are a few barriers that the community wellbeing nurse will need to overcome so as to guarantee that the community is given the data expected to disaster readiness. Some of those barriers incorporate physical impedance, non-English talking residents, hard of hearing subjects, rationally disabled and nationals that are monetarily hindered. With help, these barriers can be succeed. For the physical debilitated nationals, the community nurse can go to their home and give showing and guarantee that all sanctuary structures are impediment available. While giving training or at safe houses an interpreter for non-English talking residents is accessible. Hard of hearing residents will be given gesture based communication at all times. Those that are rationally disabled will be guaranteed that if a disaster happens they will get help. Those that are fiscally impeded will be given the instruction and devices required for when a disaster ought to hit. With every one of these techniques to overcome barriers, the residents of Hampton Roads will have the capacity to get by amid a sea tempest or atomic weapon mishap.
















  • Are You ready? Why Prepare. (“n.d”). Retrieved from http://www.fema.gov/media-library-data/20130726-1549-20490-4325/why_prepare.pdf
  • Environmental Health. (2013). Retrieved from
  • http://healthypeople.gov/2020/topicsobjectives2020/overview.aspx?topicid=12
  • Euromed Info.(“n.d”). Patient Education: Learning Readiness. Retrieved from:
  • http://www.euromedinfo.eu/patient-education-learning-readiness.html/
  • Hampton Roads Geography. (2003-2011). Retrieved from
  • http://www.greaterhamptonroads.com/geography.html
  • Hampton VA. (2013). Emergency Management. Retrieved from
  • http://va-hampton.civicplus.com/index.aspx?NID=242
  • Hurricanes and Storms. (“n.d”). Retrieved from http://hamptonroads.com/storms
  • Mayer, R. (2007-2013). Cognitive Theory of Multimedia Learning (Mayer). Retrieved from
  • http://www.learning-theories.com/cognitive-theory-of-multimedia-learning-mayer.html
  • Prepare for an Emergency. (2013). Retrieved from
  • http://www.healthfinder.gov/HealthTopics/Category/everyday-healthy-
  • living/safety/prepare-for- an-emergency
  • Prepare Now for Emergencies. (2013). Retrieved from http://www.vdh.virginia.gov/LHD/PrinceWilliam/epr/preparenow.htm
  • Public Health and Community Nursing. (2013). Retrieved from http://nursing-
  • org/theories-and-models/public-health-community-nursing.php
  • Virginia Department of Emergency Management. (2012). Radiological and Nuclear. Retrieved
  • from http://www.vaemergency.gov/content/radiological-nuclear.



Effectiveness of variable pay and insurance cover benefit in leveraging human capital.


This research delves into an assessment of the application of variable pay form of compensation and insurance cover as a benefit offered to employees within the firm. The research seeks to determine the various ways that an organization may fulfil its core aim of generating and building value through the employees who represent the human capital within the firm.

Organizations adopt various compensation and benefits approaches to reward and motivate their employees. The diverse options available for compensation and benefits may be adopted by different organizations based on the approach that maximizes value; both to the employees and to the firm. However, compensation and benefits mostly have a financial implication which again implies that the firm`s financial capacity is an essential consideration while deciding what compensation and benefits approaches to adopt.

Through analysis of the existing scholarly and theory work in existence, the effectiveness of variable pay and insurance cover benefit in leveraging human capital value as a contemporary issue in human resource management will be ascertained.

The existing limitations of variable pay and insurance cover benefit will also be analyzed in pursuit of determining the effectiveness of the options in leveraging the value of human capital within the firm. Recommendations will then be availed based on the findings and a conclusion will be drawn at the end of the research.


Organizations comprise of a valuable resource that helps all other non-human resources acquire relevance in functionality. This is the human capital resource. It therefore implies that the human capital resource within the firm is highly sensitive and the firm ought to accord it adequate attention to achieve operational value.

Compensation and benefits are part of the sensitive aspects of human capital engagement that determine the productivity derived. According to Merriman and Deckop (2007), organizations are only able to achieve the set objectives by ensuring that the human capital is not only adequately skilled but also consistently motivated to enhance productivity. There are various ways that the human capital productivity can be enhanced and a fair compensation and benefits package is one of them.

There are diverse compensation and benefits packages that a firm may adopt based on which one suits its specific values and financial capacity. The primary function of the organizational is to maximize value through optimal utilization of all the resources available to a firm; which include the human capital.

The organization considers the issue of human capital management among the top strategic management concerns. Kramar, Murthy and Guthrie (2011) point out that human capital is a measure of education, skills, capacity and work characteristics that affect the company`s production potential and earning capacity.

The human capital therefore should be considered highly sensitive to the firm`s performance. Being human implies that the organization engages in several actions and measures intended to ensure that there is high motivation to deliver, build even greater skills capacity and ability to perform.

The human capital resource in the firm also implies that the organization incurs a high cost in maintaining it. Therefore, the organization ought to ensure that maximum leverage is sought so as to reap the highest value possible. According to Madhani (2011), to leverage a resource implies to achieve an increase in resource productivity.

In other words, an organization gets the specific resource to generate maximum value during its use or application. Firms are consistently pursuant to find effective ways of leveraging the human capital in the firm. One of the modern ways sought by firms and which scholars have presented different opinions over is the use of variable pay and extending insurance cover on the employees.

Employee Compensation

Madhani (2014) indicates that employee compensation is a systematic method of delivering monetary reward to workers in exchange for the labor applied in the organization. Compensation can achieve different objectives regarding recruitment, professional services, and job satisfaction. Compensation is a tool employed by the administration for various purposes to support the existence of an organization.

Compensation can be accustomed according to the needs, objectives and available resources of the company. Additionally, compensation can be used to: attract and retain skilled employees, increase or uphold morale or fulfillment, reward and inspire maximum productivity, attain internal and external capital and encourage loyalty to business and the practice of trade unions.

For workers, there are two forms of compensation; direct and indirect. Direct forms of compensation have variant approaches: from salaries to bonuses. Indirect compensation is fundamentally the different types of long-term benefits and incentives.

One form of compensation is direct compensation for the services provided by the worker. The term used for this is the salary. It comprises four different payment groups from the employer to the employee. These are wages, hours, commissions and bonuses (Palos & Stancovici, 2016).

Rhodes and Pullen (2010) point out that salary is a type of wage, usually a fixed amount of payment during a specified period. The most traditional form is the dollar value for a year. The payment frequency is the other part of the compensation and is based on industry standards. Most companies make payment for services done twice a month.

The salary is the most common tool utilized to pay professional or licensed workers. The employer expects the employee to comply with the long-term obligations to ensure regular and continuous compensation through payment. Once the compensation is based on the volume or in specific forms of performance, it is called compensation based on commission.

Additional terms utilized consist of piecemeal or piecework. Various industries have used this kind of compensation to achieve a maximum level of production in exchange for compensation. Bonuses are used to improve employee productivity. It is a variable type of payment and most often meets with hired employees to motivate them to achieve a specific goals, be it in time or volume.

Compensation is considered fair if it is developed using a system of components that includes job descriptions, job reviews, assessments and compensation structures.

Ensuring the inclusion of these elements in the definition of compensation plans is essential for the maintenance of internal and external capital balance. If the pay of the company’s employees is fair, it can be a useful tool that will help to get and retain talent, improve worker’s morale and reward or inspire high productivity (Madhani, 2014). Employees expect fair compensation.

If the company does not offer compensation that current and potential employees or federal and state governments consider “fair,” the company may find itself in a difficult situation. It is in the company’s interest to ensure compliance with federal and local fair compensation standards. Thus, the company has to stay actively in the know and review the compensation data of the employees (Palos & Stancovici, 2016).

Luo and Donaldsen (2013) argue that companies base their compensation on some factors. Certain corporations pay more attention to these factors than others, but nearly all businesses use a type of analysis to determine the compensation scale. These factors are market studies on the cost of similar jobs in the market, where many companies conduct official wage surveys that can help them decide on the level of labor in the market.

Secondly, the contribution and achievements of employees, in which companies identify the difference as the employee contributes to the business, differentiating the salary with higher efficiency. Thirdly, the presence of employees with similar skills on the market is also considered.

Also, there is the employer’s desire to invite and retain a particular employee, where companies recognize the differences in the contribution of employees to the company through the differentiation of wages. The last determining factor is the profitability of companies or funds available in the public or non-profit sector and previous wages (Tushman, Lakhani, & Lifshitz-Assaf, 2012).

Employee Benefits

Employee benefits, at times called fridge benefits, are secondary forms of compensation offered to employees in the context of employment relationships. To contend with quality employees in the current market, employers have to do more than just “fair pay.”  Employees also need a good set of benefits. Indeed, employees are used to generous benefit programs and wait for them (Putnam, 2015).

Ncube, Bussin and De Swardt  (2013) claim that there are many benefits for employees, like paid Time-Off (PTO), many types of insurance ( for example, life, dental, medical and disability), involvement in a pension plan or access to a car from the company, among others. Particular benefits are mandatory, which are governed by the government while others are willingly offered to meet the needs of particular populations. Benefit plans are not provided in cash but constitute the basis of a worker’s income with a basic salary and bonus.

Nergaard et al. (2009) argue that in an organization, benefit plans for “qualified” employees must be available to all employees and non-qualified benefit plans may be available for the employees for the selected group, for example for managers or other high salaried employees.

While applying the benefit plan, human resources departments must guarantee agreement with federal and state regulations. Several states and countries introduce various minimum benefits, such as the minimum paid license, the employer’s contribution to the pension, the payment of sickness benefits and others.

Several factors determine the social benefits available to employees. The organization must see the benefits in the employee’s overall compensation. Although this is an indirect form of compensation, it is also an essential part of the negotiations and is analyzed as part of the salary for employee services. Benefits comprise health insurance, employee services, and pensions. Some benefits, such as compensation to employees, are mandatory, and others like bonuses are optional (Gillman & Kejak, 2014).

According to Arrowsmith et al. (2010), the company must understand the budget, the legal system and its competitors to make informed decisions about the benefits. The firm ought to establish which benefits the competitors are offering their workers and think about what they can do to compete.

Small businesses may not be able to provide a benefits package or as a large company, but they can provide a “welcoming” workplace instead of increasing job satisfaction. If possible, involve their employees in the decision to add benefits and let the employees know what the company is worth.


Variable pay and Insurance Cover Benefit

The variable pay is the compensation of the employees which varies according to the employees` input against a known scale during the year. Variable compensation is used to recognize and reward worker contributions for security, productivity, teamwork, quality or any other action that, in the opinion of senior management, plays an important role.

The employee who receives variable compensation goes beyond the job description to promote the success of the organization. Variable pay is provided in several ways, including the distribution of benefits, deferred compensation, bonus, holiday bonuses, cash and goods, and services, for example, business travel paid by the company.

Variable payment is an employee’s anticipated benefit if the company retains employees (Dolai, 2015). They want to be able to receive variable compensation to reinforce the basic salary. Besides, today’s employees are more dedicated to perform beyond their job descriptions once engaged within a motivating work environment.

A company, even a global company, is not enough to provide the same benefits common to all the employees it engages. Nowadays, employees expect multiple benefit packages tailored to their requirements and not just broad demographics. Nevertheless, personalization of benefits begins with employers who understand what their employees appreciate and need. In other words, the benefits are as valuable as all employees.

Therefore, the higher the variety and flexibility of benefit programs, the higher the likelihood that employees will feel valued and so will their productivity increase leading to greater value to the organization.

Variable pay has been termed as a reliable and effective compensation approach in organizations as beyond the basic salary, it causes the employees to get highly motivated to deliver extra ordinary results past their job description knowing very well that there is compensation due for that.

In essence, this generates value for the organization that is able to achieve higher level of productivity while still compensating the employee adequately and competitively. Variable pay has also been perceived as a strategic way of guaranteed performance-based compensation for the employees. The scale of compensation due to an employee is guided by how much output can be attributed to the employees` efforts.

It is also highly personalized as each employee`s productivity is weighed on the adopted scale. This makes variable pay highly economical to the organization yet value-inspired compensation approach.

Hearthfield S. (2017) availed an insight into how an organization can provide benefits that excite and retain employees. Variable pay in this case has been presented as a reward system that has been perceived by employees as motivational. The employees subjected to variable pay often assume the obligation of performing beyond their job description aware that all extra effort immersed at work would be rewarded accordingly.

As Hearthfield indicates, variable pay may take various forms such as profit sharing, cash or kind compensation, bonuses, holiday bonuses and other incentives based on the firm`s capacity. Variable pay is observed as a recent strategic move for firms seeking to achieve dynamism in the compensation and benefits area of human resource.

However, a firm does not only seek to raise the employeesmorale without an objective. The intention is to increase the employees productivity and retention which in turn generates value to the firm. However, to avoid conflicts and cases of misunderstanding, the firm needs to have the criteria of variable pay well explained to the workforce. The employees need to know upfront how they earn the variable pay and in what form; cash or kind.


Otaye L., et al (2016) presented a research on the approaches to developing and leveraging human capital resource in a firm. Compensation and benefits are presented as an effective approach in enhancing the productivity and motivation of the human capital resource within the firm. As a contemporary issue, Otaye considers benefits as motivational only when they have a perceived value on the employee.

The firm therefore ought to first find out what set of benefits are perceived as valuable by the employees. Insurance cover especially in life and health emerge as highly valued among most employees in firms. A firm that seeks to enhance the human capital productivity through insurance benefit should therefore seek to avail the health and life insurance covers.

It is the perceived value on the employeesend that determines how effective the applied benefit is in helping achieve the organizations objective in adopting it. It is further noted that the ability to avail adequate and relevant insurance cover to employees as part of the benefit reward requires that the firm`s financial position be vibrant and sustainable.

Regarding benefits, (Kramar, Murthy & Guthrie, 2011) have asserted that employee present a preference of packages that make significant impact on their lives. An organization that seeks to meet employeesneeds and expectations therefore has to adopt a benefit system that comprises of items of value to the employees. This essentially causes the employees to feel motivated to work and deliver value to the organization in return. Insurance cover which has a broad spectrum of considerations has become a core aspect of concern for employees on the benefits preference.

As the environment presents various risks and needs such as health, accidents, education needs among others, employees have a preference for organizations that offer insurance in these areas of their lives. It is actually regarded as a personalized service when an employee can actually access healthcare, education and other amenities under an insurance cover. (Otaye, 2016).

Notably, the various areas of life covered by the insurance covers are highly sensitive. An example is a health cover that offsets the employeesobligation to settle their hospital bills. In the presence of the long term ailments that may end up draining the employees finances; it remains a highly valued benefit when the organization caters for that through paid insurance cover.

Therefore, according to Heathfield (2017), past the adequate compensation through variable pay, insurance cover benefit happens to be a highly valued employment benefit.

Organizations seeking to leverage on the human capital resource cannot therefore overlook the impact of variable pay and insurance cover within the compensation and benefits component. It remains an effective motivation and employee retention strategy to provide compensation and benefit packages that appeal and deliver value to the employees.

The organization-human capital interaction is value-inspired. This implies that both parties have perceived obligations and expectations that are inclined towards value. The only way for the organization to leverage on human capital resource would be delivering value within their expectations.

Van Es Q. (2016) availed a review of contemporary issues in employee compensation and benefits in a firm. According to Van Es, there is increased differentiation in compensation approaches. Organizations are embracing the more dynamic compensation approaches that yield value both for the employees and to the organization.

Performance related pay, which is basically variable pay seems to be gaining popularity in application within firms as firms seek to enhance productivity of the human capital. Under the variable pay approach, there are organizations that have observed employees go beyond their job description in pursuit of earning the variable pay.

As thus, employees also have greater expectations from the organizations regarding their input and effort in work. It has also been found to be an effective talent attraction and retention strategy by organization as it also calls for employee skills development and upgrade to remain productive and relevant.

With high level of competitiveness among firms, rising operational costs and the need to maintain a consistent rise in the value of the firm, there is need to have a vibrant and value-generating benefits and compensation plan. The current market trends require that a firm adopts value-maximizing strategies in nearly all its functional areas.

The human resource function that is responsible for adopting and implementing the compensation and benefits plan has a role in the value maximization on the available human capital resource in the organization. Heathfield (2017). Additionally, the ability to adopt a compensation and benefits plan that enhances the productivity and motivation of the workforce has direct implication on the ultimate value of the firm.

Leveraging the human capital resource therefore implies that the organization is able to adopt strategies that enhance workforce productivity and retain them for long periods. Compensation and benefit aspect is highly sensitive to the productivity on employees. An effective compensation and benefits strategy would therefore be an effective tool in leveraging the human capital resource in an organization.

A similar principle applies to the employees who have to invest in generating value to the organization in order to enhance the continued value as derived. The balance and value maximization for both parties can only be enhanced by ensuring that the organization maintains a highly motivated human capital on all possible fronts. One core strategy to achieve this is through effective compensation and benefits plan such as variable pay and insurance cover. On the other hand, organizational value is enhanced when the employees are highly motivated to perform.

Limitations of Variable Pay and Insurance Cover Benefit

Although variable pay and insurance cover have been presented as effective leveraging tools that firms can adopt to maximize value of the available human capital, there are a few observed limitations over their application and adoption. However, as every strategy in an organization presents both pros and cons; the weight of either determines if it remains an applicable strategy for an organization.

Financial Constraint

Insurance covers are diverse in context and applying premiums. Essentially, a company that decides to adopt the diverse insurance cover to its employees as part of the benefits package ought to have an adequate financial base to cater for the expense.

Insurance premiums are paid annually and insurance cover benefit for the employees introduces a cost item to the existing budget. As Otaye (2016) points out, a firm that is not operating in high profit margins, the insurance cover benefit may greatly stress the financial status which may subsequently lead to greater financial struggles that affect overall performance. Again, if the firm does not have sustainable high profit margins that can absorb the extra cost of the insurance premiums, then the benefit would be unsustainable.

The impact of unsustainable benefits is that they create uncertainty in the employees which subsequently contributes to poor employee performance. With poorly motivated employees, an organization would not be strategically positioned to leverage on the human capital. The insurance cover benefit can only be availed by a firm that records high profitability and with adequate financial muscle to sustain the benefit in the long term.


Non-quantifiable work

The variable pay compensation approach though motivating to the employees receiving it poses a great challenge in quantifying the work done. Variable pay is subject the quantity of output or input that can be attributed to the employee or group of employees assigned to a given job. However, the diversity of functions and roles within the firm also dictates that the type of work done differs greatly which subsequently means that some jobs may not be quantifiable as to determine the variable pay due. In such cases, the human resource faces the challenge of determining the variable pay across the various roles without seemingly applying inconsistent scales across the different roles.

The human resource function has an ever existent pursuit of unifying the employee treatment in the organization so as to reduce the chance of such ills as discrimination. (Luo and Donaldsen, 2013). However, the adoption of variable pay compensation approach may raise such concerns as the fairness of the scale of determining how much work or effort can be attributed to an employee in order to deserve a given level of compensation in variable pay. For this reason, organizations have only adopted variable pay on certain roles and not to others; which in most cases still raises the concerns of differing work quantifying scales.

Diversity of Insurance Covers

As an employee benefit likely to harness a more productive human capital in the firm, insurance covers are highly diverse and the specific area of value varies from one employee to another. It has become essentially impossible for an organization to avail the liberty of choosing the insurance cover that serves their interest best. This would introduce a financial constrain to the firm, possibly greater than the value sought through maintaining a motivated and productive work force.

For this reason, the organizations usually determine the most relevant insurance cover for their diverse workforce and the employees therefore subscribe to the presented option. The fact that employees are not accorded the liberty to choose the most relevant insurance cover them is sometimes perceived as unfair to the employees. As Van Es (2016) asserts, the perception is that the organization undertakes to offer the benefit but with interests far from the employees`.

This may therefore cause the benefit to have impartial positive impact far from the intended impact. As such, the diversity of insurance covers and the associated limited ability of the organization to provide a wide array and options to the employees may deem the benefit limiting.

Generalization of the benefits

Insurance covers available in the market are largely homogeneous. This therefore implies that the various firms across the industry may just offer similar insurance cover benefit. This has a significant impact on the human capital in a firm in that, their loyalty to the firm as compared to the competitors in the industry is not anchored on any differences in the benefits. Uniqueness in the benefits package in the firm as compared to what the other firms in the industry offer is partly what delivers value to the organization.

When a firm can offer the human capital a benefit that is unique from all other available options across the industry; it implies that value is generated to the organization. The insurance cover benefit therefore comes off as a general benefit in the industry that an employee may not consider a factor while deliberating on change of organization. An organization offering insurance cover as a benefit to its workforce requires to make effort to add other benefits to make its offer unique and consequently derive value from a more motivated and productive human capital. (Heathfield, 2017).


Among the numerous essential elements in the complex experimentation of organizational efficiency is the ability to retain a highly motivated and adaptable human capital. To achieve the objectives of the mission, the organization should focus on the complexity, uncertainty, and dynamics of the external environment, overcoming and facing their rivals and competitors, even better, faster or more innovative.

There must be a specially qualified human capital with a zeal to perform and deliver value to the organization. This is achieved by developing a strategy to achieve the mission, organizational objectives and aligning the internal organization with management, administrative structure, and work processes and personnel management methods to support the organization strategy implementation. In this sense, the acquisition and maintenance of a highly motivated and productive human capital becomes an ongoing concern for the firm (Palos & Stancovici, 2016).

The human resource department is the function charged with ensuring that the firm derives value from the available human capital available. The roles of the function therefore involve a strategic function of ensuring ultimate value to the organization.

The human resource therefore, in the area of compensation and benefits determines and adopts the most effective approaches that enhance value delivery to the firm. Variable pay and insurance cover have in the recent past been subjected to analysis and assessment on their effectiveness in ensuring that the organization maintains a highly motivated and productive human capital.

From the various assessments done, the variable pay and the insurance cover benefit present numerous possibilities of value delivery to the firm owing to their ability to motivate employees and thus enhance their productivity. It is clearly essential for a firm considering to generate value through the human capital resource to consider adopting variable pay and insurance cover within the compensation and benefits package.

However, as both have their limitations in applicability, a firm should consider applying the two approaches together with other complimentary approaches so as to essentially generate sustainable value in the long run.


The compensation and benefits constituent of the human resource department in the firm presents a unique yet complex role. As the firm`s most important resource is the human capital; whose input and efforts is rewarded through compensation and benefits, it thus implies that the level of input or productivity of the human capital is directly proportional to the value of compensation and benefits package.

The firm is operates under an unwritten objective of value maximization from the resources available. This has the implication that the human capital should generate value for the firm in order to retain its essence. Compensation and benefits take diverse forms and each organization has the liberty to adopt whichever form that appeals or delivers value.

However, there are also legal and industry standards in the compensation and benefits that firms must meet. This presents the basic requisite which in essence may not generate any additional value for the firm. This leaves the human resource function with a greater and complex role of determining what compensation and benefits approached avail value maximization to the firm.

Apparently, variable pay and insurance cover emerge as compensation and benefit package with much accolade on their ability to cultivate a highly productive human capital and essentially generate substantial value for the firm. Additionally, variable pay and insurance have been adopted in firms and perceived by employees as fair considerations within the compensation and benefits package.

There exist various challenges in the adoption and application of variable pay and insurance cover within the compensation and benefits package. The diversity of insurance covers available and their general nature across the industries deem it as a minimal effort by the firm and hence may only generate limited value. Variable pay on the other hand presents a reliable compensation approach for both firms and the employees because it applies the compensation for work duly done approach.

However, in as much as it may generate value for the firm, it suffers various limitations especially where work may not be quantified or output per employee determined. It bring in the necessity of different work quantifying scales which may in turn result in conflicts. Conflicts are counter-productive and hence limit the firms` ability to leverage on the human capital. It is however possible for a firm to leverage on the value of the human capital by creatively applying the variable pay and insurance cover within the compensation and benefits package.



Arrowsmith, J, Nicholaisen, H, Bechter, B & Nonell R (2010).  The management of variable pay in European banking. International Journal of Human Resource Management, 21(15), 2716-2740.

Dolai, D (2015). Measuring work life balance among the employees of the insurance industry in India. International Journal of Advanced Research in Management and Social Sciences Impact Factor, 313(5).

Gillman, M & Kejak, M (2014). Tax Evasion, Human Capital, and Productivity-Induced Tax Rate Reduction. Journal of Human Capital, 8(1), 42-79. Published by University of Chicago Press

Kramar, R, Murthy, V & Guthrie, J (2011). Accounting for Human Capital and Organizational Effectiveness. The Oxford Handbook of Human Capital. Published by Oxford University Press.

Hearthfield S.M. (2017). Variable compensation and the other benefits: How to provide benefits that excite and retain employees. Retrieved on 10th December, 2017 from https://www.thebalance.com/variable-pay-and-benefits-for-employee-retention-1918287

Luo, B & Donaldsen, L (2013). Misfits in Organization Design: Information Processing as a Compensatory Mechanism. Journal of Organization Design, 2(1), 2.

Merriman, K & Deckop, J (2007). Loss aversion and variable pay: A motivational perspective. International Journal of Human Resource Management, 18(6), 1026-1041.

Madhani, P (2011). Reallocating Fixed and Variable Pay in Sales Organizations. Compensation & Benefits Review, 43(6), 346-360.

Madhani P (2014). Aligning Compensation Systems with Organization Culture. Compensation & Benefits Review, 46(2), 103-115.

Nergaard, K, Dolvik, J, Marginson, P, Arasanz Diaz, J, & Bechter, B (2009). Engaging with Variable Pay: A Comparative Study of the Metal Industry. European Journal of Industrial Relations, 15(2), 125-146.

Ncube, S, Bussin, M, De Swardt, L (2013). Confirming theoretical pay constructs of a variable pay scheme. SA Journal of Human Resource Management, 11(1).

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Tushman, M, Lakhani, K & Lifshitz-Assaf, H (2012). Open Innovation and Organization Design. Journal of Organization Design, 1(1), 24-27.

Van Es Q. (2016). Key trend in Compensation & Benefits: Increased differentiation in compensation. HR-Insights. Retrieved on 10th December, 2017 from http://www.hr-insights.top-employers.com/blog/key-trend-in-compensation-benefits-increased-differentiation-in-compensation





Please write an effective tax memorandum-to-file for the following closed-fact research scenario. You are expected to read the case, research relevant primary and secondary authorities, find appropriate citations from primary authorities, and write a one-page memo INDIVIDUALLY. You may not collaborate or share information with any other person, inside or outside of our class. Any sharing or discussion of information violates academic integrity and will result in your receiving a zero for the assignment as well as other penalties as stated in the Syllabus.

The memo should be prepared following the format noted in the handouts “How to Write an Effective Tax Memo” and “Sample Tax Memo.” It must be saved as a PDF file, attached to the HuskyCT assignment, and submitted before the due date. Late or emailed submissions will not be accepted. Only those submitted through HuskyCT on time will be reviewed and graded.

A grading rubric is attached to this assignment. It is strongly encouraged that you review the rubric periodically as you work this assignment. Projects are due by 5pm on Thu 4/26.

Any questions can be emailed directly to me. Please do not ask questions on the project outside of email so that I provide the same information/guidance to all class. If appropriate, I will post an announcement answering questions – if so, please consider any related announcements to be part of this project and its details. I encourage you to read the handouts noted above as well as “Intro Checkpoint,” “Tax Research Guidelines,” Chapter 2 in our textbook, and your notes (and the slides) from our class on tax research.


Fact Pattern

Five years ago, in 20X1, Tyrion and Missandei Hill purchased an antique stone house in the westerlands region of Indiana, outside of Chicago. They purchased the house and accompanying 9 acres for $650,000. Although the house was in desperate need of upgrades and repairs, they moved in right after their closing and continued to live in the house as their primary residence throughout the multiple restoration projects. Their primary mortgage is a 30-year fixed, 3.5% zero point non- recourse loan for $585,000 with The Iron Bank of Braavos, Illinois. The next year, 20X2, they took out a second mortgage with Winterfell Savings and Loan to help cover renovation costs as well as consolidate Missandei’s student loans. The Winterfell loan is a 30-year fixed, 4.2% zero point non-recourse loan with a principal of $325,000.

Two years later (20X4), Tyrion was promoted to COO at Targaryen-Stark, an offer that also included a promotion for Missandei to SVP of Finance but required them to relocate to corporate headquarters in Kingston, New York. Unfortunately, in order to sell their house in the current market, they had to lower their asking price twice before finding a buyer willing to take on the old manse at $798,000. The net proceeds, after commissions and selling fees, of $742,000 were well below the Hills’ $891,700 in outstanding mortgages.

Tyrion’s skilled negotiation strategies convinced both banks to agree to the short sale. The Iron Bank was firm in demanding their full outstanding loan principal of $583,000. Winterfell agreed to accept $168,000 toward the current mortgage balance of $308,700 and forgive the remainder. The Hills filed their 20X4 Form 1040 on time.

In February 20X6 (this year), the IRS sent a notification of deficiency for their 20X4 Form 1040 to the Hills, stating that they had underreported their gross income by $140,700, the amount of debt forgiven by Winterfell S&L, and demanding immediate payment of the tax on the understated income, plus penalties and interest. The Hills’ attorney has hired your accounting firm to determine if the IRS or the Hills are correct and provide supporting tax law.



  1. Review the Client Facts and understand the key issue
  2. Narrow the key issue to 2-3 sentences (see handouts)
  3. Locate the relevant tax questions using RIA Checkpoint
  4. Keyword searches as well as Code section searches are often effective
  5. Review relevant tax authorities to determine the governing Code section(s) and case law

  6. Write a memorandum to file, in good research memo format (see handouts), documenting the relevant facts, issue, research, and conclusions

  7. Submit your completed one-page memo in PDF format through HuskyCT‘s Assignment tool by midnight Mon, April 30th


Reminders & Hints

  • Projects will be graded based on writing style/clarity/brevity, research quality, and citations. Points will be deducted for exceeding one page, including excessive/unnecessary facts and/or issues, typos, misspellings, grammatical errors, and inaccurate/ineffective citations. 

  • As with most clients, the Hills have provided you with much more detail than you need for this assignment. Part of tax research is sifting through the narrative to find the key issue. Include only the facts that identify the key issue in your memo (see Sample Memo). 

  • Please ensure that you follow the citation formatting from either the textbook or the handouts. Don’t just cut and paste from RIA Checkpoint. 

  • There are many relevant cases on point for this case. Please use primarily appellate court decisions (and Supreme Court, if relevant) as they have more authoritative weight. You do not need to take the client’s location in to consideration. For this assignment, all Circuit Courts of Appeal have the same authoritative weight. If you find a court ruling from a trial court that you believe is more effective, you may use it. 

o Regardless of authoritative weight, all citations must be on point, support your conclusion, and be accurately interpreted.

  • For cases, that means that issues of law (rather than issues of fact) match the issue in this fact pattern.
  • For Code sections, that means that the section is relevant and applicable, and is the governing tax law for the issue in this fact pattern.

o I encourage you to also read “Why My IRC Beats Your Rev Proc” in Handouts.

  • All assignments must be completed in the format set forth in “Writing Effective Memos” and “Sample Memo.”