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THE ANNALS OF THE

"ŞTEFAN CEL MARE"
UNIVERSITY OF SUCEAVA.
FASCICLE OF THE FACULTY OF
ECONOMICS AND
PUBLIC ADMINISTRATION
VOLUME 9, NO. 2(10), 2009
Editura Universităţii Suceava

The Annals of The "Ştefan cel Mare" University of Suceava. Fascicle of The Faculty of Economics and Public Administration Vol. 9, No. 2(10), 2009
EDITORIAL BOARD:
Editor-in-chief: Carmen NĂSTASE

General editorial secretary: Adrian Liviu SCUTARIU
Editors: Elena HLACIUC, Carmen CHAŞOVSCHI, Mariana LUPAN, Ovidiu Florin HURJUI
SCIENTIFIC COMMITTEE:
Angela ALBU, „Ştefan cel Mare” University of Suceava, Romania

George P. BABU, University of Southern Mississippi, USA
Christian BAUMGARTNER, International Friends of Nature, Austria
Grigore BELOSTECINIC, ASEM, Chişinău, Republic of Moldova
Ionel BOSTAN, „Alexandru Ioan Cuza” University of Iaşi, Romania
Aurel BURCIU, „Ştefan cel Mare” University of Suceava, Romania
Gheorghe CÂRSTEA, Academ y of Economic Studies, Bucharest, Romania
Slobodan CEROVIC, Singidunum University, Belgrade, Serbia
Simion CERTAN, State University of Chişinău, Republic of Moldova
Carmen CHAŞOVSCHI, „Ştefan cel Mare” University of Suceava, Romania
Liliana ELMAZI, Tirana University, Albania
Cristian Valentin HAPENCIUC, „Ştefan cel Mare” University of Suceava, Romania
Elena HLACIUC, „Ştefan cel Mare” University of Suceava, Romania
Elena IFTIME, „Ştefan cel Mare” University of Suceava, Romania
Marian JALENCU, State University of Chişinău, Republic of Moldova
Miika KAJANUS, Savonia University of Applied Sciences, Iisalmi, Finland
Stefanos KARAGIANNIS, Institute of Tourism Research, Athens, Greece
Maria MUREŞAN, Academy of Economic Studies, Bucuresti, Romania
Carmen NĂSTASE, „Ştefan cel Mare” University of Suceava, Romania
Alexandru NEDELEA, „Ştefan cel Mare” University of Suceava, Romania
Ion PÂRŢACHI, ASEM, Chişinău, Republic of Moldova
Rusalim PETRIŞ, „Ştefan cel Mare” University of Suceava, Romania
Abraham PIZAM, University of Central Florida, Orlando, Florida
Ion POHOAŢĂ, „Alexandru Ioan Cuza” University of Iaşi, Romania
Gabriela PRELIPCEAN, „Ştefan cel Mare” University of Suceava, Romania
Gheorghe SANDU, „Ştefan cel Mare” University of Suceava, Romania
Petru SANDU, Elizabethtown College, Pennsylvania, USA
Pavlo SHYLEPNYTSYI, Bucovina State Academy of Finance, Chernivtsi, Ukraine
Doru TILIUŢE, „Ştefan cel Mare” University of Suceava, Romania
Ion TORONCIUC, National University Yuri Fedcovici, Chernivtsi, Ukraine
Viorel ŢURCANU, ASEM, Chişinău, Republic of Moldova
Diego VARELA PEDREIRA, University of A Coruna, Spain
Răzvan VIORESCU, „Ştefan cel Mare” University of Suceava, Romania
Valeriy YEVDOKYMENKO, National University Yuri Fedcovici, Chernivtsi, Ukraine
Text review: Alina HODOROABĂ, Adrian Liviu SCUTARIU. Cover design: Adrian Liviu SCUTARIU
Contact:
Faculty of Economics and Public Administration
„Ştefan cel Mare” University of Suceava
Str. Universităţii nr. 13, Corp H, Camera H108
720229 SUCEAVA, ROMANIA
Phone: (+40) 230 216147 int. 294
E-mail: cercetare@seap.usv.ro
Journal web site: www.seap.usv.ro/annals
Faculty web site: www.seap.usv.ro
University web site: www.usv.ro
2
CONTENT
SECTION 1
ECONOMY, TRADE, SERVICES ................................................................................................................................ 7
DETERMINANTS OF KEY PERFORMANCE INDICATORS (KPIS) OF PRIVATE SECTOR BANKS IN

SRILANKA: AN APPLICATION OF EXPLORATORY FACTOR ANALYSIS .................................................... 9
Balasundaram NIMALATHASAN
Department of Commerce, University of Jaffna, Jaffna, SriLanka
CO-OPERATION STRATEGIES ENHANCING THE INNOVATION IN NATURE-BASED TOURISM
SERVICES ...................................................................................................................................................................... 18
Anne MATILAINEN
University of Helsinki Ruralia Institute, Seinäjoki, Finland
Gerhard WEISS
University of Natural Resources and Applied Life Sciences, Vienna, Austria
Zuzana SARVASOVA
National Forest Centre, Zvolen, Slovakia
Diana FELICIANO
Macaulay Institute, Aberdeen, Scotland
Carmen NASTASE
University “Ştefan cel Mare”, Suceava, Romania
THE EUROPEAN EXPERIENCE CONCERNING REGIONAL DECENTRALIZATION ................................. 30
Associate Professor PhD. Irina-Maria DRĂGAN
Lecturer PhD. Rodica-Manuela GOGONEA
Academy of Economic Studies, Bucharest, Romania
ECONOMIC GROWTH IN RUSSIA REGIONS: KEY FACTORS ........................................................................ 35
Ph.D. Vitaly ALESCHENKO
Institute of Economy and Organization of an Industrial Production of the Siberian Branch of the Russian Academy
of Sciences, Russia
Associate Professor Ph.D. Alexandru NEDELEA
University Stefan cel Mare of Suceava
Lecturer Ph.D. Student Oana NEDELEA
APPRECIATIONS ON CRITICS OF THE GLOBALIZATION PROCESS .......................................................... 41
Lecturer PhD. Student Carmen BOGHEAN
Lecturer PhD. Student Florin BOGHEAN
Lecturer PhD. Mihai POPESCU
“Ştefan cel Mare”University of Suceava, Romania
THE SOCIAL LCA: THE STATE OF ART OF AN EVOLVING METHODOLOGY .......................................... 47
Luigia PETTI
Patrizia CAMPANELLA
DASTA, G. d’Annunzio University, Pescara, Italy
THE CONNECTION IDENTIFICATION BETWEEN THE NET INVESTMENTS IN HOTELS AND
RESTORANTS AND TOURISTIC ACCOMODATION CAPACITY BY USING THE ANOVA METHOD ..... 57
Assistant Roxana Elena STAN
Lecturer Emilia GABROVEANU
Assistant Nicoleta RADNEANTU
Romanian-American University, Bucharest, Romania
CONSIDERATIONS ON THE NEW COMMUNITY LEGISLATION REGARDING THE EUROPEAN
PRIVATE SOCIETY ..................................................................................................................................................... 62
Lecturer PhD. Elise Nicoleta VÂLCU
University of Piteşti, Romania
A THEORETICAL OVERVIEW ON INSTITUTIONS ............................................................................................ 70
PhD. Student Ana Iolanda VODĂ
“AL. I. Cuza” University, Iasi, Romania
THE ABILITY TO ASSUME THE DECISIONAL RISK IN THE CONSUMPTION PROCESS ........................ 75
Assistant PhD. Student Laura DIACONU
“Al. I. Cuza” University Iaşi, Romania
Professor PhD. Corneliu C. DIACONU
„Gr. T. Popa” University Iaşi, Romania
3
CONCEPTS, MODELS, TECHNIQUES AND PRACTICES OF ECONOMIC AND FINANCIAL ANALYSIS83

Ec. PhD. Student Alina BALAN
ASE Bucharest, Romania
SECTION 2
MANAGEMENT AND BUSINESS ADMINISTRATION ................................................................................... 91
HUMAN RESOURCES MANAGEMENT CONTROL ............................................................................................. 92

Professor PhD. Mihaela DUMITRANA
Lecturer PhD. Mădălina DUMITRU
Lecturer PhD.Iulia JIANU
Lecturer PhD.Gabriel JINGA
Lecturer PhD.Gabriel RADU
THE IMPLICATIONS OF THE FDI FLOWS ON THE ECONOMICAL GROWTH IN THE CENTRAL AND
EASTERN EUROPE COUNTRIES ........................................................................................................................... 100
Lecturer PhD. Mariana LUPAN
“Stefan cel Mare University” of Suceava, Romania
THE MANAGEMENT OF INNOVATION, A CHANCE TO STRENGTHEN THE ORGANIZATION .......... 107
PhD. Student Virgil Dan AMZA
Academy of Economic Studies, Bucharest, Romania.
Professor PhD. Constantin BRĂTIANU
MSc Student Miruna Vladia AMZA
SNSPA, Bucharest, Romania
THE INFLUENCES FINANCIAL MANAGEMENT IN DEVELOPING THE FUTURE FIRM`S BUSINESS 112
Lecturer PhD. Student Valeria Arina BĂLĂCEANU
Ecological Univeristy of Bucharest, Romania
BALANCED SCORECARD AND THE MANAGEMENT INTRUMENTS COMPLEMENTARITY ............... 119
Lecturer dr. ing. ec. Sunhilde CUC
University of Oradea, Romania
THE WAY IN WHICH METAPROGRAMS AND METAMODELS INFLUENCE LEADERS OF
ORGANIZATIONS ...................................................................................................................................................... 125
Ec. PhD. Student Cornel IOSIF
University ”Al. I. Cuza” Iasi, Romania
CURRENT TRENDS IN HRM ................................................................................................................................... 134
Assistant Otilia ALBU
Assistant PhD. Student Lucia MOROŞAN-DĂNILĂ
University „Ştefan cel Mare”, Suceava, Romania
THE OUTSET AND DEVELOPMENT OF PUBLIC RELATIONS (PR) IN ROMANIAN ECONOMY AFTER
1990 ................................................................................................................................................................................ 140
Assistant Raluca ZOLTAN
Professor PhD. Ghiorghi PRISĂCARU
Associate Professor PhD. Romulus VANCEA
”Ştefan cel Mare” University of Suceava, Romania
HOW TO UNDERSTAND THE NEW ECONOMY................................................................................................. 148
Assistant Ph.D. Student Angela-Nicoleta COZORICI
Assistant Ph.D. Student Simona BUTA
SECTION 3
ACCOUNTING - FINANCES .................................................................................................................................. 156
EVALUATION AND RECOGNITION OF INTANGIBLE FIXED ASSETS IN ACCORDANCE WITH

NATIONAL AND INTERNATIONAL FINANCIAL REPORTING STANDARDS IAS / IFRS......................... 157
Professor PhD. Dorel MATES
West University of Timisoara, Romania
Professor PhD.Elena HLACIUC
“Stefan cel Mare” University of Suceava, Romania
University Assistant PhD. Student Marian SOCOLIUC
“Stefan cel Mare” University, Suceava, Romania
4
MODELS FOR THE ASSESSMENT OF THE ENTREPRISE BANKRUPTY RISK IN CRISIS SITUATIONS
........................................................................................................................................................................................ 163
Professor PhD. Silvia Melania PETRESCU
„Al. I. Cuza” University of Iaşi, Romania
Lecturer PhD. Camelia Cătălina MIHALCIUC
„Ştefan cel Mare” University of Suceava, Romania
ACCOUNTING ALTERNATIVE TREATMENTS REGARDING FIXED ASSETS - A NATIONAL AND
INTERNATIONAL APPROACH............................................................................................................................... 173
Professor PhD. Ion PERES
Professor PhD. Dumitru COTLET
University Assistant PhD. Student Veronica GROSU
University “Stefan cel Mare” of Suceava, Romania
ASSESSMENT OF INFLUENCE INFLATION STOCKS ...................................................................................... 181
Associate Professor Ph.D. Mihaela TULVINSCHI
Lecturer Ph.D. Student Mariana VLAD
“Ştefan cel Mare” University of Suceava, Romania
PARTICULAR ASPECTS OF THE PROCESS OF FINANCIAL COMMUNICATION FROM THE
PERSPECTIVE OF EXIGENCIES REGARDING THE QUALITY ASSURANCE OF ACCOUNTING
PRODUCTS .................................................................................................................................................................. 189
Associate Professor PhD. Valeriu BRABETE
Associate Professor PhD. Cristian DRĂGAN
University of Craiova, Romania
QUO VADIS INTERNAL AUDIT EDUCATION?................................................................................................... 197
PhD Candidate Cristina BOŢA-AVRAM
PhD Professor Atanasiu POP
Babeş-Bolyai University, Cluj-Napoca, Romania
THE DISCRETIONARY FISCAL POLICY IN THE EUROPEAN ECONOMIC AND MONETARY UNION
........................................................................................................................................................................................ 206
Lecturer PhD Candidate Cristian PANA
Ecological University Bucharest, Romania
CONCEPTUAL APPROACHES CONCERNING THE NEW PARADIGM OF THE MONETARY ECONOMY
........................................................................................................................................................................................ 213
Professor, Ph.D Spiridon PRALEA
University of Iaşi „ Al. I. Cuza”, FEAA, Romania
Lecturer Ph.D. Irina – Ştefana CIBOTARIU
University Stefan cel Mare, Suceava, Romania
Lecturer Ph. D. Candidate Anişoara-Niculina APETRI
University Stefan cel Mare, Suceava, Romania
COSIDERATIONS REGARDING THE ORGANISATION OF FINANCIAL MANAGEMENT OF THE
ECONOMIC ENTITIES.............................................................................................................................................. 223
Lecturer PhD. Lucia RISTI
“Aurel Vlaicu” University Arad, Romania
RELEVANCE AND CREDIBILITY OF THE INFORMATION FROM
THE FINANCIAL-ACCOUNTING STATEMENTS ............................................................................................... 231
University Lecturer Ph.D. Marilena ZUCA
THE RELATIONSHIP BETWEEN FINANCIAL MANAGEMENT AND THE INFORMATION SUPPLIED
BY ACCOUNTANCY IN THE PROCESS OF SUBSTANTIATING THE FINANCIAL DECISIONS AT THE
LEVEL OF AN ECONOMICAL ENTITY ................................................................................................................ 238
Assistant Irina CHIRITA
Assistant Claudia GRIGORAŞ-ICHIM
CONCEPTUAL DELIMITATION OF FIXED ASSETS PROCUREMENT IN PROJECTS WITH GRANT
FUNDING ..................................................................................................................................................................... 244
Assistant PhD. Student Mihaela Nătăliţa LESCONI-FRUMUŞANU
PhD. Student Ec. Ioan Anton PAULESCU
University Eftimie Murgu, Resita, Romania
THEORIES REGARDING FINANCIAL INTERMEDIATION AND FINANCIAL INTERMEDIARIES – A
SURVEY........................................................................................................................................................................ 254
Research Assistant PhD Student Alin Marius ANDRIEŞ
„Alexandru Ioan Cuza” University of Iaşi, Romania
5
ACCOUNTING POLICIES APPLIED IN DETERMINING CASH FLOW ......................................................... 262

PhD Student Florin HOSTIUC
Alexandru Ioan Cuza University of Iasi, Romania
Lecturer student PhD Ciprian Dan COSTEA
Vasile Goldis West University of Arad, Satu Mare branch, Romania
SECTION 4
STATISTICS, DATA PROCESSING (INFORMATICS) AND MATHEMATICS......................................... 272
A STATISTICAL ANALYSIS OF THE NORTH-EAST REGION OF ROMANIA COMPARED TO THE

OTHERS IN TERMS OF TOURIST ACTIVITY ..................................................................................................... 273
Assistant PhD. Student Ioana CIOTIR
Assistant PhD. Student Adrian Liviu SCUTARIU
DATABASE ACCESS THROUGH JAVA TECHNOLOGIES ............................................................................... 281
Professor PhD. Ion LUNGU
Inf. PhD. Student Nicolae MERCIOIU
Inf. PhD. Student Victor VLĂDUCU
MATHEMATICAL MODELING OF THE DISSEMINATION PHENOMENON CONCERNING THE
CURRENCY CRISIS OF SUOTH-EASY ASIA ....................................................................................................... 292
Lecturer PhD. Student Tudor COLOMEISCHI
Lecturer PhD. Student Anamaria G. MACOVEI
SECTION 5
LAW AND PUBLIC ADMINISTRATION ............................................................................................................ 299
ROMANIA AND BULGARIA IN THE EUROPEAN UNION: A SPATIAL ANALYSIS OF COUNCIL

VOTING ........................................................................................................................................................................ 300
Adjunct Professor PhD. Diego VARELA
University of A Coruña, Spain
CONSIDERATIONS ON PRE-EMPLOYMENT STAGE SPECIFIC PERSONNEL ADMINISTRATION ..... 310
Lecturer Ph.D. Alunica MORARIU
Professor Ph.D. Grigore BELOSTECINIC
Academy of Economic Studies of Moldova, Chisinau
Professor Ph.D. Ionel BOSTAN
THE DISTINCTION BETWEEN DECENTRALIZATION AND DECONCENTRATION OF PUBLIC
SERVICES .................................................................................................................................................................... 315
Lecturer Ph.D. Student Irina BILOUSEAC
University Assistant Petronela ZAHARIA
,,Ştefan cel Mare” University of Suceava, Romania
BOOK REVIEW .......................................................................................................................................................... 321
BOOK REVIEW FOR MACROECONOMICS: FUNDAMENTAL CONCEPTS, Carmen NĂSTASE, Mihai

POPESCU, Carmen BOGHEAN, Adrian Liviu SCUTARIU .................................................................................. 322
Professor PhD. Gheorghe CÂRSTEA
Dean of the Faculty of Management, ASE Bucharest, Romania
INSTRUCTIUNI UTILE PENTRU AUTORI / AUTHOR GUIDELINES ............................................................. 325
6
SECTION 1
ECONOMY, TRADE, SERVICES
7
8
DETERMINANTS OF KEY PERFORMANCE INDICATORS (KPIS) OF PRIVATE

SECTOR BANKS IN SRILANKA: AN APPLICATION OF EXPLORATORY FACTOR
ANALYSIS
Balasundaram NIMALATHASAN
Department of Commerce, University of Jaffna, Jaffna, SriLanka
bnimalathasan@yahoo.com
Abstract:
An efficient banking system facilitates linkage between mobilization and use of resources, which accelerates
the process of economic growth. It is a widely accepted belief that a banking system which relies on a wide array of
banking products, is able to carry out this function because it increases the efficiency of a banking systems to a large
extent by offering a broader and flexible arrange of services to the benefits of both borrowers and investors.
Meanwhile, there are no comprehensive and empirical researches in that field especially in banking sector.
In an attempt to fill in this gap, the present study is conducted determinants of key performance indicators
(KPIs) of private sector banks in SriLanka with samples of hundred respondents in twelve branches in North and
Eastern Provinces. Data were collected through a five points Likert type summated rating scales of questionnaire from
strongly disagree (1) to strongly agree (5) were adopted to identify indicators. Sophisticated statistical model as
“Exploratory Factor Analysis” (EFA) has been used. The results show that eight factors extracted from the analysis
that together accounted 73.781% of the total variance. These factors were categorized as 1) Accident Ratio (AR); (2)
Opportunity Succession Rate (OSR); (3) Cash Flow (CF); (4) Return on Capital Employed (ROCE); (5) Customer
Satisfaction Rate (CSR); (6) Overall Equipment Effectiveness (OEE); (7) Return on Investment (ROI); (8) Internal
Promotion (IP).
Keywords: Key Performance Indicators; Banking; Measurement; Efficiency
JEL Classifications: M1, M4
INTRODUCTION
Every organisation measures them to some degree. Often these measurements are based on
historical information. While there is certainly value in historical analysis, it is a fundamental
principle of Key Performance Indicators (KPIs) to be current or forward-looking metrics. It is also
critical that KPIs be closely aligned to strategic company goals and implemented in such a way as
to support positive change. KPIs are financial and non-financial metrics used to help an
organization define and measure progress toward organizational goals. KPIs can be delivered
through business intelligence techniques to assess the present state of the business and to assist in
prescribing a course of action.
KPIs are quantifiable measurements, agreed to beforehand, that reflect the critical success
factors of an organization. Whatever KPIs indicators are selected, they must reflect the
organization's goals, they must be key to its success, and they must be quantifiable (measurable).
KPIs usually are long-term considerations. The definition of what they are and how they are
measured do not change often. The goals for particular KPIs may change as the organization's goals
change, or as it gets closer to achieving a goal. The act of monitoring KPIs in real-time is known as
Business Activity Monitoring (BAM). KPIs are frequently used to "value" difficult to measure
activities such as the benefits of leadership development, engagement, service, and satisfaction.
KPIs are typically tied to an organization's strategy (as exemplified through techniques such as the
Balanced Score Card).
LITERATURE REVIEW
Performance Indicators (PIs) have been implemented in many countries, from the United
Kingdom (UK) to Australia labelled as essential management information (Sizer, 1990) and a
management tool (CVCP/UGC, 1986), as well as claimed to bring about numerous benefits (e.g.,
improved accountability and planning), PIs are expected to be increasingly used by the
9
governments of the future (Carter, Klein & Day, 1992; Hughes, 1994). However, the literature on
performance indicators suggests that their application may bring about dysfunctional effects. In
particular, authors from countries such as the UK (Barnett, 1992), Australia (Marginson, 1995),
United State of America (USA) (Porter, 1988), and the Netherlands (Vroeijenstijin & Acherman,
1990) had voiced their concerns that performance indicators could set the criteria for performance.
Performance measurement and reporting is now widespread across the private sector as well
as public sector of many industrialised and industrialising countries. The common tool that is used
for this process, key performance indicators (KPIs), have been argued to provide ‘intelligence’ in
the form of useful information about a public and private agency’s performance (Williams,2003).
So great is this faith in KPIs that many public and private agencies are now mandated by
law or executive order to use them as one of the primary tools to account for their performance to
main public accountability or reporting authorities, such as the Parliament and the Government
auditor. It is apparent that, the way in which KPIs work to improve accountability is through the
information they provide to the principal. Performance measurement systems assume that humans
can use the information to make better decisions (Cavalluzo & Ittner, 1999). This assumption is
consistent with the rational-comprehensive and bounded rationality perspectives on decision-
making (Simon, 1955, 1992). The former perspective describes information as directly related to
organisational goals and the organisational methods by which to achieve these goals. It also views
information as available, unambiguous and directly influential on decisions.
Many scholars have maintained that the implementation of performance measurement
systems possesses important symbolic value (Modell, 2004; Moynihan, 2005; Vakkuri & Meklin,
2006). KPIs are viewed as a ‘good’ management device and a socially constructed tool that makes
sense (DeKool, 2004 & Weick, 1995). The fact that KPIs tend to be quantitative has helped to
promote their image of objectiveness and rationality. The image of KPIs is further enhanced by
their widespread application across the public sector of many industrialised countries. The
importance of performance measurement is noted by Ingraham (2005) it is important to expect that
citizens see and understand the results of government programs. It is necessary that public
employees and their leaders not play their thumbs when public dollars are wasted on poorly planned
or unrealistic public programs.
Based on the above literatures, there are no comprehensive and empirical researches in that
field especially in private sector banks viz., EFA. In an attempt to fill in this gap, the present study
is conducted the determinants of key performance indicators (KPIs) of private sector banks in
SriLanka with samples of hundred respondents in twelve branches in North and Eastern Provinces.
OBJECTIVES
The present study has the following objectives

1. To examine necessary indicators for the performance of the private sector banks.
2. To determine the key indicators for the performance of the private sector banks.
MATERIAL AND METHODS
Sampling procedure
The sample for this study was private sector banks in North and Eastern Provinces of
SriLanka. A stratified random sampling technique was used to select the organizations. Initially we
identified total number of banks which consists of four private sector banks (Seylan bank; Hatton
National Bank; Commercial Bank& Sampath bank). Out of 16 branches of above four banks, 75%
of the banks were selected for the study.Utlimately the present study is made with the samples of 12
private sector banks. Researchers, then, decided to distribute 10 questionnaires among each branch.
In a way 120 questionnaires were distributed, of which only 110 were returned and 100 were used
for the study as an ultimate samples.
10
Data source
The study was complied with the help of primary data. Primary data were collected through
the questionnaire. Moreover, the desk study covered various published and unpublished materials
on the subject.
Questionnaire Development
The questionnaire was administrated to banking executives in North and Eastern Province
of SriLanka.The questionnaire was designed by the researchers with some modification from
Kaplan & Norton, (1996). A five item scale from strongly disagree (1) to strongly agree (5) was
adopted to identify the indicators.
Statistical Tools Used

In the present study, we analyse our data by employing EFA. For the study, entire analysis
is done by personal computer. A well known statistical package SPSS (Statistical Package for
Social Sciences) 13.0 Version was used in order to analyze the data.
Results and Discussion

To identify potential underlying dimensions of the KPIs of private sector banks
development used in the current study, responses of the participants were subjected to factor
analysis method. Before applying factor analysis, testing of the reliability of the scale is very much
important as its shows the extent to which a scale produces consistent result if measurements are
made repeatedly. This is done by determining the association in between scores obtained from
different administrations of the scale. If the association is high, the scale yields consistent result,
thus is reliable. Cronbach’s alpha is most widely used method. It may be mentioned that its value
varies from 0 to 1 but, satisfactory value is required to be more than 0.6 for the scale to be reliable
(Malhotra, 2002; Cronbach, 1951). In the present study, we, therefore, used Cronbach’s alpha scale
as a measure if reliability. Its value is estimated to be 0.653 , If we compare our reliability value
with the standard value alpha of 0.6 advocated by Cronbach (1951), a more accurate
recommendation Nunnally and Bernstein (1994) or with the standard value of 0.6 as
recommendated by Bagozzi and Yi’s (1988) we find that the scales used by us are highly reliable
for data analysis.
Regarding validity, a research instrument with small modifications from the model
developed by Kaplan & Norton (1996) was used. The statements included in the questionnaire are
most suitable for the variable, because many researchers used these variables to measure the
performance indicators (Kaplan & Norton, 1996; Deming, 1986; Inner & Larcker, 1997). Hence the
researchers satisfied with the content validity then it was decided to continue the analysis.
After checking the reliability of scale, we tested whether the data so collected is appropriate
for factor analysis or not. The appropriateness of factor analysis is dependent upon the sample size.
In this connection, Kaiser – Meyer- Olkin (KMO) measure of sampling adequacy is still another
useful method to show the appropriateness of data for factor analysis. The KMO statistics varies
between o and 1. Kasier (1974) recommends that values greater than 0.5 are acceptable. Between
0.5 and 0.7 are mediocre, between 0.7 and 0.8 are good, between 0.8 and 0.9 are superb (Field,
2000). In this study, the value of KMO for overall matrix is 0.461 (For details please see table no
1), it is near to 0.5. Hence the sample taken to process the factor analysis is statistically significant.
Table no 1. KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy.
.461
Bartlett's Test of Sphericity Approx. Chi-Square 574.740

df 210
Sig. .000
Source: Survey data
11
Bartlett’s test of sphericity (Barlett, 1950) is the third statistical test applied in the study for
verifying its appropriateness. This test should be significant i.e., having a significance value less
than 0.5. In the present study, test value of Chi – Square 574.740 is significant (as also given in
table no.1) indicating that the data is appropriate for the factor analysis.
After examining the reliability and validity of the scale and testing appropriateness of data
as above, we next carried out factor analysis to indentify the KPIs of private sector banks. For this,
we employed Principal Component Analysis (PCA) followed by the varimax rotation, (Generally,
researchers’ recommend as varimax). When the original twenty-one variables were analysed by the
PCA. Eight variables extracted from the analysis with an Eigen value of greater than 1, which
explained 73.781 percent of the total variance (For details please see table no 2).
Table no 2. Total Variance Explained

Initial Eigen values Extraction Sums of Squared Loadings
Component Total % of Variance Cumulative % Total % of Variance Cumulative %
1 3.398 16.182 16.182 3.398 16.182 16.182
2 2.505 11.927 28.109 2.505 11.927 28.109
3 2.073 9.871 37.980 2.073 9.871 37.980
4 1.824 8.685 46.666 1.824 8.685 46.666
5 1.730 8.237 54.903 1.730 8.237 54.903
6 1.428 6.800 61.702 1.428 6.800 61.702
7 1.345 6.404 68.106 1.345 6.404 68.106
8 1.192 5.675 73.781 1.192 5.675 73.781
9 .983 4.681 78.462
10 .878 4.182 82.644
11 .703 3.349 85.993
12 .591 2.816 88.809
13 .556 2.647 91.456
14 .439 2.090 93.547
15 .373 1.777 95.324
16 .313 1.490 96.814
17 .290 1.382 98.196
18 .194 .922 99.118
19 .110 .524 99.642
20 .057 .271 99.913
21 .018 .087 100.000
Source: Survey data
Extraction Method: Principal Component Analysis.
One method to reduce the number of factors to something below that found by using the
‘eigen value greater than unity’ rule is to apply the scree test (Cattell, 1966). In this test, eigen
values are plotted against the factors arranged in descending order along the X-axis. The number of
factors that correspond to the point at which the function, so produced, appears to change slope, is
deemed to be the number of useful factors extracted. This is a somewhat arbitrary procedure (For
details please see figure no 1). Its application to this data set led to the conclusion that the first eight
factors should be accepted. Within this solution, Factor 1 had fourteen items with their primary
loadings on that factor, one item, two items had their primary loadings on Factor 2 and Factor 3
respectively, but Factor 4 did not contain any primary loadings.
12
Figure no 1. Scree Plot
It is worth mentioning out here that factor loading greater than 0.30 are considered
significant. 0.40 are considered more important and 0.50 or greater are considered very significant.
The rotated (Varimax) component loadings for the eight components (factors) are presented in
Table no 3. For parsimony, only those factors with loadings above 0.50 were considered significant
(Pal, 1986; Pal and Bagi, 1987; Hair, Anderson, Tatham, and Black, 2003).
Table no 3. Principal Component Analysis – Varimax Rotation Indicators of Performance

Variables Indicators
Indicator 1 Indicator 2 Indicator 3 Indicator 4 Indicator 5 Indicator 6 Indicator 7 Indicator 8

IP AR ROI OSR CSR OEE CF ROCE
IP .968
GR .948
FR .947
AR .951
NOA .926
ROI .759
ILR .675
CL .619
OSR .798
CR .774
IWE -.535
CSR .822
ROE .766
OEE .731
IE .667
DPCE -.564
CF .930
ET .610
ROCE .749
13
DPCQ .711
Eigen Value 3.398 2.505 2.073 1.824 1.730 1.428 1.345 1.192
Proportion of 16.182% 11.927% 9.871% 8.685% 8.237% 6.800% 6.404% 5.675%

Variance
Cumulative 16.182% 28.109% 37.980% 46.666% 54.093% 61.072% 68.106% 73.781%
Variance
Explained
Source: Survey data
Indicator 1: IP – This indicator was represented by three variables with factor loadings ranging
from .968 to .947. They were internal promotions, gender ratio, and financial result. This indicator
accounted for 16.182% of the rated variance.
Indicator 2: AR – Two variables with loadings ranging from .951 to .926 belonged to this factor
and they included accident ratio and number of activities. This indicator explained 11.927% of the
rated variance.
Indicator 3: ROI – This indicator comprises three variables representing return on investment,
illness rate, and customer loyalty. Factor loadings of these variables ranged from .759 to .619. A
variance of 9.871% was explained by this factor.
Indicator 4: OSR – Three variables were included in this indicator. They were opportunity
success rate, customer retention, and internal working environment. Their factor loadings ranged
from .798 to -.535. The factor explained 8.685%.
Indicator 5: CSR – This indicator comprised two variables, namely customer satisfaction rate,
return on equity. They carried factor loadings of .822 and .766. The factor explained 8.237% of the
variance.
Indicator 6: OEE – Three variables with loadings ranging from .731 to -.564 to this indicator and
them included overall equipment effectiveness, internal efficiency, and deliver performance to
customer – by date. This indicator explained 6.800% of the rated variance.
Indicator 7: CF - This indicator consisted two variables representing to cash flow and employee
turnover. Factor loadings of these variables ranged from .930 to .610. A variance of 6.404 % was
explained by this indicator.
Indicator 8: ROCE - This last indicator comprised of two variables relating to the return on
investment and deliver performance to customer – by quality. Their loadings ranged from .749 to
.711. The variance explained by this indicator amounted to 5.675%.
Ranking of the above eight indicators in order to their importance, along with mean and standard
deviation, is shown in Table no 4. The importance of these indicators, as perceived by the
respondents, has been ranked on the basis of their mean values.
Table no.4 Ranking of Indicators according to their importance

Indicators No. of. Variables Mean S.D Rank
Indicator 1: IP 03 4.1552 .8214 8
Indicator 2: AR 02 4.2586 .73294 1
Indicator 3: ROI 03 4.1609 .59968 7
Indicator 4: OSR 03 4.2529 .51227 2
Indicator 5: CSR 02 4.1983 .72511 5
Indicator 6: OEE 03 4.1782 .47229 6
Indicator 7 : CF 02 4.2500 .69617 3
Indicator 8 : ROCE 02 4.2155 .66959 4
Source: Survey data
As depicted in table no. 4, the indicators “AR”; “OSR”; “CF”; “ROCE”; “CSR”; “OEE”;
“ROI”; and “IP” got the ranks of first, to eight respectively and constitute the KPIs of Private
sector banks in North and Eastern Provinces of SriLanka.
14
CONCLUSIONS
Through an empirical investigation, this study has identified eight indicators that are major
contributors to the performance of the private sector banks in North and Eastern provinces of
SriLanka. These factors in order to importance are (1) AR; (2) OSR; (3) CF; (4) ROCE; (5) CSR;
(6) OEE; (7) ROI and (8) IP.
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Appendix- A:
Table no 5: Code Sheet
Code Descriptions of the Indicators
DPCD Deliver Performance to Customer – by Date
DPCQ Deliver Performance to Customer – by Quality

CSR Customer Satisfaction Rate
CL Customer Loyalty
CR Customer Retention
NOA Number of Activities
OSR Opportunity Success Rate
AR Accident Ratio
OEE Overall Equipment Effectiveness
IWE Internal Working Environment
IE Internal Efficiency
16
IR Investment Rate
IlR Illeness Rate
IP Internal Promotions
ET Employee Turnover
GR Gender Ratios
CF Cash Flow
ROI Return on investment
FR Financial Result
ROCE Return On Capital Employed
ROE Return on Equity
17
CO-OPERATION STRATEGIES ENHANCING THE INNOVATION IN NATURE-BASED

TOURISM SERVICES
Anne MATILAINEN1), Gerhard WEISS2), Zuzana SARVASOVA3), Diana FELICIANO4), Carmen NASTASE5)
1)
University of Helsinki, Ruralia Institute, Seinäjoki, Finland
2)
University of Natural Resources and Applied Life Sciences, Vienna, Austria
3)
National Forest Centre, Zvolen, Slovakia
4)
Macaulay Institute, Aberdeen, Scotland
5)
Abstract
Nature-based tourism is rapidly growing industry sector providing new kinds of sources of livelihood to the
rural areas to diversify the traditional economics. However, the level of innovations in nature tourism and recreation
services has not been reported as very high. The innovations in nature-based tourism typically occur not as a result of
specific innovation systems but rather “between” existing ones, and as a result of a more spontaneous, project-oriented
cooperation of various actors. Therefore, in creating new ideas and opportunities, the role of key actors and co-
operation partners is essential. The successful co-operation with the different stakeholder groups has found to have
clear connections on the company’s business performance and in the long run the company must operate in such a way
that the stakeholder groups are satisfied. To be able to combine all these different types of actors to cross-sectoral
networks and co-operation is essential and it provides a big challenge especially in small and micro company level.
This paper aims to illustrate by using 10 case studies around Europe (AUT, FIN, RO, SLO and Scotland), what
kind of strategies small and micro size nature-based tourism companies have created in order to establish and maintain
the critical co-operation with the main stakeholder groups effecting their business activities and social sustainability of
companies. As a result two different strategies, business approach - and community approach -strategy were found. The
results clearly highlight the important role of informal co-operation and co-operation networks in nature based tourism
innovation process.
Key words: nature-based entrepreneurship, stakeholders, co-operation, multiple use of forests, case study
JEL Classification: L83, O32
1. INTRODUCTION
Nature-based tourism can broadly be defined as tourism, with main activities related to
nature (Saarinen 2001). It is a growing industry sector providing new sources of livelihood to
diversify the traditional rural economics, namely agriculture and forestry. The income generating
form nature tourism typically remains in the rural regions, it usually requires strong local
knowledge base and the sector is labor intensive (e.g. Saarinen 2003, Honkala 2001), which
characteristics make it especially interesting in respect of rural development.
In general tourism is one of the most rapidly growing industry sectors at the moment.
Within it, especially nature-based tourism has had high growth rates and the growth has been
estimated to continue in near future with increasing respect for the pure authentic nature by the
consumers (Ryymin 2006). For example in Finland the growth rate of the turnover of nature safari
companies exceeded up to 8,5 % during 2003-2004 and even the growth rate of smaller nature
tourism companies exceeded up to 6 % (Ryymin 2006). At the same time the growth of traditional
saw mill industry was practically non-existent (Hänninen and Toppinen 2004).
However, even though the nature-based tourism sector is growing rapidly in many respects
in Europe, the level of innovations (both product and process innovations) in nature tourism and
recreation services has not been reported as very high (see e.g. Nybakk et al. 2005, Rametsteiner et
al. 2005). This brings out the question, if the possibilities and opportunities have been recognised
and utilised in all their potential. The competition in the nature tourism is increasing concerning
especially foreign niche customer groups. The innovativeness is an important element in the
competitiveness of companies and has been seen as one of the indicators of the future development
of the sector (e.g. Rametsteiner et al. 2005).
In creating new ideas and opportunities, the role of key actors and co-operation partners is
essential. Those actors, who have the knowledge and access on nature resources, play very
18
important role. In European context nature-based tourism utilizes typically forests in some form and
in many cases the forest areas are not owned by the entrepreneurs. This brings out not only the
questions of property rights but also the one of combining the interests of user groups of the forest
areas (Matilainen and Lähdesmäki 2009). Equally important role have those actors, who have the
“access to customers” in the marketing channels. For a nature-based company to be able to combine
these different types of information and actors to cross-sectoral networks and co-operation is
essential, and it provides a big challenge to the sector especially in small and micro company level
(see e.g. Rametsteiner et al. 2005, Luostarinen 2005, Lunnan et al. 2005). The important questions
in order to support innovation activity in nature-based tourism sector are, how simultaneously
guarantee the access to the needed natural resource (in this study forest areas) and to the customers,
organize the business activities effectively and to combine the interests of different stakeholder
groups, both local and wider, for the use of forest areas in order to successfully generate and
develop the nature-based tourism sector as part of rural economics.
In order to overcome these problems, the small and micro size companies have to find
successful networking and co-operation strategies (Virkkala 2006). Typically rurally located nature-
based tourism companies form complex co-operation relationships to ensure their activities, and are
continuously developing this co-operation, without which their companies would extinct. In
addition especially in rural regions the social sustainability of business activities plays an important
role in success of the company (Lähdesmäki 2005)
This paper aims by using cases throughout Europe, to illustrated, what kind of co-operation
strategies nature-based tourism companies have developed for managing the most critical
stakeholder groups in order to reach the local acceptance for their business activities and maintain
and develop their innovations further.
2. THEORETICAL BACKGROUND
2.1 INNOVATION RESEARCH AND REGIONAL GOVERNANCE - PROVIDING

BASES TO THE INNOVATION OF RURAL NATURE-BASED TOURISM COMPANIES
Innovation research has often studied innovation processes in large firms that pursue explicit
innovation strategies and run R&D-departments. Scholars, however, have learnt that innovation is a
process that does not only take place within companies, but also between companies and between
companies and many other actors. Besides of various types of private and public actors also
institutional framework conditions are important to form and success of innovation processes. The
systems of innovation approach (Lundvall 1992, Nelson 1993, Edquist 1997) defines innovation as
a result of systems that consist of actors and institutional settings whereby actors include – besides
of the company and as important as them – authorities, interest organisations, consultancy agencies
and research and education institutes. Institutional settings on the other hand are understood as
formal and informal rules and norms, e.g. public policies or the innovation and interaction culture in
certain regions or sectors. Innovation systems are often understood in a narrower sense as
established, enduring systems that are explicitly and strategically oriented at creating innovations in
a national economy – national innovation system (Nelson 1993), a sector – sectoral innovation
system (Breschi, 1997), or a region – regional innovation system (Asheim, 2002). Innovations in
nature-based tourism are of significantly different in nature: they typically occur not as a result of
specific innovation systems but rather “between” existing ones, and as a result of a more
spontaneous, project-oriented cooperation of various actors (Kubeczko et al, 2006).
Such kind of innovation processes are particular important in regions with weak economic
and institutional structures and crucial for the economic development of such regions. This is often
case with many rural regions. These processes are studied under the headings of regional
development, regional governance and learning regions.
The early concepts of industrial districts (Harrison 1992) and enterprise clusters (Porter
1998) pointed out the importance of interrelationship of regional enterprises. Consequently,
19
“company networks concepts” where enlarged to also comprise socio-cultural and political
networks, leading to the concept of the “creative” or “innovative milieu” (Cooke and Morgan 1994;
Capello 1996; Maillat 1996). These strands of theorizing assume that innovative regions have to be
supported by three network systems: business, social and political networks (Weber 2002; Fornahl
and Brenner 2003). The regional actors’ adaptability and their ability to learn is the central question
of the study of “learning regions” (Florida 1995; Asheim 1996; Morgan 1997).
Some representatives of the learning regions approach look at innovation processes in
regions with weaker capacities. In their analyses they focus on the role of social capital and trust,
formal and informal inter-firm networks and the process of interactive learning (Asheim 1996,
Morgan 1997). Important resources for innovation and economic development are the capacity of
people, organisation, networks and regions to learn. Authors often look at “network organised
innovation projects” (Asheim, forthcoming). In these studies, the basic features of innovation
systems are used but more broadly interpreted and applied to any co-operations or networks of
actors in innovation projects (innovation systems in a broader sense).
The critical networks and co-operation partnerships for innovation systems in broader sense
can be seen to be formed from different types of stakeholders relating to the innovation initiatives.
The crucial issue is, how all the key stakeholders are taken into consideration so that successful
networks and partnerships can be formed and social sustainability of the business activities can be
guaranteed.
2.2. THE ROLE OF STAKEHOLDERS IN FORMING SUCCESSFUL CO-

OPERATION AND CREATING SOCIAL SUSTAINABILITY FOR RURAL BUSINESS
It has been stated that transferring corporate social sustainability of to the business objectives
is best undertaken by using the stakeholder approach (Clarkson 1995). In their operational
environment the rural SMEs have different kind of stakeholder groups influencing their scope of
action. As a stakeholder can be defined any group or individual who can affect or is affected by the
achievement of a corporation’s purpose. (Freeman 1984) for example when company’s activities set
limitations to land use of local people. The impact and influence mechanism of to business
environment vary depending on the type of stakeholder group. The stakeholders can be divided
into “primary stakeholders”, who have formal, official or contractual relationship with the company
and to the secondary stakeholders, who represent the rest of interest groups in the business
environment, like local people, forest owners etc. (Carroll 1989 and 1993, Clarkson 1995, Näsi
1995).
The influence these stakeholders have to companies’ activities can be direct or indirect.
Frooman (1999) has divided the stakeholder influence between a company and stakeholder group
based on the resource dependence. If the company’s dependence on the stakeholders’ resource e.g.
in case of nature tourism forest land, is high, more likely direct influence mechanisms are used in
the co-operation between the company and stakeholders. In cases when the dependence is low and
stakeholders do not control the critical resources for company’s operations, the indirect influence
methods via other stakeholders are used (Frooman 1999, Sharma and Henriques 2005).
The successful co-operation with the different stakeholder groups has found to have clear
connections on the company’s business performance (e.g. Besser 1999). According to Näsi (1995)
in the long run the company must operate in such a way that the stakeholder groups are satisfied or
the company’s activities will likely cease. Bryson (2004) also highlights that it is important to
satisfy the key stakeholders at least minimally according to their own criteria for satisfaction. This
brings out the need for entrepreneurs to be able to understand the stakeholder’s agenda, which is
sometimes difficult to identify. The failure to understand the unforeseen hidden power and
influence of stakeholders has led to countless project and business failures (Bourne and Walker
2005, Nutt 2002) Typical example of the significant role of stakeholder’s hidden power are
planning and decision making processes of the utilization of nature resources (see e.g. Sharma and
Henriques 2005, Bisi 2008).
20
In rural areas there seem to be more expectations from the stakeholder groups towards the
companies than in urban areas (Lähdesmäki 2005). This highlights the critical role of fluent co-
operation between the company and stakeholders. The stakeholder groups are unique for each
company and its actions based on e.g. location, line of business, networks, customer base of the
company. They are also very multiplicity and form a complex network (Neville and Menguc 2006).
In many cases it is impossible to satisfy fully all the stakeholder groups. Therefore it is important to
identify the key stakeholders (Bryson 2004). There have been developed different kind of
stakeholder analyses and practices to locate the most critical stakeholders for different processes
and activities (e.g. Bryson 2004, Bourne and Walker 2005, Cleland 1999, Neville and Menguc
2006). According to Mitchell et al 1997 the critical attributes in defining key stakeholders are
power of the stakeholder, legitimacy of the stakeholder concerning the stake and urgency, the
stakeholder claims attention to his claims from the entrepreneur.
In this paper the approaches mentioned above are combined in certain extent and a company
approach was chosen. The stakeholders, without whose acceptance or co-operation the company’s
innovation process would not have been possible, or the business activities could not continue
successfully on the long run are considered as critical or key stakeholders, regardless whether the
stakeholders can be seen primarily or secondary, or whether the influence of the stakeholders is
direct or indirect.
The companies have developed different various co-operation strategies, either strategically
considered or unconscious, in order to sustainable co-operate with and manage different stakeholder
groups. The chosen strategies influence also directly on the business decisions of the operators
(Besser and Miller 2001).
3. MATERIAL AND METHODS
In this study interpretative and descriptive perspective was adapted for studying the
relationship between the entrepreneurs and their key stakeholder groups in innovation process of
nature-based tourism. This kind of qualitative approach is well justified choice in order to
understand any phenomena about which little is yet known (Strauss & Corbin 1990). The aim is a
rather inductive analysis (see Glaser & Strauss 1967; Strauss & Corbin 1990). For studying the
innovation process a case study –approach has been chosen, in which the cases are designed as
innovation cases on enterprise level. A case study is considered to be an appropriate research
strategy to investigate contemporary phenomena within their real-life context, especially when the
boundaries between the phenomena and the context are not clearly evident (Yin 2003; Perry 1998),
like typical when investigating an innovation process. Furthermore, case studies can be descriptive,
explanatory or exploratory in their nature (Yin 2003).
The empirical data consist of 10 case studies representing five different European countries
(AUT, FIN, RO, SK and Scotland (UK)) providing a collection of cases each representing
different institutional settings with regard to access to forest land, innovation support system and
forest ownership. The sampling of the interviewees was made by a purposive sampling in order to
ensure manageable and informative data (see Patton 2002). The case studies have been collected by
the co-authors of the article by using joint semi-structured thematic interview guideline, which
allowed flexible conversations to take place still ensuring that all the main issues were discussed
(see e.g Patton 2002). The themes were chosen to cover the critical aspects relating co-operation
networks of forest based nature tourism companies, especially focusing on mapping out the critical
stakeholder groups and their management.
The interviews were conducted during 2004 - 2009. In most of the cases innovation carrier
has been visited by the case author. The data collection methods comprised personal face-to-face,
telephone and e-mail interviews with core actors of the innovation project. In addition written
sources such as internal or official project documentations, press releases, newspaper articles,
information on websites, brochures etc were used. The critical key stakeholder groups for each case
were identified by the case authors based on the data (Table 1).
21
The data was analysed by using analyst-constructing typologies, in which patterns,

categories and themes are looked for from the data and based on these, typologies were formed
(Patton 2002). For this purpose a common analyzing framework was created. Typologies are built
on ideal types rather than complete and discrete set of categories and they provide one simple form
for presenting the qualitative comparisons (Patton 2002). Unlike classification systems, typologies
do not provide rules for classifying. Instead, typologies usually identify multiple ideal types, each
of which represents a unique combination of the attributes that are believed to determine the
relevant outcome (Doty and Glick 1994). In other words the typologies and their characteristics
emerge from the data during the analysing instead of being decided in beforehand. Since the
typologies present complex ideal types, the cases can have elements from several different
typologies. In analysing, the case descriptions were cross-checked by co-authors in order to ensure
the quality of the results and to avoid the risk of creating analyst-constructed typologies that are too
much influenced by the analyser (Patton 2002). The summary of cases is presented in the table 1.
3.1. CASE STUDIES AND THEIR INNOVATIVENESS
All the cases, even though representing different nature tourism activities, represent new
innovative form to utilize forest areas for benefiting economics of the region in a form of private
company or wider network of actors. Common to all cases are several critical stakeholder groups
without whose support the activities could not have been established or maintained.
“Almliesl” – Marketing of forest cottages for tourists, Austria
The marketing initiative carrier is a regional unit of the Austrian Federal Forests, whose
innovation was to renovate and lease 12 traditional forest houses and hunting cottages to tourists.
After severe troubles, the project was reorganised by handing over the marketing to a tourism
agency offering quality cottages in Austrian mountain provinces under the brand “Almliesl”. In the
case traditional heritage cottages has been managed to transform business activities without
endangering the traditional or social value of the cottages. However, the successful stakeholder
management has played significant role in success.
Canopy walkway Sauwald, Austria
The innovation initiated by a private farmer aiming to diversify his business activities by
offering in his forest a canopy walkway and a forest restaurant. The innovation was carried out as
EU Leader+ -project and the canopy walkway is managed by the society “Baumkronenweg”. In
contrast to other canopy walkways in Europe, the Sauwald was consciously built from wood. In the
first season the project attracted more than 100.000 visitors and employs 12 people. In the case a
new innovative use of forest was created.
Hunting in Eastern Finland
The private company Finnhunt Oy, organises moose and small game hunting in private and
State’s forests. The company has managed to transform innovatively a traditional leisure activity
holding passionate interests from different stakeholder groups (e.g local recreational hunters and
general public) as commercial activity and has been successful in finding suitable customer groups
for their products. One of the most important success factors has been close co-operation with local
hunting clubs and landowners from very beginning in order to maintain the social sustainability of
the activities and with Central European sales organizations in order to have access to the markets.
Horse back riding tours in Finland
The private company, Kainuun vaellustalli, organises horseback riding tours utilizing
mainly the privately owned forests. The company organises tours around year on daily basis and
has managed to find successful additional source of livelihood for remote rural region as well as
managed to utilise the customer base of bigger tourism companies of the region. Also they have
managed to negotiate successfully with several private non industrial forest owners (up to 100) to
be able to establish riding routes long enough for their activities being the only horseback riding
company in the region.
22
Dorna Adventure, Romania

Dorna Adventure is a private company initiated by two partners providing e.g. boats rides
on Bistrita River, mountain climbing, biking, paint ball and horseback riding tours and courses. The
innovativeness of Dorna Adventure, is to offer something unique in the forest area and developed
prerequisites for that. For the enterprise it is essential to collaborate with the private and public
actors actively in order to maintain their activities in the long run in the struggle against the existing
rivers pollution destroying the beauty of the area as well as sustaining the economic sustainability
of the micro company.
The Calimani National Park, Romania
The Calimani National Park is a public park with main purpose of protection and
conservation of unique natural elements, giving also the possibility for visits in scientific,
educational, recreational and touristic purposes. Its establishment in 2004 provided also a lot of
opportunities to develop new innovative forest tourism and recreation activities in the area, like
hiking, mountain biking, horseback riding, photo safaris, bird watching tours etc. To maintain and
develop the innovation it is very important sustain fluent co-operation between the National Park,
the private companies and the interest groups.
Huntly peregrine wild watch, Scotland
Wildlife interpretation centre providing wild watch opportunities is managed and
implemented by the national Forestry Commission in its own woodland. Several animal species can
be seen in the area, but the main attraction is the peregrine’s nest existing in the site and visited by a
couple of peregrines every year. There are cameras filming the peregrines feeding the chicks and
also their other activities around the nest. The project is considered to be innovative because it uses
cameras to show on wildlife activities as live recording and it is free of charge for the visitors.
Mountain biking, Scotland
A private enterprise in the Tweed Valley, Scotland provides mountain biking opportunities
and organize biking courses in the forest areas mainly owned by national Forestry Commission.
The forested environment plays major role in attractiveness of the services by providing unique
opportunities for the tracks. The company has found an innovative way to works within a network
of businesses in the area and have created a Mountain Biking Hospitality Scheme providing a pack
of services like bike courses and accommodation packages, to improve the forest based mountain
bike tourism activities in the region.
Forest tourism in Velky Klíž forests, Slovakia
Urbarium (shared ownership type) of the village Velký Klíž associates about 600 owners of
agricultural and forest land. The most important drivers for innovative new services in area were
aim to diversify production activities, ensure additional income for the members of Urbarium and
enhance the development of the municipality by using the existing natural and cultural potential.
The facilities were jointly built to serve for the accommodation of guests and provide base for other
services offered by Urbarium V. Klíž. Nowadays for visitors in urbarial forests various recreational
services (e.g. accommodation in the forester’s house, 9 round trails, forest guides) are provided.
Vydrovská valley, Slovakia
Vydrovská valley is a touristic destination located in one of the largest villages of Slovakia,
Čierny Balog. The valley includes several tourist attractions related to forestry like the narrow-
gauge Čiernohronská railway (ČHŽ), open-air forest museum, primaeval forest . The activities are
based on the work of Vydra-(Rural Development Activity) aiming to contribute to the sustainable
development of the rural region. In co-operation with other similarly oriented NGOs they actively
seek for new initiatives to develop the region further. The trademark Vydrovská valley was formed
based on the region’s attraction and possibilities for tourism.
Table 1. the summary of the case studies and the key stakeholder groups of the cases
Country The case The identified key stakeholder groups for the innovation
Austria “Almliesl” – MTS Almliesl tourism agency and other local tourism partners,
Marketing of forest local people (neighbours), Public authorities
cottages for tourists
23
Austria Canopy walkway Firms involved in construction of the canopy walkway,

Sauwald Members of the society Baumkronenweg, Public administration
Finland: Private hunting Hunting clubs, Landowners, Selling agencies, Other SMEs, Local people,
enterprise General public
Finland Horse riding tours Private land owners, Metsähallitus, Other SMEs, hunting club, regional
developers
Romania Dorna Adventures, Public administration (municipality tourism officials),
private nature-tourism Other private SMEs, Volunteers, trainers, guides
company
Romania The Calimani National National Administration of Forests (Suceva and TG Mures branch offices),
Park Forest research and management institute,
The Association of Forest Owners, Forest Group Josenii Bârgâului, local
SMEs
Scotland Huntly peregrine wild Scottish Agricultural College (SAC), Primary Gartly School,
watch /Wildlife North East Raptors Study Group
interpretation centre
Scotland Mountain biking Local tourism consortium, Forestry Commission, Local farmers,
Local community council
Slovakia Forest tourism in Local forest owners (Urbarium), Local associations (like hunting clubs),
Velky Klíž forests local people, ALEA (association focusing on marketing in web, organizing
exhibitions of tourism etc), Local joiners, Local municipality
Slovakia Vydrovská valley joint Vydra (Rural Development Activity), Lesy SR state forest enterprise
nature tourism Cierny Balog, ČHŽ (local company operated narrow-gauge railway), The
local municipality, other enterprises
4. ANALYSIS AND RESULTS
When studying the co-operation between the innovation carrier and key stakeholder groups,
two clear strategies for stakeholder management were found in all cases, even though the cases
represented different nature tourism activities in different institutional settings. The strategies were
further analysed based on 3 characteristics, which were emerged from the data to represent the
typical characteristics and differences of the strategies:
Formality of the relationship (formal-informal): in the formal relationship typically
written contracts were issued, when the informal relationships were based on verbal informal
agreements or interpretations of discussions.
The communication: the style of the communication between innovation carrier and
stakeholder group was analysed based on its regularity and forums it was conducted in. Based on
these it was divided into official and unofficial communication. In official communication, the
communication between parties is regular and happens based on formal meeting related to business
actions and/or agreements. In some cases even minutes of the meetings are made and distributed to
the participants. The unofficial communication, even though it can be very vivid happens typically
from non regular basis as random chats or discussions. Also the role of personal relationships with
the stakeholder group representatives is big.
Type of co-operation: The co-operation was analysed further in details by using three
different concept pairs: horizontal or vertical co-operation; unisectoral or cross sectoral co-
operation; and based on the local networks or based on wider networks outside the region or with
higher levels e.g. in a form of political levels or national actors. The horizontal co-operation was
defined as a co-operation within one level of production, when the vertical co-operation refers to
the co-operation along the production chain. The unisectoral co-operation was defined as co-
operation occurring within one sector, in this study primarily referring to forest sector. By the cross
sectoral co-operation on the other hand is meant the co-operation within more than one industry
sector.
The first found co-operation strategy can be called business approach –strategy. In this
strategy the co-operation critical for success of the innovation case was established and maintained
strongly based on business to business activities providing typically monetary benefits to both
parties. Monetary benefits were also used as justification and favoring arguments for establishing
24
the co-operation and “selling the innovation” to the stakeholder group in question. The relationship
can be described as normal business relationship with written agreements and contractual rights and
they were very formal in nature. In almost all vertical co-operation relationships the business
approach –strategy was applied, since as part of production chain the stakeholder groups in question
were usually sub-contractors or selling and marketing organizations. However, also in horizontal
co-operation business approach was used, especially when other local SMEs were in question. Due
to its formality, business approach was used both in managing the local stakeholders as well as the
stakeholders outside the region.
The communication in the business approach -strategy was typically official based on the
business actions between the innovation carrier and stakeholder group. The personal relationships
were important in enhancing the co-operation, but they were not highlighted or seen perquisite for
it.
In addition to business –approach, in the case studies became clearly visible so called
community approach - strategy. In this strategy, the innovation was justified and argumented
with “benefits to whole area” and “improvement of regional economics”– discourse by the
innovation carrier. Also more general level values like “nature conservation”, “nature education”
and “increased knowledge on forests” were used as arguments for innovation implementation.
Regardless, whether the innovation process was carried out by private company aiming for
maximizing their benefits, this strategy was used especially in managing local and regional
stakeholder groups in securing the social sustainability of the activities. Even though this is not as
such very surprising, the cases clearly illustrate the extremely significant role of local stakeholders
as well as community approach –strategy in maintaining successful co-operation in forest-based
nature tourism innovations.
In co-operation relationships applying community approach -strategy, the compensation for
the stakeholder group for their work, land etc. was not necessary paid. The innovation carrier
expected the stakeholder groups also to contribute for general good and “benefit to the whole
region”, even though the direct benefits would be allocated primarily to the innovation carrier. In
some cases the innovation carrier did not seek for profit from their activities, like in Huntly
peregrine watching activities in Scotland. In these cases the role of community approach –strategy
was even more highlighted. However, the community approach -strategy was not really utilized in
managing stakeholder groups outside the region.
The communication in community approach –strategy could be very vivid or relatively
random, but it was typically very informal in nature. Usually the co-operation occurred also in
local or at most in the regional level and the role of personal relationship between the innovation
carrier and the stakeholder groups was highlighted. In some cases, where the personal relationship
was non-existing, local mediators were used. The co-operation was both uni-sectoral as well as
cross sectoral and typically horizontal co-operation relationships occurred. Also interestingly in
cases, in which the private forest land was not owned or administrated by the innovation carrier, in
order to gain the access to required forest area, typically the community approach –strategy was
used.
In addition to two above mentioned strategies also so called ignoring or non existing –
strategy was found. Concerning some stakeholder groups the innovation carriers did not have any
kind of co-operation strategy, even though the stakeholder group was identified as critical to the
innovation success. In some cases the importance of these stakeholder groups was not recognized
properly by the innovation carrier, but also in some cases these stakeholder groups were seen too
massive, outside of region or difficult to manage by the innovation carrier in order to even try to
maintain proper co-operation relationship with them. This was the situation e.g. related to the
general public concerning hunting tourism in Finland. The entrepreneur realized the importance of
general public as stakeholders in influencing the business environment, but had not come up with
any actual active strategy to apply for this group. In cases same types of stakeholder groups were
co-operated in the local level (usually local people), the community approach -strategy was used.
25
5. CONCLUSIONS
In all cases there were found both business approach and community approach -strategies
used for managing the co-operation with different stakeholder groups. In general the business
approach was applied into co-operation with so called business partners and community approach
was used in managing the local level stakeholder co-operation. This as such is not very surprising,
and to be able to define the strategies further there is a need to study both main strategies more
closely in order to find more detailed, innovative co-operation aspects and tools.
However, the results clearly highlight the important role of informal co-operation and co-
operation networks in nature based tourism innovation process (Table 2). Even the cases represent
different institutional settings and entrepreneurial environment, in all cases the role of informal,
local level co-operation was vital for the sustainable innovation activities in the forest based nature-
tourism sector. These kinds of relations are important in regard to very different types of
stakeholders, including authorities, neighbors or interest groups. Even if these groups are not
formally involved in the business activity, they might put the project at risk, if good relations are
not maintained. The informal co-operation networks were vital both in cases, in which the
innovation carrier was business focused and in cases in which the innovation carrier did not seek
direct profit from the activities.
In addition to improve the business activities and skills of the companies and actors, the
focus of public development activities should also be in increasing innovation carriers perquisites to
establish and maintain critical informal co-operation. This brings also out an interesting question
related to various innovation support schemes implemented in EU, national and regional levels. Do
they support adequately also this informal co-operation? The co-operation based on business
approach clearly brings concrete benefits, increased business, for both parties in co-operation
relationship. In the co-operation based on community approach on the other hand, the benefits to
the stakeholder groups are typically not so concrete, at least on short term.
In some cases the stakeholder groups, which typically have been managed by using
community approach -strategy were in fact managed at least partly by using business approach –
strategy. By selecting this strategy in the studied cases the social sustainability of innovation
carrier’s activities was increased significantly. This was the situation. e.g. in the cases of hunting
enterprise in Finland concerning the local hunting club co-operation and forest tourism in Velky
Klíz Forests in Slovakia concerning the local forest owners. By recognizing the local stakeholder
group holding important resource at least partly as a business partner and allocating benefits, even
as a token, to them, the local acceptance for the activities and the status of community approach –
strategy arguments were improved. The activities were seen in practice to “benefit the whole area”.
In general, however, even though the forest owners had the vital resource to the innovation
activities, have direct influence mechanism to use in co-operation relationship and the innovation is
very much dependent on the successful co-operation with this stakeholder group, in cases where the
forest area was not owned or managed by the innovation carrier the community approach –strategy,
with no actual compensation was prevailing. The forest owners were not typically seen as business
partners in the innovation processes, even in some cases there were indications towards this
direction. In areas where the pressure to use forests for nature tourism and recreation activities
owned by others than innovation carrier is high, this approach brings out interesting questions
concerning the forest owners’ role as resource provider in the future.
26
Table 2. The role of business and community approach strategies in co-operation with key
stakeholder groups
Case Business approach –strategy (formal) Community approach -strategy
(informal)
Austria: MTS Almliesl tourism agency Neighbors
Almliesl – Marketing forest other local tourism partner Local people
cottages for tourists Public authorities
Austria: Canopy walkway Firms involved in construction of the Members of the society Baumkronenweg
Sauwald canopy walkway Public administration
Finland: hunting tourism Hunting clubs Hunting clubs
Selling agencies Landowners
Other local SMEs Local people
Finland: Horse riding tours Metsähallitus Private land owners
Other SMEs Local hunting club
Regional developers
Romania Dorna Adventures, Public administration Volunteers, trainers, guides
Other private SMEs
Romania: The Calimani National administration of Forests Local SMEs
National Park Forest Research and Management Institute
The Association of Forest Owners
Forest Group Josenii Bargaului
Scotland: Huntly peregrine Scottish Agricultural College Primary Gartly School
wild watch /Wildlife North East Raptors Study Group
interpretation centre
Scotland: Mountain biking Tourism consortium/mountain biking sub Forestry Commission
group Local farmers
Local farmers Local community council
Slovakia: Forest tourism in Local forest owners Local forest owners
Velky Klíž forests ALEA (marketing association) Local recreational associations
Local joiners Local people
Local joiners
Municipality
Slovakia: Vydrovská valley State forest enterprise Cierny Balog State forest enterprise Cierny Balog
joint nature tourism CHZ (local company operated narrow- Local municipality
gauge railway)
Other enterprises
Acknowledgements
This seminar paper was prepared as part of the European COST Action E51 on the
“Integrating Innovation and Development Policies for the Forest Sector”. In addition this work was
supported by the Slovak Research and Development Agency under the contract No. APVV-0692-
07“.
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29
THE EUROPEAN EXPERIENCE CONCERNING REGIONAL

DECENTRALIZATION
Associate Professor PhD. Irina-Maria DRĂGAN

irina.dragan@csie.ase.ro
Lecturer PhD. Rodica-Manuela GOGONEA
manuela.gogonea@gmail.com
Abstract:
The current decentralization process is justified by the necessity of defining the role of the central
administration as against the local administration, the political and administrative competences that shall be delegated
to the local administration, the necessary sources, as well as the setting out of a reference framework on the
performances of the decentralization process in the next period.
Key words: regional development, decentralization, sectorial strategies, regional authorities
JEL Classification: O18, R58
1. INTRODUCTION
Regional policy may be appreciated from the point of view of the utilization by the central
and local public authorities of the resources they dispose of; combinations of instruments of
economic and financial policy with the aim at stimulating the investments, of creating new jobs and
of improving the life conditions in a certain region/territory. Such instruments of economic policy
cover a large area, from those with general character, such as the legal framework meant to support
the development, the economic regulations of certain specific measures, such as the aid granted by
the state to the companies, with the aim to stimulating the investments or to supporting restructuring
projects.
There are different patterns of regional administration in the European theory and practice,
distinguished from the point of view of the competencies of the regional authorities, of the implied
regional institutions, as well as of the financial decentralization. According to these patterns, the
regions function on the principle of regional self-organization, respectively the right to organize
their own structures and their functioning within the limits set forth by the Constitution.
2. PATTERNS OF REGIONALIZATION
Thus, a first model is used in the regions that have the power to adopt primary legislation in
their field of competence, legislation that is guaranteed by the constitution or by a federal
agreement. These regions may have the right to adopt secondary legislation within the action of the
primary legislation promulgated by the national parliament and they may have delegated powers to
issue laws or to regulate, taking into account the conditions of peculiarity of each of them. The
regions function on the principle of the financial autonomy, their own resources originating from
taxes and other sources. The regions receive also transfers of funds on the part of the state (grants)
under the form of directed funds (for projects or specific needs) and non-directed funds (for
covering of the cost of fulfillment of the delegated functions). This type of pattern is used by
Belgium, Germany and partially by Italy.
According to another model, the regions have the right to issue laws, in the fields where the
State has no exclusive competence. They may exercise powers delegated by the State. These
regions receive funds from the state or they have their own resources. The own resources originate
from non-directed funds from the state, incomes of the state from taxes (exclusively those directed
to the regions) and incomes from the taxes fixed by every region. The funds from the state are under
the form of grants, directed or non-directed. When setting forth the funds destined to the regions,
30
the number of the population and the level of economic development are taken into account. This
category of patterns of regional administration is met in Spain and partially in Great Britain.
In the case of a third pattern, the regions have the right to promulgate laws according to the
framework set forth by the national legislation; the existence of those laws is guaranteed by the
Constitution. The regions have both own competences set forth by the Constitution or the national
law as well as competences delegated by the state, both being exercised through legislation and
regulations. The regions have financial autonomy according to the regulations of the European
Chart of Local Self-Government. Their resources are made up of: own resources that originate from
a percentage an amount added (fixed by the regions) to certain taxes or incomes collected by the
state and of the regional taxes and of general grants or grants directed for specific objectives
(generally necessary for covering the cost for the implementation of the delegated tasks). This type
of pattern is used by the Check Republic and partially by Italy.
In the fourth pattern, the regions have the power to adopt laws and/or other legislative
regional acts, according to the national legislation, but the existence of which is not guaranteed by
the Constitution. In this case too, the regions have their own competencies set forth by the law and
competencies delegated by the state, but the exercise of the legislative competencies may be
regulated by the state legislation. These regions are first of all financed by the State, they have no
right to collect taxes for their benefit. The resources originate from non-directed funds from the
central government, funds directed for specific projects or programs, a certain percentage of certain
national taxes, incomes from the operation of the regional enterprises, incomes from directed or
non-directed grants. Countries as Hungary and Great Britain (partially) use this type of pattern.
According to other pattern, the regions have the power to decide and regulate, but they have
no legislative power for the implementation of the competences incumbent upon them. The regions
may also have powers delegated to them by the central authorities and they may share certain
competences with the central authorities (on the basis of an agreement). The incomes of these
regions originate from own resources (charges, taxes, or other fiscal incomes) and from transfers.
The received funds may be partially directed. The pattern is to be found in the practice of certain
countries such as: Denmark, France and partially Great Britain.
In a last pattern, the regions have the power to make decisions and they have councils
elected by the local authorities. They have no legislative power, their decisions being based on the
national legislation and on government decrees. However, the regions have the possibility to adapt
the exercise of their competences to their specific conditions. The regions are financed by the local
authorities from own resources (but they may not collect taxes) and through financial allowances,
generally with a general character. This type of pattern is used by Finland.
3. REGIONALIZATION AND DECENTRALIZATION
Accepting the idea that every community is also spatially shaped, so that it may keep its
defining characteristics through a spatial-temporal structure, we have the explanation of the fact
why, starting with the ‘60s of the last century, the regionalism/regionalization became a theme
disputed and approached by a series of disciplines (regionalism as priority theme of the political
debates may be considered a type of political barometer). The post-totalitarian space, as it happens
in very many circumstances and case related to the transition it goes over, acute symptoms
regarding the approach of the theme, first of all due to the historic load that the regionalist concept
has to integrate into the most diverse interpretations (currently the globalize world).
The political approach may have in subsidiary the ideological side and, following this one,
the cultural-traditional side, namely the identity side. The administrative approach leads us to the
juridical-legislative one with aspects that concern a local history too of the public institutions. The
economic approach may not elude and cannot be separated from the analysis of certain social
aspects, from the demographic ones to those of the communication networks.
These approaches which aim at observing certain disciplinary limits may and must be
completed with those due to certain general process of the present: European unification and
31
integration, phenomena related to poverty and the economic migration. Under these circumstances,
the state has to intervene with important financial resources for fighting against poverty and
decrease of the imbalances, with concrete measures against the injustice and the polarizing between
the rich and the poor that increased in Romania too. Decrease of discrepancies, harmonious
development implies, in principal, new programs, additional financial sources and new people for
the implementation of the regional development programs.
The state aids represent a traditional instrument in Europe with a decisive role for the
decrease of the discrepancies, an equipment of intervention of the policy makers wherever they are
from, including within the member states of the European Union.
In the view of the Romanian legislator, the objectives of the regional development policy,
which are materialized in state aids, are placed in the following fundamental directions:
 Decrease of the existing regional discrepancies, by stimulating the balanced
development, by accelerated recovery of the delays in the development of the areas
disfavored as a result of certain historic, geographic, economic, social, political conditions,
as well as the prevention of the occurrence of new imbalances;
 Correlation of the policies and of the governmental sectorial activities at the level of
the regions, by stimulating the initiatives and turning to account of the local and regional
resources, with the view to the durable economic-social development and their cultural
development;
 Stimulation of the internal and international inter-regional cooperation, of the cross-
border cooperation, including within the Euro-regions, as well as the participation of the
development regions in the European structures and organizations, which promote their
economic and institutional development, with a view to carrying out of certain projects of
common interest, according to the agreements Romania is part of.
We can also mention the fact that the Agencies for Regional Development operate in the
field of regional development, which are non-governmental, non-profit, public utility bodies, but
they are legal persons.
The programs and the expenses for the regional development of the Agency are financed
from the Fund for Regional Development, which has the following sources: allowances from the
National Fund for Regional Development; contributions from the own budgets of the counties or of
the Bucharest, as the case may be, within the limit of the amounts approved for this destination,
through the respective budgets; financial sources attracted from the private sector, from banks,
foreign investors, the European Union, and from other international organizations.
Besides the positive aspects, a series of negative aspects were registered in the carrying on
of the decentralization process:
 Failure to grant certain important rights to the Local Public Authorities what limits
their capacity to efficiently organize the offer of services (for example the right to fix prices
for these services.
 The occurrence in certain fields of the mechanisms of direct control and of the
discretionary decisions. There are only a few fields with clear and transparent regulations.
This limits both the financial planning and anticipation, and the possibility to test and
introduce creative local solutions in order to offer more efficient services. This aspect limits
indirectly the capacity of absorption of the funds of the European Union.
 Limiting of the autonomy of the local financial management by the regulations on
the allocation of own incomes, through restricting the use of transfers.
 Preponderance of grants with precise destination, what represents an obstacle for an
efficient spending of money, as it limits the coordination and integration of the local
services.
 The existing balancing mechanisms do not provide the equitableness of the system.
 The incomplete transfer of property is an obstacle in the effective management of the
local goods.
32
 Insufficient specification regarding the legal and constitutional guarantees related to

the local autonomy.
 Public policies insufficiently reasoned and partially implemented failed to offer
rational solutions for the existing issues.
 Recording of a discrepancy between the transferred decisional competences towards
the local authorities and the resources allocated with a view to supporting them (the
allocation of local resources does not reflect the changes of responsibility).
4. CONCLUSIONS
As an adequate answer to the issues identified at the level of the public administration
system of Romania in the field of decentralization and dispersion of the public services, the
following priorities were identified:
 Improvement of the system of providing decentralized/ dispersion public services
(the increase of their consistency).
 Clarification of competencies at different levels and structures of the public
administration, through: creation of the specific working groups for the elaboration of the
sectorial strategies; setting out of implementation structures at the central and local level
with well defined responsibilities and relations; coordination and harmonization of the
sectorial strategies; setting out of a standard system of measurement of the performances of
the decentralized services.
 Strengthening of the financial autonomy through: increase of the own incomes at the
level of the local administrations; introduction of the computing system based on allocation
of operational subsidies; strict procedures and rules for the carrying on of the financings for
investments; improvement of the predictability system of the grants at the central level;
improvement of the system of equalization of the horizontal distribution of the resources;
improvement of the system of management of the budget and of reporting at local level.
 Redefining of the competences of the prefects, especially for the coordination of the
dispersion services.
 Creation of the capacity, instruments and procedures necessary for the
implementation of the strategy through: drawing up of a standard system of procedures and
norms which should support the implementation of the Strategy; strengthening of the
capacity of the local authorities for the management and provision of the new decentralized
services; preparing of the human resources necessary for supporting the decentralization/
dispersion process.
The reform of the public administration in the field of decentralization and dispersion
includes three major elements:
 Continuation of the decentralization through transfer of administrative and financial
competences and responsibilities, from the level of the central public administration
authorities to the level of the local authorities;
 Continuation of the dispersion process through delegation of responsibilities in the
territory depending on the necessities on local plan, within the same administrative structure
(the dispersion services operate subordinated to the ministry that delegated the
responsibility).
 Transformation of the dispersion services in the territory, depending on the
necessities of the citizens and for their becoming efficient, in decentralized services in the
responsibility of the local authorities.
The updated strategy represents the general framework that creates the premises of the
continuation of the decentralization/ dispersion process, securing its coherence. The responsibility
of defining and implementing the sectorial strategies regarding decentralization/ dispersion rest
upon each institution of the central public administration and upon the local authorities, which take
over the competencies transferred from the financial and administrative point of view. A group of
33
laws on important sectors of development such as the organization of the administration, the
planning of the territory and of urbanism, the finances, the taxes, the services for health, welfare,
education, etc. was enforced, regulating currently both the form of political decentralization of
certain public services and the form of territorial and administrative decentralization through the
institution of the prefect. Decentralization also represented the staring of a process of creation and
strengthening of new forms of dialogue between the central and local administration represented by
the Federation of the Local Authorities of Romania (FLAR), the professional administrative corps
or other associative structures of the local authorities.
BIBLIOGRAPHY
1. Alesina A. and E. La Ferrara (2002) “Who trusts others?” Journal of Public Economics,
August
2. Bodnăraş Emil (2007) “Finanţarea locală: practici comparate România - U.E.”, Seria
Probleme Economice, vol. 245-246, Centrul de Informare şi Documentare Economică,
Bucureşti
3. Kahler, Miles, and David A. Lake (2003) “Globalization and Governance: Definition,
Variation, and Explanation.” Governance in a Global Economy: Political Authority in
Transition, ed. Miles Kahler, David Lake. Princeton: Princeton University Press.
4. Nicolaidis, Kalypso (2001) “Conclusion: The Federal Vision Beyond the State.” In The
Federal Vision: Legitimacy and Levels of Governance in the United States and the European
Union, ed. Kalypso Nicolaidis and Robert Howse. Oxford: Oxford University Press
5. Weingast, Barry (1995) “The Economic Role of Political Institutions: Market-Preserving
Federalism and Economic Development.” Journal of Law and Economic Organization 11
6. *** Programul Operaţional Regional 2007-2013, Ministerul Dezvoltării Regionale şi
Locuinţei
7. *** Cadrul Naţional Strategic de Referinţă, Guvernul României
8. http://www.mie.ro/
9. http://www.inforegio.ro/
10. http://www.falr.ro/
34
ECONOMIC GROWTH IN RUSSIA REGIONS: KEY FACTORS
Ph.D. Vitaly ALESCHENKO

Institute of Economy and Organization of an Industrial Production of the
Siberian Branch of the Russian Academy of Sciences, Russia
omsksme@rambler.ru
Associate Professor Ph.D. Alexandru NEDELEA
alexandrun@seap.usv.ro
Lecturer Ph.D. Student Oana NEDELEA
oanad@seap.usv.ro
Abstract:
Research objective is revealing and the analysis of key factors of Siberia economy development in a context of
their historical formation. It allows to estimate prospects and possibilities of the Siberian regions from the point of view
of the balanced and long-term economic growth. As empirical base data of Omsk area were used. Research
construction was based on use of methods of theoretical research, and also historical and economic-statistical methods.
There are conclusions that regulated factors were key sources of economic growth of Siberia always (system measures
of the state in sphere of the migratory policy, supported with real financial possibilities), showing the high productivity
against a number of casual factors (favorable resursno-climatic conditions, a successful geopolitical site, a safe world
conjuncture). In research practical recommendations are offered for giving region economic system of additional
possibilities of economic growth.
Key words: economic growth, regional economy, state policy
JEL Classification: R11
INTRODUCTION
Economic growth is observed in Russia throughout some years that is naturally reflected in
the basic indicators of regional development. Siberian regions are not an exception in this respect
where it is possible to observe positive tendencies in the most various sectors of economy.
Meanwhile, in scientific, business and political circles today all speak about fastening of a resource
component in regional economic growth. Thereupon possibilities of diversification in Siberia
economy are called in question in conditions of displacement of responsibility spheres on regional
management level. This question gets a special urgency in the conditions of global economic
instability.
With a position of importance of the declared subjects, basic, in our opinion, there is a
question about sources of economy growth of the Siberian regions. What stands up for rather safe
indicators of economic development of Siberia regions? At the cost of what factors there is a
growth of regional economy? What is the nature of their origin and how much steady is a similar
sort of growth? What puts region in the given process? This research is devoted to answers to these
pressing questions.
The research purpose is the revealing and the analysis of key factors of Siberia economy
development in a context of their historical formation, allowing to estimate prospects and
possibilities of the Siberian regions from the point of view of the balanced and long-term economic
growth. For object in view realisation all factors of region economic growth were considered,
depending on the nature of their origin, as:
a) regulated - defined by productive possibilities of national level of management;
b) local - defined by influence of a regional component (the local enterprises, the power, etc.);
c) casual - not dependent on will and desire, both region, and the state as a whole.
Statistical and historical data of one subject of the Siberian federal district (Omsk area) were
used as empirical base. Research construction was based on use of theoretical methods (the analysis
35
and synthesis, an estimation of the facts within the limits of the system approach, reconstruction
and a prediction), and also historical and economic-statistical methods.
FACTORS OF REGIONAL ECONOMY GROWTH: HISTORY OF QUESTION.
First of all we will notice, that the state policy had strongly pronounced character
concerning the Siberian regions during the pre-revolutionary period and in the solving image
influenced formation and the further development in them economic activities. Since 1590 from
giving of Moscow there was a mass resettlement to Western Siberia at first Cossacks and military
officials, and then, peasantry. Making a basis of the future Siberian cities military strengthenings
and fortresses together with a resettlement policy of the Russian state gave powerful spur to
economic development of region.
At that time, the region economy could show any essential rates of development exclusively
at the expense of external factors as “internal sources of development” did not function at all.
Considerable territorial remoteness from Moscow, weak development of a transport infrastructure,
dispassionateness from national trading streams, even more overdue, in comparison with the
European Russia, formation of market relations in agriculture, - all these factors promoted
formation of backward, closed (practically natural) system of the managing which development was
mainly extensive. In statistical collections “Reviews of the Tobolsk province” the same figure on
Omsk cities repeated from year to year.
The matter is that the Siberian cities which, logically, should be sources of generation of
internal impulses of regional development, in practice did not carry out this function. And for two
hundred years the situation practically did not vary. So, according to one-day population census on
April, 1st, 1877 the lowest military ranks, members of their families, Cossacks and noblemen made
an overwhelming part of townsmen of Omsk. Thus natives of Omsk in a population lump made
only 37,3 %. Thus, the structure of the population of Omsk quite definitely reflected the basic
functional purpose of a city - to be the centre of military and civil authorities in Western Siberia.
Clearly, that at such model of mutual relations “the centre - the region” unique is a way of extensive
development of the regional economy which growth could go exclusively at the expense of the
centralised resources.
In particular, building of the Great Siberian railway became the outstanding fact in history
of Omsk which has made huge impact on economy as the major infrastructural component of
effective regional development. In total for 20 years after movement opening by rail the population
of Omsk has increased more than three times and by 1917 Omsk became the largest city of Siberia.
At this time the area worries powerful inflow of new capitals, branches of the largest foreign banks
actively open in Omsk, in 1904 the commodity exchange has been opened. Manufacture and sale of
the Siberian butter were so profitable branches, that minister Stolypin wrote to the tsar: “The
Siberian manufacture of butter gives gold twice more than all Siberian gold industry”.
Right after clearings of White Guards Siberia began to develop under laws which were
characteristic for any territory which was a part of Soviet Union: the regional economy was
considered as an integral part of a national economy taking into account uniform spatial strategy.
And though for development of natural riches of Siberia and creation of large economic potential in
the east of the country the big initial investments were required, from positions of long-term
prospect it looked quite justified. As a whole at the expense of the state support in 1940
manufacture of a total industrial output in region has increased in comparison with 1913 in 30
times. With the Great Patriotic War beginning the policy of the state was transformed aside increase
in military-industrial potential of Siberia, basically, at the expense of carrying over of manufactures
from the western and central part of the Russia. The general release of an industrial output of
Siberia in 1942 in comparison with 1940 has increased in 2,4 times, including mechanical
engineering and metal working manufacture - in 7,9 times.
After the end of war the state policy is again directed on prompt replenishment of region by
immigrants: labour power employed from 1946 to 1950 has increased almost by 30 %. Next decade
36
is noted by government programs of development of virgin lands: as a result of migratory motions

the general number of the working population in Omsk area has grown in 1,6 times. For the
following of 10 years number of working population in region has increased again in 1,5 times. As
well as in days of imperial Russia, prompt development of economy of Siberia again goes thanks to
a state policy of active financial investments and assistance mass resettlement.
Thus, effectiveness of a state policy concerning Siberia is available. Rates of production
growth of Omsk industry practically throughout all its history were considerably above similar
Russian indicators. In 1980 production of the Russian industry surpassed level of 1940 in 18,5
times, while in Omsk area - in 65,1 times. However, playing the role in an all-union division of
labour, the region was at all in a status to solve questions on rates and proportions of economy
development, being a part of the big organic system. From this there was variety of problems
(ecological, social, an industrial infrastructure) to solve which the region independently not could.
Despite rough rates of regional economy growth and higher “return” (in 1980th output counting on
area unit in Omsk region was above all-union on 60 %; employment degree in a national economy -
50,2 % - also exceeded average on the country - 46,5 %), the area population had rather lower, than
on the country as a whole, both a standard of living, and social protection level. So, in 1986
budgetary expenses on public health services in Omsk area (counting on one inhabitant) were in
2,17 times less, than in the country as a whole.
From all above-stated the logic conclusion follows that to prompt growth of absolute
indicators throughout the previous period of the history the economy of Siberia regions has been
obliged to regulated factors (the powerful centralised injections in the tideway of a purposeful state
policy) and to casual factors (a geopolitical site, nature and climatic resources). The local group of
factors did not exist as a kind: being an integral part of planned economic system, the region was
unable influence independently rates and directions of the economic development.
MODERN SOURCES OF REGIONAL ECONOMIC GROWTH.
How has changed the basic system factor of regional development - a state policy
concerning Siberia - after disorder of command model of managing? At the first stage in relation to
Siberia, no less than to all other regions, there was a popular belief, that the regional policy is not
necessary to market Russia, as the special institutes which are responsible for working out and
realisation of this policy are not necessary at the state level. As a whole, development (is more
exact, stagnation) of regional economy in 1990th went in the conditions of sharp decrease in
influence of regulated factors.
With coming to power of the new president and relative stabilisation of macroeconomic
position in the country the present stage of a state policy concerning Siberia begins which appears
again in the list of priority macroregions. Whether the state policy can today as the factor of
regional economy growth to lead to the irreversible system changes promoting effective
development of the Siberian regions?
For the answer to this question it is reversible to such tool of a state policy as the
macroregional program “Siberia” which has been urged to define strategy of development of
Siberia and to play a co-ordinating role under the relation to all programs already realised in this
macroregion. However in 2002 the program has been excluded from the perspective list of the
federal target programs financed from the federal budget. Logically to it there is an explanation:
Siberia lags behind on rates of development Russia as a whole and the attention of the federal centre
to Siberia, naturally weakens. Nevertheless, the resource potential of Siberia is important for
Russia: the taken reconnoitered stocks of oil make 77 % of the Russian stocks, natural gas - 85 %,
coal - 80 %. Interest, first of all, in fuel and energy resources of Siberia is traced in Strategy of
economic development of Siberia, the basic emphasis in which is made on increase of efficiency of
extracting branches, geological prospecting, improvement of a transport infrastructure, etc.
Perhaps, ability of regional economy to new quality of economic development in the
conditions of decrease in the state investment and migratory possibilities has essentially changed?
37
To answer this question, on an example of Omsk area we will analyse the basic components of
economic growth of regional economy in modern conditions.
First of all we will notice, that possibilities of intensive development of region economy
operating before at the expense of new "manpower resources" are exhausted to the full. For time
which has passed between population censuses in 1989 and 2002, number of inhabitants of Omsk
area was reduced to 62,7 thousand persons (about 3 % from an aggregate number of the region
population). Besides, urbanization process has practically stopped also: from 1989 to 2007 the
urban population share has increased only on 1,1 %. On the other hand, processes of geographical
localisation of regional development sources proceed. In the city of Omsk which is the regional
centre, today lives 79 % of urban population of area (Omsk surpasses in a population the city of
Isilkul following it in 43,8 times). As a result of a total regional product of Omsk area almost on 80
% is formed in economy of Omsk; in the regional centre it is issued more than 90 % of industrial
production of region. As a matter of fact, economic growth of economy of the whole region is
connected today with the enterprises of only one city. Further we will carry out the analysis of three
key sectors of the regional industry, wich defining the industrial face of region throughout all period
of reforms and most indicative concerning sources of the development.
The petrochemistry and oil refining enterprises make today basis of industrial growth of
Omsk area (Open Society ”Gaspromneft - Omsk NPS”, Open Society “Omsk rubber”, Open
Society “Omskshina”, Open Society “Tehuglerod”). To an economic crisis beginning the
petrochemical complex not only left on the Soviet facility, but it also has surpassed maximum those
years manufacture volumes: in 2005 the total volume of the goods and services by the enterprises of
Omsk petrochemistry has made 126 billion roubles (practically half of total regional product). So
essential value of the enterprises of an oil refining and petrochemical complex in growing economy
of region is caused by high price competitiveness of export raw manufactures in the conditions of a
favorable external economic conjuncture, and also investment possibilities of the large holding
capital (all enterprises are connected with the largest Russian corporations).
The food-processing industry of Omsk area is the most indicative example of vigorous
development of the branch focused not on a world conjuncture, and, first of all, on home market.
However and in this case it is available similar processes of concentration and integration. Today
only 32 organisations of the food-processing industry are the cores for region, the most part from
which is built in the closed production cycles within the limits of the vertically-integrated Russian
and foreign holdings. Today branch in Omsk the international holding company “Sun-inbev”
(former brewery “Rosar”) and dairy factory belonging to the international holding Wimm Bill Dann
“Manros – M” had an opportunity to concentrate additional resources with a view of the vigorous
development by means of this tool. The Group of the enterprises belonging to oil company
“Sibneft” “Omsk bacon” stably increases volumes of manufacture of meat production, providing
with them not only Omsk area, but also other regions. Perhaps, a unique exception of all largest
enterprises of the food-processing industry of region is the vodka distillery “Omskvinprom” which
has independently outgrown the regional market and by means of the competent marketing policy
has managed to enter into ten leaders of Russia alcoholic production and to become the most
dynamically developing Russian company in the alcoholic market.
The opposite situation has developed in a machine-building complex of Omsk area. In the
beginning of economic reforms the branch was pride of regional economy (in the early nineties in
Omsk mechanical engineering it has been concentrated more than half of industrial personnel of the
industry of area and about third of its fixed capital), it possessed high scientific and technical
possibilities (here the most qualified structure of workers and experts has been concentrated, 80 %
of the equipment with numerical programmed control). Today the branch has stably negative
dynamics of growth owing to the accessory to a military-industrial complex of the country. Not
having managed to reconstruct the manufacture on release of the civil production, the enterprises of
Omsk mechanical engineering being in federal submission have today real chance to leave the long
period of stagnation only by occurrence in actively created integrated state holdings applying for
state financing.
38
Thus, because of insignificant relative density of small and average business of Omsk area
in release of the goods and services (about 8 % of a regional total product) the regional economy
develops, basically, at the expense of large business which is closely integrated into system of the
Russian and international holding capital that reduces controllability degree of these processes at
regional level. Value of regulated factors of economic development for the investigated period,
practically, was levelled. Still, the role of casual factors (a world conjuncture) is essential. The
importance of local factors has increased, but nevertheless is insufficient for the purposes of steady
economic development of region in intermediate term prospect.
THE CONCLUSION.
Regulated factors (system measures of the state in sphere of the migratory policy, supported
with real financial possibilities), showing the high productivity against a number of casual factors
(favorable resource and climatic conditions, a successful geopolitical site, a good world
conjuncture) were key sources of economic growth of Siberia always. Actually, the macroregion
status of the national value, which was capable to give real efficiency in scales of all country,
allowed the Siberian regions to be in avant-guard of economic development. Unfortunately,
possibilities of regional economy independently to generate the positive internal impulses
promoting formation of the new centres of economic growth (local factors), in force of “genetic
memory” systems still possess low productivity. Therefore in the conditions of open market
economy loss of the prepotent territory status conducts to the unique variant - to the inertial
scenario of structure of regional development at which rates of economic growth, mainly, directly
are co-ordinated to variety of casual factors (the good weather, a favorable conjuncture, etc.). From
here it is possible to draw the basic conclusion: on this basis it is impossible to provide long-term
growth of regional economy.
Thus, results of the carried out research allow us to offer following practical
recommendations for giving to region economic system additional possibilities of steady economic
growth in intermediate term prospect:
1) It will not be possible to achieve desirable structural shifts in economy of the Siberian
regions without the minimum state investments. But at the heart of the state concept of regional
development should lay not migratory projects and “schemes of placing of manufacture”, but
assistance to the business really working in the important regions, mainly, through improvement of
institutes and development of an infrastructure.
2) The state role should be more important in support of useful structural shifts of regional
economy. Today there is a set of the centres, perspective from the point of view of the
competitiveness. Therefore federal and regional levels of the power should organise in common
monitoring of ”competitive activity” in region and to search for support forms of the arising and
growing companies, especially small and innovative. They are engaged in what kind of activity thus
absolutely not very well.
3) The state is obliged to assist really to competition strengthening in the regional market to
make active the existing companies on competitiveness and upgrade increase. At the same time it is
necessary to assist in every possible way to cooperation of the regional enterprises with the best
Russian and world corporations for the purpose of embedding in chains of addition of cost,
cooperation with bearers of high technologies, to penetration through it on the markets of more and
more complex finished articles, to a finding of own niches for creation and distribution of
innovative production.
39
REFERENCES
1. Evseenko S.V. A machine-building complex of Omsk area: laws, ways and development
prospects. - Omsk, 2003.
2. Karpov V.V. Formation of regional model of market economy. - Omsk: publishing house
OmGtU, 1996.
3. Katanaev G.Е. A short istoriko-statistical sketch of a gain and settling of Siberia. - Omsk, 1911.
4. Malyhin V.V., Sosnin V.B. Economy of Omsk area: problems and prospects. - Omsk: Omsk
book publishing house, 1988.
5. Industrial development of Omsk area. 1917 - 1975 - Omsk: Omsk book publishing house, 1987.
6. The regional policy of Russia: adaptation to a variety: the analytical report / under
G.A.Satarov's edition. - М: Fund INDEM, 2004.
7. Suspizin S.A. Potentialities and restrictions of spatial transformations in economy of
Russia.//Region: economy and sociology. - 2004. - № 4. - P. 3-28.
8. Economy of Siberia and economic development of new territories. The collection of
proceedings. - Novosibirsk, 1987.
9. Yurasova M.K. Omsk. Sketches of history of the city. - Omsk: Omsk book publishing house,
1983.
40
APPRECIATIONS ON CRITICS OF THE GLOBALIZATION PROCESS
Lecturer PhD. Student Carmen BOGHEAN

Lecturer PhD. Student Florin BOGHEAN
Lecturer PhD. Mihai POPESCU
“Ştefan cel Mare”University of Suceava, Romania
carmenb@seap.usv.ro, florinb@seap.usv.ro, mihaip@seap.usv.ro
Abstract:
Globalization has become not only one of the most fashionable words used by politicians, business people,
union leaders and economists alike, it has also assumed the role of scapegoat for everything that is wrong in the world.
Globalization is the phenomenon that has raised the fiercest debates and has made the topic of several conferences and
congresses, as well as of important meetings attended by government representatives from all the world states.
Opponents of globalization believe it is the very source of all financial crises, as the capital invested in
promising economies is suddenly being withdrawn at the first sign of political or economic weakness. Globalization is
what increases the inequality of income on a national level, thus leading to a widening of the gap between rich and
poor nations.
The debate over globalization is much broader than what the members of the two competing teams may
imagine. The novelty brought about by the dispute over globalization is that both individuals and institutions fight
together against the negative repercussions of globalization.
Key words: opponents of globalization, multinational corporations, nation-state, international liberalization
JEL classification: F15, G20, F36
I. INTRODUCTION
Critics of globalization accuse western leaders of hypocrisy, and they have a point. The
latter have forced poor countries to lift any commercial barriers, but they have kept theirs in place,
thus preventing developing countries from exporting their farm products and depriving them of the
income they could have gained from this activity, income they desperately need. The west has
established the priorities of globalization and has assumed a high percentage of the benefits, to the
disadvantage of developing countries. [8] Not only have industrialized countries refused to open the
gates for commodities from developing countries, but they insisted that the latter open theirs for
commodities from developed countries. Not only have highly industrialized countries continued to
subsidize agriculture, they have also made it harder for developing countries to face competition.
Another “evil deed” assigned to globalization is that the phenomenon causes the diminishing
of the sovereignty of the nation-state, as it gradually loses its authority when faced with the
unstoppable power of financial markets and multinational corporations. Many politicians criticize
globalization while, in fact, they benefit from it. It is to be mentioned that the governments of
developing countries are not always allied with the opponents of globalization.
It seems only logical that partially solved or unsolved problems will find a solution in the
global order. That is precisely why globalization is expected to bring about another world order
principle that would offer a new way of managing powers and of allocating resources, to generate a
new action plan and another sphere for a new economic and political order that will succeed in
solving the trials of economic and financial history. Globalization is essentially a problem that can
be solved only with and by the global society. [5]
Despite the criticism against it, most economists are currently defending globalization in
general, although some of them still wonder about the opportunity of financial globalization or
about the need for a real international governing of its process. However, only a very small group of
economists disagree with globalization, while very many of them are dissatisfied with the way
globalization is being carried out, without any world institutions to control and monitor it.
Globalization is a dynamic process of international liberalization, opening and integration on
a large number of markets, from labour to goods, from services to capital and technology. The
41
period we are experiencing is not the first wave of globalization, but we sure hope this era of
globalization won’t end as tragically as the previous one, as it would, again, trigger a withdrawal
from the economic competition subordinate to the rules of the market and an enrolment in the
political and military competition, and armed conflict. This is unlikely to happen, as the present
period of globalization has lasted for more than 50 years and, even though it has witnessed
numerous market booms and busts, its fundamentals are stronger than those of the first era of
globalization. [2]
Globalization requires that, on a global scale, countries should integrate and thus consolidate
market interdependence and develop the cross-border mobility of production factors and capital.
The constant integration of the world economy brings about several common interests among
economic agents. It gives rise to potential conflict but also creates a framework for a globalization
that gradually intensified in the past few years.
Given the lack of a specific movement and the heterogeneous degree of the liberal economic
policies of governments, the “consensus”, often mentioned by globalization opponents, is yet to be
reached. The debate over globalization is much broader than what the members of the two
competing teams may imagine. The novelty brought about by the dispute over globalization is that
both individuals and institutions fight together against the negative repercussions of globalization.
Many of the argumentative models of fundamentalist opponents and target oriented
opponents do not match the dominating doctrine of economic sciences – they are often so opposite
that it is absolutely impossible to have an economic discussion, as they only claim regulations that
have no economic background. On the one hand, economists take a high interest in the benefits on
efficiency and growth and development chances, but, on the other hand, opponents of globalization
seriously doubt the highly increasing global integration, thus hinting at the restriction of market
economy processes. Given the theoretical and empirical results they are referring to, economists can
only refuse the criticism and resolutions offered by certain non-governmental organisations.
Moreover, they underline the ability to solve the problems related to the market mechanism and to
competition and thus urge politicians to use these abilities. [1]
It should be noted that opponents often tend to directly blame financial globalization for
empirically demonstrated, but undeniable, world dysfunctions. In the historical debate on the role of
industrialisation in Europe and the United States, it is admitted that all the justly blamed conditions
have been equally precarious, or even worse, after the structural change. Moreover, both economic
and financial globalizations are unjustly assigned certain general factors.
It must be noted that economists admit to the existence of a certain number of market bust
cases. Based on the analysis of public assets and external negative effects, we can reiterate several
arguments issued by the opponents of globalization and we can justify their haste, as was the case
when cash was granted in order to avoid contagion in a possible financial crisis. The arguments of
several opponents often mention the wish for a more strict international cooperation regulation in
order to face problems. English economists underline the notion of “global governance” created
from the merger between the liberal demand pointing at the fundamental principles of the world
economic order and the regulation wanted by globalization opponents.
Nevertheless, the measures suggested by the opponents are often organised, so that the
market intervention method would trigger exactly the opposite of what is really expected. The most
significant example is the Tobin tax, which, not only should decrease volatility, it should also grant
the financing of the development aid. The two objectives cannot be carried out, since the decrease
in the volume of financial market will highly increase volatility.
Opponents of globalization often criticise the phenomena that are not related to market
integration but to anything that prevents it. We can find such examples in the literature about
industrialised countries protectionism, migration barriers or the IMF operations that can favour
moral hazard. By criticising the market economy systems, fundamentalist opponents often use these
arguments without realising that they are actually criticising the interventions that do not favour this
market system. Contradictory claims thus ensue. For instance, when opponents claim a higher
42
social level for developing countries, they are ready to accept, either willingly or not, the
protectionist effects on these countries.
II. VARIOUS REPROACHES EXPRESSED BY OPPONENTS AND PROPOSED
In the light of these arguments, we’ll draw a brief comparison between the different
opinions expressed by opponents and the suggested solutions.
As mentioned before, the criticism against the slow and uneven growth caused by
international trade, is partly unjustified. Poverty is a problem that persists and doesn’t seem to have
deepened in the present phase of globalization, although globalization can alleviate it. That is, at
least, the result shown by studies that find a positive balance between the opening of the market and
the alleviation of poverty. Consequently, fundamentalist suggestions on the different market
interventions (price control, protectionism), must be rejected.
Moreover, the possible repercussions or inequalities may arise from other reasons as well,
not necessarily triggered by globalization. In developing countries there may be wars, uneven
economic structures, demographic development and the failed domestic economic policies. On the
one hand, the numerous regulations and the demographic process may create problems in
industrialized countries, not necessarily created by globalization. On the other hand, the sustained
growth triggered by globalization can be of help in overcoming problems of such nature. [3]
Nevertheless, an increase of the aid for world development and redistribution is absolutely
normal. The minimum wage guarantee is a prerequisite for economic growth in less developed
countries. However, public means are not enough and only certain transfers could alleviate the
serious problems of attraction and allocation and those related to economic policies. The positive
role of foreign direct investments and of private cash flows for the development of the newly
industrialized countries of south-east Asia have proved that private initiative has a critical role. That
is the reason why poor countries should create the necessary circumstances for certain means to
function: liberalization, protection of property rights, as well as attractive and stable conditions for
investments.
As for the repercussions of globalization on the labour market, one must admit that, in
industrialized countries, certain pressure can be applied on salaries or on the jobs of unskilled
employees, either through foreign trade, or through migration. Nevertheless, globalization is too
overrated. In the past decades, the pressure on unskilled labour force was most likely caused by the
unstoppable technological development, often triggered by the conventional wage policies and the
regulation of the labour market that extremely increases simple labour and thus favours the
replacement by capital. On the other hand, because of increased development, globalization
indemnifies those affected through social redistribution systems.
The opening of markets from developing countries is a step in the right direction, as they
bring about a positive change in salaries and working conditions. On a theoretical level, working
conditions are not to deteriorate because of globalization, as empirical studies have not reached that
conclusion either. Nor can we fear a race to the bottom. In this case, harmonisation on all social
levels is needed. It doesn’t entail the protection of unskilled employees from industrialized
countries and nor is it an attempt to gain any benefits from developing countries. It would be
redundant to say that social security systems from different industrialized countries need a reform
and that this reform would cause certain services to disappear and would rise responsibility
awareness. But these conditions required by reform have nothing to do with globalization. Leaving
this phenomenon aside, they represent the priority of economic policies.
The fluctuations of international trade are unsettling, as they can slow down the growth of
developing countries. That includes the present protection of industrialized countries and also the
barriers on exchange practices in developing countries. The conclusion according to which a one-
sided openness of the market can lead to economic growth is not very popular among opponents of
globalization. Much of the criticism is focused on the supposed fluctuations caused by
industrialized countries, by multinationals or by the World Trade Organization. [7]
43
Opponents of globalization and economists alike have reached agreement on the claim of
renouncing protection; but their opinions greatly differ when it’s about valuing the performance of
multinationals. It is generally difficult to prove that multinationals may have a certain behaviour
that would have a negative effect on the macroeconomic welfare. Instead, it was observed that
multinational employees from developing countries benefit from better working conditions than the
people employed in national industries. Multinationals wish to have a dominant position on the
market, too, but it is less likely to imply world competition. When multinationals succeed in signing
disloyal competition agreements with developing countries, the latter are either rewarded by
positive external effects, or the respective governments are not considering the welfare of the
population. Attacking these agreements through prohibitive measures such as embargoes, boycotts
or other severe restrictions against multinationals is not very recommended. A more rigorous
control imposed by authorities and better public relations practices are perhaps the best competition
policies to be applied in industrialized countries. The institutions that deal with competition policies
should be promoted and supported. If they take into account the unimaginable weaknesses of
national justice courts, they must also consider the international agreements on the rules of
competition policies, but not necessarily a new world order.
III. CONTROL VERSUS LIBERALIZATION
Certain aspects of WTO (World Trade Organisation) are also criticised, especially
exceptions, sanctions on allowing counter-protection and anti-dumping procedures, including the
more ample notion of dumping as well. Nevertheless, the WTO is especially criticised for the
liberalization of the tertiary sector (GATS – General Agreement on Trade and Services) and for the
protection of copyright (the Agreement on ADPIC - Legal Aspects of Intellectual Property Relating
to Trade).
There is a high number of market busts on international financial markets. Situations can be
remedied and measures have been taken on a national and international level. Firstly, we must
admit that liberalization also entails certain considerable gains, and that keeping a functional
competition would prevent the government from focusing on one thing. The opening of the capital
market is generally regarded as positive, and it would be counterproductive to stop financial
markets from operating freely by means of capital movement control or transaction taxes, such as
the Tobin tax. A different situation can be observed in Chile or Malaysia, as to the extent to which
the capital movement control limits the capital flow before the emergence of institutions that
warrant the integration of the financial system on the world market. One must always carefully
compare this advantage of financial allocation with the risk premiums, possibly higher, for capital
interests. [4]
It is difficult to blame financial markets for the debts of developing countries. Rather more
importance should be given to the means obtained by governments. The debt of developing
countries highly depends on the public powers from industrialized countries. Asking to settle a debt
somehow equals some kind of developing aid that may have negative consequences. On the other
hand, efforts are made to apply an international debt redeeming procedure, both for sovereign states
and for their creditors, in order to at least contain the unsolved problem of state collapse. However,
it should be clear that only the regaining of trust can grant new access on international financial
markets. Thus, the debt redeeming procedure shouldn’t spare the debtor from any responsibility, as
there is the risk of excessive indebtedness that would cause some developing countries to always
foster poverty.
The moral hazard from the bank system, the possible irrational behaviour of market
participants and, due to the complex nature of the increase in financial services, the inconsistent
information exchanged between financial institutions and their clients, all these could create real
problems on the international financial markets.
Even before interacting within globalization, these problems are triggered by financial and
monetary crises on a national level and they can affect entire regions all over the world. Moreover,
44
except for crises, financial markets usually react in a rational manner when confronted with an
unstable economic policy. Certain irrational behavioural features can certainly be identified in the
tendencies of financial markets (herding, speculative bubbles). Nevertheless, ever since the 90’s,
certain considerable disagreements between fundamental data and the fixed exchange rate system
(prices for all currencies), have caused pressure in the financial systems of developing countries
during the majority of the financial crises. In this respect, “speculators” cannot be held accountable
if they assume the entire economic risk of a possible mistake.
The criticism against the IMF is an exception. To a certain extent, one must agree with the
accusation that its financial transfusions have favoured the excessive risk certain market
participants have taken on. But it is not true that its stability practices data sheet has conditioned the
granting of funds and thus triggered the crisis. The policies of the IMF are, undoubtedly, arguable,
as they establish trust only after a crisis and, at the same time, try to stop an expansionist economic
policy. [5] A high devaluation of the exchange tax, in the event of a monetary and financial crisis,
indicates a monetary adjustment and a stimulus for the economy. If this course of events is to be
contradicted by extending the interests and by enforcing austerity policies, the IMF can be accused
of serving the interests of private foreign investors and of compelling countries to adapt to these
requests by paying a very high price (including unemployment). But, if a crisis cannot be blamed on
this policy, what is the point of asking the IMF for help?
The ex ante conditionings, defined through the PSAL programmes, are highly welcome as
they decrease the possibility of a crisis. That is the purpose claimed by the “Washington consensus”
on the competitive exchange rate. If the fixed exchange rate can only be maintained with very high
costs, because of economic crises (such as the Argentina crisis), it would be necessary to grant
certain flexibility in the choice of a new exchange rate system.
IV. CONCLUSION
A possible market collapse can be prevented through better information (for instance,
matching the funding and accounting regulations), and not necessarily by creating an international
authority to supervise the financial market. Unlike an international institution, the national control
authorities and the central banks can show greater flexibility if they coordinate their activities.
Moreover, fixed exchange rate systems or world monetary systems should be refused, as the
exchange rate can be more flexible in diminishing the macroeconomic drifts than the prices of more
rigid factors. The World Bank is especially criticised for observing the rules set up by the economic
policies of the IMF. Just as with any development aid, the economic literature expresses doubts
about the efficiency of supplying public means instead of aid from investors or private capital
providers. Nevertheless, one must note the fact that, for certain reasons, the access to international
financial markets is not a realistic option for very poor countries. An institution such as the World
Bank is irreplaceable in these countries until they meet the necessary requirements for the economic
policy before being granted the development aid. Moreover, the Bretton Woods institutions
specialised in world financing and cash loans can support the access to information.
Also, the role of the IMF and of the World Bank must be reconsidered in order to include
the new global reality: widening the gap between developed and underdeveloped nations, the
volatility of global funds and the instant capital transfers. Ever since the beginning, these
institutions have been governed by responsible managers from the countries they represented. The
interests of the managers did not always coincide with the interests of the members. These interests
are now unclear because of the new role of the nation-state in world business. The globalization
forces have diminished the power of the state. Now global actors intervene – multinational and non-
governmental organizations – and play an active role in the development of the world system. Even
if the world is no longer the divided ruin from the end of the Second World War and no longer
shifted by the ideologies of communism and capitalism, the IMF and World Bank networks do not
have sufficient ranges to accommodate the dynamics of global economy or the complexity of
domestic problems. Consequently, the new role of the IMF and of the World Bank in the global
45
economy should aim at a harmonious development, accomplished through the control of failures,
normal on a market system, and to draft economic prescriptions that would balance investments,
development and political effects. As these institutions have evolved when it comes to reflecting
changes in the perception of development in a human context, and also in dealing with the
emergence of problems of global interest, they have also adjusted their policies so that their
operations can be interchangeable. But this is not an efficient means to manage and benefit from
international finances. It is time for the IMF and the World Bank to have a taste of their medicine:
operate efficiently, perhaps as one institution.
REFERENCES
1. Chamsy, O., & Hayden, P., (2006), Critical Theories of Globalization, Palgrave
Macmillan, New York, p.8
2. De la Dehesa, Guillermo, (2008), Învingători şi învinşi în globalizare, Editura Historia,
p.12
3. Gilpin. R., (2004), The World Economy in the XXI century. The Challenge of the Global
Capitalism, Editura Polirom, p.24
4. Hirst, P., & Thomson, G., (2000) Globalization in Question. International Economy and
the Possibilities of Governance, Polity Press& Blackwell Publishers Ltd., p.68
5. Madura, J. (2006), Financial Institutions and Markets, Thomson, South - Western, USA,
p.79
6. Marin, Dinu, (2004), Globalizarea şi aproximările ei, Editura Economică, p.24
7. Maynagh, M., & Worsley, R., (2008) Going Global, Key Question for the 21st Century,
A&C Black Publishers Ltd, London, p.55
8. Stiglitz, Joseph E, (2003) Globalizarea. Speranţe şi deziluzii, Editura Economică, p.34
46
THE SOCIAL LCA: THE STATE OF ART OF AN EVOLVING METHODOLOGY
Luigia PETTI
l.petti@unich.it
Patrizia CAMPANELLA
patcam@infinito.it
Abstract:
The paper deals with the introduction and the discussion of the concept of Social Life Cycle Assessment
(SLCA) – a new methodology which assesses social aspects of all life-cycle steps, from cradle to grave for the products
and services. The peoples become more and more interested for the environmental problems and the scientific research
have to provide appropriate and useful new tools.
Key words: sustainable development, impact, Social Life Cycle Assessment, quantitatively indicators
JEL Classification: Q01
1.1 INTRODUCTION
In 1992 in Rio de Janeiro the United Nations have declared “sustainability” as the guiding
principle for the 21st century, and the term has then become popular thanks to the Bruntland report
of the World Commission on Environment and Development. (Klöpffer, 2002 - Klöpffer, 2008) In
this report has been introduced, for the first time, the definition of sustainable development (“the
development that meets the needs of present without compromising the ability of future generation
to meet their own needs”) and it has been emphasized the responsibility of human kind towards the
future generation. (Klöpffer, 2002)
From a careful interpretation of the definition it has emerged that sustainability comprises
three components, known as “pillars of sustainability”, which have to be properly assessed and
balanced if a new product has to be designed or an existing one has to be improved: environment,
economy and social aspects. (Klöpffer, 2002 - Klöpffer, 2008)
There seems to be consensus about the three pillars, but not about the weights of these
aspects. (Klöpffer, 2002)
As a result of globalization and of the increasing complexity of modern economies, a new
concept has become a focus of interest, passing from a narrow and often marginalized notion, to a
complex and multifaced concept: corporate social responsibility (CSR). (Fet, 2006 – Cochran,
2008)
Corporate social responsibility has become an important component in the management of
relationship between companies and community, public, employees and shareholders, since
companies who successfully pursue a strategy of seeking profits while solving social needs may
earn better reputation and gain a competitive advantage over companies esteemed socially
irresponsible. (Fet, 2006 – Cochran, 2007)
1.2 SOCIAL ASPECTS
A commonly accepted definition for the social dimension of sustainability doesn’t exist,
since it is a dimension characterized by particular features: it is bipolar (it refers both to individual
and collective levels), it is reflexive (our perceptions and interpretations of the objective social
conditions change the behaviour of individuals and social collectives) and it is immaterial (the
social phenomena are difficult to grasp and analyse quantitatively). (Lehtonen, 2004)
Compared to environmental and economic aspects, social aspects present different problems
because they can be highly diverse, they are weighted very differently by different interest groups
47
and in different countries and regions, and their evaluation is subject to swifter changes over time
(it’s sufficient to think, for example, to cultural changes). (Grieβhammer et al., 2006)
The aspects to consider in a social impact assessment study have to do with the scope of the
study itself, and the social impacts, understood as “the consequences on human population of any
public or private actions that alter the ways in which people live, work, play, relate to one another,
organize to meet their needs and generally cope as members of society” (Interorganizational
Committee on Guidelines and Principles for Social Impact Assessment, 1995, pag. 11), will be
different for each stage of a project or a policy, that is the initial planning, the
implementation/construction, the operation/maintenance and the decommissioning/abandonment.
(Interorganizational Committee on Guidelines and Principles for Social Impact Assessment, 1995)
An important distinction has to be made between social change processes (that can bring to
social impacts, considering the features of the community and the mitigation measures) and social
impacts. (Vanclay, 2002)
Among social change processes there are, for example, the demographic processes (changes
in the number and composition of the family); the economic processes (relating to the way in which
people make a living and economic activity in the society); the geographical processes (changes in
land use patterns); the institutional and legal processes (relating to the efficiency and effectiveness
of institutional structures, including governement and non government organisations); the
emancipatory and empowerment processes (increasing influence in decision making processes); the
sociocultural processes (affecting the culture of a society); and all the other processes are not
included in the previous. As regards social impacts, on the contrary, according to Vanclay (2002)
they can be subdivided into seven categories: the indicative health and social well-being impacts as
for example the death in the community (where the death is considered as a loss of human and
social capital), the nutrition (quality and adequacy of individual and household food supply), the
mental health and subjective well-being (feelings of anxiety, stress, depression etc.), the uncertainty
about the effects of planned interventions and so on; the indicative quality of the living environment
impacts (exposure to dust, noise, risk, recreation opportunities etc.); the indicative economic
impacts and material weel-being impacts (workload, access to public goods and services, income
level of unemployment in the community etc.); the indicative cultural impacts (changes in cultural
values such as moral rules, beliefs, language, cultural integrity etc.); the indicative family and
community impacts (alterations in the family structure, family violence, social differentiation and
inequity, social tension and violence etc.); the indicative institutional, legal, political and equity
impacts (integrity of government and government agencies, loss of tenure or legal rights, violation
of human rights, participation in decision making etc.) and the indicative gender relations impacts
(personal autonomy of women, gendered division of production oriented labour, equity of
educational achievement between girls and boys, political emancipation of women etc.). (Vanclay,
2002) The lists of social impacts are the product of the conceptualization of the authors who decide
which impacts to include. Considering this, many publications have provided some general
classifications concerning the types of social impacts that should be considered in a social impact
assessment process (SIA). Audrey Amour, for example, has identified, as main social aspects, the
people’s way of life (how they live, work, play and interact with one another on a day-to-day basis),
their culture (beliefs, customs and values) and their community (cohesion, stability, character,
services and facilities); Vanclay has added to these aspects the political systems of people (the
extent to which people are able to partecipate in decision that affect their lives, the level of
democratisation and the resources provided for this purpose), their environment (the quality of the
air and water they use, the availability and quality of the food that they eat, the level of hazard, dust
and noise in which they are axposed to, the adequacy of sanitation, their physical safety and their
access to and control over resources), their health and well-being, their personal and property rights
(particularly whether people are economically affected, or experience personal dasadvantage which
may include a violation of their civil liberties) and their fears and aspirations; Juslén, on the
contrary, has identified seven main categories of impacts: the “standard” social impacts,
concerning noise level, pollution and so on, the psychosocial impacts (community cohesion,
48
disruption of social networks), the anticipatory fears, the impacts of carrying out the assessment,
the impacts on state and private services and the impacts on mobility (transportation, safety etc.)
(Vanclay, 2002) The US Interorganizational Committee on Guidelines and Principles for Social
Impact Assessment, at last, has included a list of social impact variables, that points to measure
changes in human population, communities, and social relationships, resulting from a development
project or policy change. These hypothetical variables regard: the population characteristics
(present population and expected changes, racial and ethnic diversity, influxes and outflows of
temporary residents as well as the arrival of seasonal or leisure residents); the community and the
institutional structures (size, structure, and levels of organization of local government, including
linkages to the larger political systems, historical and present patterns of employment and industrial
diversification, the level of activity of voluntary associations, religious organizations and interests
groups, relations among institutions ); the political and social resources (distribution of power
authority, the leadership capability and capacity within the community or region); the individual
and family changes (factors that influence the daily life of the individuals and families, including
attitudes, perceptions, family characteristics and friendship networks); the community resources
(include patterns of natural resource and land use, availability of housing and community services
such as health, sanitation facilities, historical and cultural resources etc.). (Interorganizational
Committee on Guidelines and Principles for Social Impact Assessment, 1995)
The concept of social impact assessment has been already mentioned in this work, but it has
been no way of giving a definition yet. To better understand the topic of the next paragraph,
concerning the Social LCA (regarding the application of a SIA to a product or service life cycle),
it’s necessary to outline its main aspects. The social impact assessment (SIA) has been defined in
different ways from the authors and the lack of a commonly accepted definition has often led to the
inadequacy of many studies. (Vanclay, 2002)
Social impact assessment can be defined as “the process of identifying the future
consequences of a current or proposed action which are related to individuals, organizations and
social macrosystems”. (Becker, 2001, pag.312) The methodology consist of different phases that
can be subdivided into two groups: the group concerning the initial phases that precede the
assessment project and the group regarding the main phases of the same project. (Becker, 2001) To
the first group belong the phases concerning the problem analysis and the communication strategy
(it’s necessary to understand the nature of the problem and why it has been judged serious enough
to merit action), the system analysis (the boundaries of the system, its sub-systems and related
phenomena), the critical or base-line analysis (regarding the existing conditions and past trends
associated with the human environment in which the proposed activity has to take place, for
example relationships with the biophysical environment, the historical background, the political and
social resources, the culture, attitudes and social-psychological conditions, including attitudes
toward the proposed actions, and the population characteristics), the trend analysis and the
consequent monitoring design (able to provide informations about the development of action and its
intended and unintended consequences) and the project design. (Interorganizational Committee on
Guidelines and Principles for Social Impact Assessment, 1995 - Becker, 2001)
To the second group, on the contrary, belong phases such as the scenario design (necessary
phase to provide simulations of what might happen to the system of interest), the design of
strategies that might eliminate or mitigate the problem, the assessment of impacts and the
consequent ranking of strategies (that are redesigned in order to mitigate negative impacts), the
reporting and, finally, the stimulation of project implementation and the auditing of the social
impact assessment project. (Interorganizational Committee on Guidelines and Principles for Social
Impact Assessment, 1995 - Becker, 2001)
A particularly important aspect in the social impact assessment process, moreover, is the
public involvement starting at the very beginning of planning for the proposed action, that is the
involvement of all people who live nearby, who will hear, smell or see the project development,
those who will be forced to relocate because of a project, those who normally use the land on which
49
the project will be located and so on. (Interorganizational Committee on Guidelines and Principles
for Social Impact Assessment, 1995)
Social impact assessment has changed substantially. In many western countries, for
example, it is nowadays obligatory in the preparation of governement actions, and many business
corporations and no-profit organizations have adopted social impact assessment as a standard
requirement in policies formation. The number of practitioners of social impact assessment is
growing steadily all over the world; significant documents concerning social impact assessment
have been published (it’s sufficient to think, for example, to “The international principles for social
impact assessment” and to “The principles and guidelines for social impact assessment in the
USA”, both of 2003 and, although they have been developed independently, they are both direct
descendents of the “Guidelines and principles for social impact assessment” of 1993/1994); and
more and more often, how we will see, the consideration of social impacts is incorporated in greater
projects of environmental impacts assessment. (Becker, 2001 – Vanclay, 2006)
1.3 THE SOCIAL LCA
There has been way of outlining, in the previous paragraph, that social aspects have
obtained, nowadays, an undoubted importance. More in particular recent years have seen an
increasing interest, among policy makers and stakeholders, in the inclusion of social impacts in
products or services environmental life cycle assessment, ant this interest has been made concrete
whit the development of the so called Social Life Cycle Assessment (SLCA), a new methodology
that has obtained more attention only over the last years. (Norris, 2006 – Hauschild et al., 2008) The
social LCA assesses social aspects of all life-cycle steps, from cradle to grave, and it has been
developed for including a great number of impacts, that vary from those concerning workers
(accidents, remuneration, working conditions) and local communities (toxic pollutants, human
rights abuses), to the greater consequences on the society (corruption, payment of taxes).
(Grieβhammer et al., 2006 – Hauschild et al., 2008)
The importance of the methodology, however, is that Social LCA supplements the
traditional environment-oriented LCA and the life cycle costing tools in support of sustainability
management, addressing all three pillars of sustainability. (Hauschild et al.,2008)
The Life Cycle Assessment is a methodology that analyses quantitatively the behaviour of a
product towards the environment, evaluating the socalled “environmental shadow” cast by the
same product. (Heiskanen, 1999 - Bovea, 2004)
The Life Cycle Costing, on the contrary, can be defined as the assessment of all costs,
internal and external, associated with the life cycle of a product, that is from those that are directly
covered by any one or more of the actors in the product life cycle (suppliers, producers, users, end
of life actors etc.), to those that, in the long term, fall back on society, since there is no
governmental regulation or market that assigns them to the company, that, consequently, is not
responsible for them (environmental degradation costs, adverse impacts on human beings, their
property and their welfare). (Bovea, 2004 – Hunkeler and Rebitzer, 2005 – de Beer and Friend,
2006)
It has already been said that the LCA, the LCC and the SLCA are important methodologies
for the environmental, economic and social assessment, and their integration allow to give a more
complete assessment of product sustainability. (Hunkeler and Rebitzer, 2005)
As regards this integration two options have been proposed. According to the first one the
Life Cycle Sustainability Assessment (LCSA) can be written as LCSA = LCA + LCC + SLCA. This
option is based on three separate life cycle assessments with consistent system boundaries (this
brings to build an independent dimension of sustainability, respecting an important principle of
sustainable development which aims at balancing environmental, economic, and social
considerations). (Hunkeler and Rebitzer, 2005 – Klöpffer, 2008)
According to the second option, on the contrary, the LCSA can be written as LCSA = “LCA
new”.
50
In this case the Life Cycle Costing and the Social LCA are included as additional impact categories
in Life Cycle Assessment and exists, consequently, an only one LCI model which has to be defined
in the “Goal and Scoping” phase. (Klöpffer, 2008)
Before studying in detail the SLCA is important to make a specification in order to do not
cause confusion afterwards. The acronym SLCA has been interpreted, depending on the authors,
differently; some authors, as we have seen, have spoken of Social LCA, someone else, like for
example Hunkeler, of Societal LCA. The same Hunkeler, in one of his works, has outlined the
difference between the two terminologies, highlighting the micro-economic character of Societal
LCA compared with that macro-economic of Social LCA. According to what affirms the author, the
societal life cycle assessment differs from social LCA because it examines the effect of product
substitution on the state of average workers in countries where the product life cycle has an effect.
The Social LCA, therefore, covers explicitly the effect of government programs, while the Societal
LCA covers them implicitly via overhead and taxes. (Hunkeler, 2006)
Even though not all the authors have dwelt upon the slim difference between the two
terminologies, to consider this distinction is important in order to avoiding unnecessary doubts
going forward in the work. Starting from the next paragraph, it will be described the framework of
Social LCA and it will be introduced the considerations of different authors concerning this topic,
in order to see how the Social LCA has been interpreted.
1.4 THE FRAMEWORK OF SLCA
As it has already been mentioned, the Social Life Cycle Assessment considers social aspects
throughout the product life cycle and, as it happens in Life Cycle Assessment, it can be identified,
for this methodology, two main classes of goals which should be seen as complementary: the first
one regards product, process or company comparison, and the other one the identification of
product or process potentials improvements. (Grieβhammer et al., 2006 – Jørgensen et al., 2008)
The Social LCA, corresponding to the LCA consists of the same phases of it, that is:
- Goal and scope definition;
- Inventory analysis;
- Impact assessment;
- Interpretation. (Grieβhammer et al., 2006)
The objective of the first phase is to identify the object of the study and to delimit the scope.
It’s necessary to define, in this phase:
- Goal of the study (for example the development, or the refinement of a product);
- Inventory scope and system boundaries (for example the determination of which countries
or regions are covered, the evaluation of the existing situation, or of a prospective of
development);
- Temporal scope;
- Functional unit;
- Alternatives/scenarios (including benchmarks and improvement options);
- Data quality requirements;
- Allocation procedures;
- Critical review (in the case of comparative evaluations and in the case of any pubblication).
(Grieβhammer et al., 2006 - Jørgensen et al., 2008)
The second phase, regarding the inventory analysis, has the goal to collect objective data
identified during the scope definition, and in this phase there is one of the more demanding aspects
of Social LCA. (Jørgensen et al., 2008) As regards the collection and the availability of data, in fact,
arise different problems, since it can happens that only a small part of data is available in processed
form from statistical or other sources; that no input-output data are yet available for several
processes and activities; or even, that several upstream chains can be involved, particularly in the
case of complex industrial products. (Grieβhammer et al., 2006)
51
The impact assessment is the phase where the inventory informations are translated into
impacts and, as in the LCA, it consists of four phases: classification, characterisation,
normalisation and evaluation of impacts. (Grieβhammer et al., 2006 - Jørgensen et al., 2008)
The classification assigns individual aspects to groups of indicators and, with regard to it, a
discussion has arisen concerning whether to follow the approach known from LCA (that is to
classify on the basis of the different impact categories), or to classify according to the impacted
stakeholders (in this case the UNEP/SETAC task force has agreed on a minimal list of stakeholders:
workforce, local community, consumers (related only to the use stage) and society (national or
global)). (Grieβhammer et al., 2006 - Jørgensen et al., 2008)
The purpose of characterisation is to aggregate the inventory results (types of jobs, job
satisfaction etc.) within the same impact category, and this implies the conversion of inventory data
to a common metric. Many times, in fact, results can not be simply added or aggregated and for this
reason it’s necessary an approach that allows it. (Grieβhammer et al., 2006 - Jørgensen et al., 2008)
Weidema, for example, (as it will see later) calculates all impacts as a reduction in the
average well-being, denoted Quality Adjusted Life Years (QALY), while Hunkeler relates one
indicator, the number of working hours along the product chain, to several impact categories
(housing, health care, education and necessities). (Jørgensen et al., 2008)
As regards the normalisation and the evaluation in Social LCA, at last, very little works
have been carried out and the general trend is that these phases have to be performed like in LCA.
(Jørgensen et al., 2008) The normalisation, in particular, seems an optional step which has sense
only with quantitative results; in this phase the outcomes for the individual indicators are placed in
relation with a suitable reference value which has to correspond to that of LCA (for example the
gross national product) and the goal is to establish the proportional importance of every problem.
(Grieβhammer et al., 2006)
The final phase of the methodology, concerning the interpretation of results, at last, shoul
include checks of completeness (or full coverage of areas of impact), consistency, sensitivity,
materiality (relevance of provided informations) and of responsiveness (engagement of
stakeholders). Key requirements for this phase, moreover, are the participation of stakeholders, the
documentation of the evaluation process, the steps to ensure transparency and verifiability of
results, as well the analysis concerning the conformity with the goal of the study and with the scope
of inventory analysis. (Grieβhammer et al., 2006)
In spite of the same methodological structure of LCA, however, in Social LCA there are
some differences regarding, for example, the definition of product and boundaries system. If the
product system in the Environmental LCA comprises all processes involved in the different stages
of the product’s life cycle, from the extraction of raw materials to final disposal, in the Social LCA
it is represented by the companies engaged in the life cycle and in which industrial processes take
place.
In Social LCA, therefore, the analysis is no more conducted at a process level, but of
companies engaged in the life cycle and, more precisely, it focuses on the conduct of each company
towards stakeholders. (Dreyer et al., 2006 - Jørgensen et al., 2008 – Hauschild et al., 2008)
As Dreyer, Spillemaeckers and other authors argue, most social impacts have no relation
with processes that form the product or service system, but rather with the conduct of companies
performing the same process; this means that the causal link is not, like in the LCA, between
process and impact, but between conduct of the company and impact. (Jørgensen et al., 2008)
Analysing impacts at a company level instead of process level, however, makes difficult to
define the relation between impacts and product; the link between the conduct of a company in the
product life cycle and the product is not directly quantifiable as the physical link between process
and product. (Dreyer et al., 2006)
A share factor, which represents the weight that is given to a company in the product or
service chain, is used to solve the problem and to allocate social impacts, created by companies, to
the product or service assessed. (Dreyer et al., 2006 - Hauschild et al., 2008 - Jørgensen et al., 2008)
52
The share factor can be calculated in different ways; it could be based, for example, on the
physical weight (the contribution to the physical weight of the product), on the cost (the
contribution to the cost of the product), on the value creation (the contribution to the product’s
value) or on the number of working hours spent per functional unit of the product, and the choice
depends on two criteria: it is necessary that the bias, naturally introduced by the share factor, is
known and accepted, and the data or information, needed for the calculation of the share factor,
have to be available for all companies of the product chain. (Dreyer et al., 2006 - Hauschild et al.,
2008 - Jørgensen et al., 2008)
As regards the boundaries of the product system, on the contrary, they are determined with
respect to the influence that the product manufacturer exerts over the activities in the product chain
and they have to be determined on a case-to-case basis, because Social LCA is highly site-specific.
To conduct a Social LCA, in fact, simple general informations would not be useful, since aspects
concerning the conduct of companies in the life cycle, or the impacts over stakeholders are always
specific. (Dreyer et al., 2006) Generally it can be affirmed that in a Social LCA are included all
social impacts which occur in the material, manufacturing and distribution stage; should be
considered social impacts of product use; and finally, in the disposal stage, their consideration
depends on the local or regional community’s choices on the matter of waste management (the
influence of the product manufacturer in this stage, in fact, is restricted to the few case where he has
influence on the choice of waste management companies, or where he is also the end-user of the
product). (Dreyer et al., 2006)
Other important aspects to consider in a Social LCA are the definition of assessment
parameters, the identification of areas of protection and the concept of social indicator. As regards
the first aspect it can be said that the address changes depending on the approach type. In a bottom-
up approach the definition of assessment parameters starts with the identification of social issues in
the business context of the product manufacturer; in a top-down approach, on the contrary, the
definition of assessment parameters starts with the identification of what is valuable to society (this
ensures the inclusion of those impacts which are relevant from a societal point of view). In order to
give importance to both company and society, a two-layer Social LCA has been suggested. This
method consists of two layers of impact categories, an obligatory and normative one, concerning a
predetermined set of categories expressing minimum expectations to conducting responsible
business, and an optional one, regarding a self-determined set of categories expressing specific
interests of the product manufacturer. (Dreyer et al., 2006) The obligatory categories are based on
the Universal Declaration of Human Rights and they refer, for example, to the discrimination, the
child labour, the forced labour and the freedom of association. (Hauschild et al., 2008) The optional
categories, on the contrary, are more dependent on the context of the company in terms of
geographical and cultural settings, but also from trade to trade and some examples are the physical
working conditions, the working hours, the minimum wage, the training and education of
employees, and so on. (Hauschild et al., 2008) As regards the areas of protection in the Social LCA
to the four areas normally present in a process of environmental assessment (human health, natural
environment, natural resources and man-made environment) it’s necessary to add a new one (to
supplement the human health of LCA): Human dignity and well-being (representing the value of a
good and decent life and the fulfilment of the basic needs such as access to food, water, clothes,
medical care etc.). (Dreyer et al., 2006 - Hauschild et al., 2008 – Jørgensen et al., 2008)
As regards social indicators, finally, they can be different. A first classification subdivides
them in midpoint indicators and endpoint indicators, difference that refers to the location of the
indicators in the impact pathway. (Jørgensen et al., 2008) Job creation, for example, is normally not
considered a goal in itself but, through contributing to the family income and subsequent poverty
reduction, it may improve the family's health conditions, which may be considered as an end goal.
The job creation could, thus, be considered a midpoint indicator, and the health condition as an
endpoint indicator. (Jørgensen et al., 2008)
Another important classification considers the different methodologies used in the
formulation of indicators. The first relates whether the indicators are formulated in quantitative,
53
semi-quantitative or qualitative terms, and the second concerns whether the indicator measures the
impact directly or via indirect indication or proxy measurements. (Jørgensen et al., 2008)
When formulating quantitative indicators it is assumed that the phenomenon to be measured
can be directly quantified; a scoring system, based on semi-quantitative scales (for example ratings
from good to bad, often expressed in corresponding numbers), on the other hand, is often applied if
the phenomena to be measured are too complex to measure and express in simple physical units
(such as the indicators used to measure the performance on occupational health and safety); the use
of qualitative indicators, at last, does not set any restrictions on the types of information to include
in the assessment, and thus they can be used in a more exploratory manner than both the
quantitative and semi-quantitative indicators. (Jørgensen et al., 2008)
As regards the use of indicators that measure the phenomena directly, indirectly, or via
proxy measurements, on the contrary, it can be given two examples. According to Dreyer it is well
known, among companies which have experience with registration of working accidents, that the
registered number of accidents cannot always be correlated with the quality of work environment in
the company. The problem of using the number of accidents as an indicator is that this number is
strongly influenced by how well reporting of working accidents is managed (a low number of
reported incidents, in fact, may reflect both a very efficient management practice and a very poor
management where incidents are simply not reported). Dreyer, therefore, introduces the idea of
assessing the management efforts rather than the reported impacts. The indicator measurement,
thereby, becomes an assessment of the will and ability of the company to avoid negative impacts,
and not an assessment of the reported impacts themselves. (Jørgensen et al., 2008)
Weidema, on the contrary, gives an example of measurement via proxi and suggests a
method of reverse compilation from available data sources. Reverse compilation, for example,
could be used in relation to child labour: regional or national statistics on child labour are very
scarce and, assuming that children are either in school or working during day hours, a proxy
indicator measurement of the total extent of child labour in the region can be made on the basis of
statistics on education and demography. (Jørgensen et al., 2008)
1.5 CONCLUSIONS
The social life cycle assessment of a product presents, as well as it happens in every
methodology, some strenghts and weaknesses. The main problems regard, for example, how to
relate quantitatively the existing indicators to the functional unit of the system, how to obtain
specific data for the regional SLCA (it’s to remind, in fact, the possibility of a scarce availability of
data, or a total lack of them for different processes or activities), how to decide among qualitative or
quantitative indicators, how to quantify all impacts properly, or more how to evaluate the results.
(Klöpffer, 2008)
The strenght point of the methodology is that it makes the assessment of the product more
complete, adding its social aspects to the environmental and economic ones. The Social LCA would
allow companies to fully consider sustainability and, providing informations about the potential
social impacts on people, caused by the activities in the life cycle of their product, it would facilitate
them to conduct business in a socially responsible manner. (Dreyer et al., 2006 – Hauschild et al.,
2008)
In spite of the admission of this importance the Social LCA is still in the phase of
development, the one where different approaches emerge and hypotheses are tested and discussed,
waiting to reach an agreement and achieve harmonization. Promoting the development of the
methodology and its practical use it’s more than ever necessary and to obtain this it should certainly
adopt some actions; actions concerning, for example, the execution of case studies, the definition of
the single indicators and of their measurement units, the improvement of existing databases
(restricting the problem of the lack of data, previously considered), or more the creation of a code of
practice for integrating social aspects into LCA or extending the existing code of practice of the
LCA. (Grieβhammer et al., 2006) A role of primary importance for the development of Social LCA
54
is occupied by values (defined by Vanclay as “the statements about fundamental beliefs deeply held
that determine principles from which guidelines can be written” (Vanclay, 2006, pag. 9) ), by
culture and by every individual and communities beliefs.
As it has already been said in this work, talking about the Kuhnian model, in fact, the
actions of individuals are guided by their values and their beliefs and this means that only an
understanding of the importance of concepts, like for example, in our case, the intergenerational
equity or better working conditions, can help to change the norms which “condition” human
activities, allowing to insert ethical aspects in the company.
As Lorna Beretta properly asserts, the starting point for obtaining a change is the personal
learning experiences of those struggling for the change itself and this learning, given by the
experience in relationship with others, has the potential to enhance individual and community lifes.
(Beretta, 2007)
The importance of the consideration of social aspects in a life cycle context has to be
understood first of all at a theoretical level by individual, and companies that make, for example,
social reporting, or apply a management system such as SA8000, have to do it because they really
have recognized its importance and not exclusively to obtain a competitive advantage over
competitors. Only a manager that has really understood the importance of social aspects and of
probable impacts that company activities may cause on various stakeholders who will have to do
with it, can really work hard to try to avoid or to mitigate these impacts and only in this way the
company will be able to fully enjoy all the benefits that it will register, for example, in the
relationship with customers or employees (which certainly will work with more enthusiasm in a
better context).
It’s just, therefore, what Becker says, that is that “the social impact assessment has to be
discussed first of all as a moral obligation” (Becker, 2001, pag. 318); a moral obligation to the base
of which there must necessarily be the understanding and the convinction of why it must be so.
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56
THE CONNECTION IDENTIFICATION BETWEEN THE NET INVESTMENTS IN

HOTELS AND RESTORANTS AND TOURISTIC ACCOMODATION CAPACITY BY
USING THE ANOVA METHOD
Assistant Roxana Elena STAN

seroxana@gmail.com
Lecturer Emilia GABROVEANU
emilia.gabroveanu@gmail.com
Assistant Nicoleta RADNEANTU
stancanicoleta@yahoo.com
Abstract:
In the purpose of giving the answers to customers’ harsh exigencies, in the Romanian tourism development has
to be taking into account especially the “accommodation” component. The dimension of technical and material base of
accommodation can be express through: units’ number, rooms’ number, places number. The most used is “places
number” indicator. Nowadays as regarding the tourism Romanian investments there are special concerns caused by
peculiar determinations. The study aim is represented by identifying of a connection existence between net investments
in hotels and restaurants and tourism accommodation capacity, registered among 2002-2007period in Romania, by
using the dispersion analysis ANOVA method.
Key words: Net Investments, Tourist’s accommodation capacity, Variant analysis
JEL Classifications: B23, C13, C51, C52
INTRODUCTION
In the widening conditions and methods improvement of phenomenon commensurable, it is

possible the most correct evaluation for hypostasis displayed at micro and macro economy level.
Thus is necessary the each analyzed situation depiction, the comparison between two or many
collectivities, as well as the analysis influence of the implied factors.
A dispersion analysis method is ANOVA method – Analysis of Variance, contoured by A.
Fisher, which suppose grouping and study of interdependencies that appear during route
phenomenon display and economical processes. The study of these connections suppose to build a
regression model, which implies getting the regression equation, testing the regression model
validity, the settlement and testing of correlation report and testing the purport and parameters
evaluation for the regression model on the trusting intervals.
In the case of ANOVA method, the analyzed parameters values can be calculated or could
be used for determining them the EXCEL software.
1. REALIZING THE REGRESSION MODEL
The evolution of net investments in hotels and restaurants and touristic accommodation
capacity in Romania, during 2002-2007, is presented in the following table:
Table no: 1. The evolution of net investments in hotels and restaurants and touristic
accommodation capacity, registered in Romania, between 2002-2007
Net investments in Touristic
hotels and restaurants accommodation
Years
(lei million current capacity
prices)
(existing places)
2002 331,5 272596
2003 481,5 273614
57
2004 750,4 275941

2005 936,6 282661
2006 1249,2 287158
2007 1600,9 283701
Source: Romanian Statistical Yearbook, INS, 2008, p. 517.
For determining and analysis the connection between net investments in hotels and
restaurants and touristic accommodation capacity, it will be used the information from table no: 1,
and applied the dispersion analysis method (ANOVA – Analysis of Variance).
ANOVA method supposes the following main aspects: determining the regression equation,
testing the validity of the regression model, establishing and testing the multiple reports, and testing
the significance and estimate the parameters of the regression model.
1.1. DETERMINING THE REGRESSION EQUATION
The identification of the regression equation which adapts the connection between net
investments in hotels and restaurants and touristic accommodation capacity suppose to follow these
steps:
 Identifying the two variables: xi and yi
xi – factorial variable – Net investments in hotels and restaurants
yi – resultant variable – Touristic accommodation capacity
 Estimating the parameters for the linear regression model: a and b
Linear regression model imply the linear regression equation. Regression equation which
shapes the connection between net investments in hotels and restaurants and touristic
accommodation capacity is: y = a + bxi.
Parameters a and b are determined using the least squares method, and n represents the
observations.
In the following table are presented the intermediary values necessary for applying least
squares method:
Table no: 2. The algorithm necessary for applying least squares method
Net investments in Touristic
hotels and accommodation
Years xi2 xiyi
restaurants (lei capacity
million current
(existing
prices)
places)
2002 331,5 272596 109892,25 90.365.574,00
2003 481,5 273614 231842,25 131.745.141,00
2004 750,4 275941 563100,16 207.066.126,40
2005 936,6 282661 877219,56 264.740.292,60
2006 1249,2 287158 1560500,64 358.717.773,60
2007 1600,9 283701 2562880,81 454.176.930,90
∑ 5.350,10 1.675.671,00 5.905.435,67 1.506.811.838,50
Knowing that n = 6, result:

6a + 5350,10b = 1675671
5350,10a + 5905435,67b = 1506811838,50
58
so: a = 269343,7 and b = 11,1416.
The regression line is: y = 269343,7 + 11,1416x
The a free term indicates the value of resulting variable when all unessential factors have a
constant action. In other words, a = 269343,7 indicates the medium level of tourism
accommodation capacity variable determined through the other factors influences less net
investments in hotels and restaurants.
The positive value of the regression (b) indicates the fact that there is a direct connection
between the net investments in hotels and restaurants and tourism accommodation capacity, the
both variables modifying in the same direction. The value of regression quotient b = 11,1416
reveals the fact that the accommodation capacity increases with approximately 11 places when the
investments increase with 1 million.
The following stages in the linear regression model analysis model represent the method
checking validity, through which is demanded the model establishment and utilization. In order to
find the solution of problems and to facilitate the calculus it has been applied the EXCEL program.
1.2. TESTING THE VALIDITY OF THE REGRESSION MODEL
Testing the validity of the regression model supposes making the following steps:
 Null hypothesis – H0: the model is not valid
 Alternate hypothesis– H1: the model is valid
 In report with data is to be applied F test (Fisher Snedecor)
 Is to be settled the purport limit α (in this status α = 0,05, due to appearance probability calculus
of the results is 95%) and is get the rejection region limit:
Fα;k;n-k-1 = F0,05;1;4 = 7,71
 Is to be settled the test F statistics
To settle the statistics of test F it has been used EXCEL software. Thus has been getting the
following necessary values for validity analysis of the regression model:
Table no: 3 Table ANOVA with necessary values

for validity analysis of the regression model
ANOVA
Df SS MS F Significance F
Regression 1 1,41E+08 1,41E+08 14,05434 0,019966
Residual 4 40093989 10023497
Total 5 1,81E+08
 The assessment of final decision for testing the model validity depending on the Fc value:
 If Fc > Fα;k;n-k-1, then H0 is rejected, the regression model being statistic valid;
 If Fc < Fα;k;n-k-1, then H0 is supposed true, the regression model not being statistic valid
From the 2.3 table results that, in the case of these two analyzed indicators – The net
investments in hotels and restaurants and Tourist accommodation capacity, Fc = 14,05434 > Fα;k;n-k-1
= 7,71, then H0 is to be rejected, the model of regression being statistic valid.
In table appears also an element that reflects the validity of the model: Significance F. If the
achieved value of this element is smaller than 0,05 then is rejected H0. In the case of this
59
application, Significance F = 0,019966 < 0,05, from where results that the regression model is
statistically valid.
1.3. ESTABLISHING AND TESTING MULTIPLE R
Multiple R, in statistics, is used to measure the intensity rate for a connection between a
resultative variable and a factorial variable, while in econometrics is introduced also in the
validation stage of linear regression model.
Multiple R 0,1, his values having the following significance 3:
- if R = 0, the two variables are independent, so do not there is a connection between them (all the
averages are equal);
- if R (0;0,2, there is o very feebly connection between the studied variables;
- if R (0,2;0,5, there is feebly connection between the two variables;
- if R (0,5;0,75, there is a medium intensity connection between the variables;
- if R (0,75;0,95, there is a strong connection between the two variables;
- if R (0,75;1), there is a very strong connection between the variables;
- if R = 1, there is a perfect connection, determinist or functional between the two variables.
In table no: 4 are presented: Multiple R (R), R Square (R2), Adjusted R Square (R2) and
Standard Error (se):
Tabel no: 4 Values for R, R2, R2 and se parameters

SUMMARY OUTPUT
Regression Statistics
Multiple R 0,882296
R Square 0,778447
Adjusted R Square 0,723058
Standard Error 3165,991
Observations 6
The value of Multiple R is 0,882296. This shows that, between net investments in hotels and
restaurants and touristic accommodation capacity there are a strong connection.
R Square is 0,778447 and indicates that the percent influence of the volume of net
investments on touristic accommodation capacity is approximate 77,84%. Standard Error is
3165,991.
By detailing this component of verifying the model validity, have been determined the
elements necessary for complete analysis of the studied phenomenon.
1.4. TESTING THE SIGNIFICATION AND ESTIMATING THE LINEAR

REGRESSION MODEL PARAMETERS ON TRUST INTERVALS
Parameters a = 269343,7 and b = 11,1416, raters in linear regression equation:

yi = a + bxi  yi = a + bxi
have been determined by applying least square method.
Testing the signification of parameters a şi b has in view the size of selected sample.
Because n < 30 it must applied Student test.
The necessary elements for testing parameters and establishing the trust intervals were
determined using EXCEL and are presented in an ANOVA table (table no: 5).
60
Table no: 5 The necessary elements for testing parameters (, )

and establishing the trust intervals
Coefficient Standar t Stat P-value Lower Upper
s d Error 95% 95%
Intercept 269343,7 2948,44 91,3512 8,61E- 261157, 277529,9
2 1 08 5
X Variable 1 11,1416 2,97195 3,74891 0,01996 2,89010 19,39308
5 2 6 9
The free term (Intercept) appears under form of a quotient. The value of quotient of
269343,7 indicates the fact that, in the condition of remaining constant the accommodation capacity
than the investments have been established at a value of 11, 14.
Due to tca = 91, 35121, and the signification threshold P-value is 8,61E-08 < 0,05, that
means the respective quotient a is statistic significant. The lower limit of the trusting interval for
this parameter is positive, established at the value of 261157, 5, and the upper limit reaches till the
value of de 277529,9.
The value of b quotient is approximately of 11, 14 and shows that at the increasing of hotels
and restaurants investments by 1 million lei, the tourist’s accommodation capacity will increase
with approximately 11 places.
Due to tcb = 3,748912, and the signification threshold P-value is 0,019966 < 0,05, means that
respective quotient b is statistic significant. The lower limit of the trusting interval for this
parameter is positive, established by the value of 19,39308, and the upper limit reaches till value of
19,39308.
2. CONCLUSIONS
Following the test of regression model validity, it has been established the fact that this
model is statistically valid. Thus, it has been noticed that between net hotels and restaurants
investments and tourist’ accommodation capacity there is o direct and strong connection, the
correlative report having the value of 0,88.
The influence percent of the making investments in hotels and restaurants over tourist’
accommodation capacity is of approximately 77,84%.
The values of determined estimators parameters of the regression equation show that at the
increasing with 1 million lei of the investments in hotels and restaurants, the tourist’
accommodation capacity will increase with approximately 11 places.
REFERENCES:
1. Andrei T., Statistics and econometry, Editura Economică, Bucharest, 2003

2. Gogonea R., Zaharia M., Econometry with appliances in Commerce-Tourism-Services, Editura
Universitară, Bucureşti, 2008
3. Pecican E. Ş., Econometry for... economists, Editura Economică, Bucureşti, 2007
4. *** Romanian Statistic Yearbook, INS, Bucharest, 2008
61
CONSIDERATIONS ON THE NEW COMMUNITY LEGISLATION REGARDING THE

EUROPEAN PRIVATE SOCIETY
Lecturer PhD. Elise Nicoleta VÂLCU

University of Piteşti, Romania
Juridical and Administrative Sciences Faculty
elisevalcu@yahoo.com
Abstract:
The European Commission has proposed a new legal form for European companies and for the private
European society, or “Societas Privata Europaea” (SPE). The advantages of this new legal form are a greater
flexibility and lower costs for small and medium enterprises who wish to pursue activities in other states of the
European Union than they are registered. According to the Regulation submitted to discussion, the specificity of the
European Private Society in terms of its legal form is that, on the one hand, it undertakes a number of features of joint
stock companies, such as the method of formation of governing bodies (the two, dual and unitary systems being
accepted), but are retained also specific elements to the limited liability companies, meaning the fact that shares may
not be offered for public trading. In terms of how social responsibility and contribution in proportion to the capital, this
feature included in the Regulation is found in both legal forms. By this time the Community legislature has followed the
new legal form of company are not subject to mandatory capital requirements high so provided in this respect the
amount of 1 euro, so that provides to the contrary is inconsistent with the rationale that has outlined the relevant
Community legislation by a company widely permissive.
Concluding, the article subject to comment retains those provisions of the new Community act defining the
specific new limited liability company establishing the European elements while giving the European business
environment the interest for it.
Keywords: European Private Society, social capital.
JEL Classsification: K 33
I. INTRODUCTION
This work’s purpose is to bring to the fore an issue that is on the table of the Union’s
legislative bodies, an issue that presents a strong interest in the business environment of all Member
States of the European Union. In this respect, the European Council of 8th-9th March 2007
underlined that reducing the administrative burdens is important to stimulate Europe's economy,
having regard in particular the possible benefits created thus for small and medium enterprises. It
insisted on the need for an intensive joint action of the European Union and its Member States.
Under this initiative, have been the company law and the accounting and auditing at the European
level identified as priority areas.
In order to create a flexible form of society, the European Commission carried out a
feasibility study for developing a European statute for small and medium enterprises (PME - Les
petites et moyennes enterprises") based on the obtained results up to December 2005.
On the base of the Commission’s Communication to the Council and Parliament on 21 May,
2003 “Modernizing company law and strengthening corporate governance (1) in the EU. A Plan to
Move Forward” (2) and on the Report of the Committee on Legal Affairs of the Parliament of
29.11.2006 (3), the European Parliament adopted on February 1, 2007 the "Resolution containing
recommendations to the Commission regarding the European Company Statute (4) and the request
that during 2007 the Commission to submit a legislative proposal in accordance with the
recommendations of the Parliament, to be adopted in legislative form the SPE status.
In the planning phase, completed in summer 2008, SPE presented the characteristics of a
genuine European entity. The project (inspired by French simplified joint stock companies - SAS)
has a different logic from that envisaged in the European society for the purpose of creating an
autonomous status in relation to the European national laws.
62
The topic is interesting because the existing legal forms for "supranational” companies are
not particularly attractive for small and medium enterprises, imposing in this regard the need to
regulate (5) a community legal form distinct from the present ones.(6)
The existing legal forms for supranational companies are not particularly attractive for small
and medium enterprises. The new form of laws for small and medium-sized private companies so-
called the European Private Society proposed by the European Commission at the pressure of the
European Parliament creates a number of advantages, in that by its permissible provisions
stimulates the creation of new enterprises, mainly due to the provision that capital must at least one
euro. The EPS is designed, according to Union’s newest regulations, as a company with limited
liability and its shares cannot be tender or sold. In addition to a lower level of minimum capital, the
EPS has several other advantages such as speed of establishment and electronically registration.
The proposal of the European Commission also provides that the verification of the validity of
documents submitted by the company is to be done only once, and the society’s address and its
administrative headquarters should not be identical. Not least, through the new legislative provision
was pursued the creation of a new status of the European Private Company allowing it to operate
under the same uniform principles in all Member States.
All these specificity items listed above, "outlined" by the new Community act, which also
define the importance of this normative rule, will be widely exposed in this paper underlying,
where, according to the author’s opinion, the added benefits inserted in the Union’s Regulation.
II. SPECIFIC ELEMENTS OF THE EUROPEAN PRIVATE SOCIETY
On June 25, 2008, the European Commission adopted a communication entitled "Think
small first": Priority for SMEs - A "Small Business Act” for Europe (2) encouraging
entrepreneurship, the development of legislation favorable to SMEs. SMEs in Europe are 99% of
the total number of enterprises, providing 70% of the total number of jobs and contributing more
than 45% of GDP in the EU.
As part of the SBA package (Small Business Act), the European Commission presents
proposals regarding: a general block exemption on categories in terms of state aids (General Block
Exemption Regulation – GBER) (7), regarding a new status of the European Private Society (EPS),
a new directive on the reduction of VAT (8) for services provided locally and a change of the
directive regarding late payments to ensure the timely payments to SMEs. Actions are designed to
sustain the implementation of integrated guidelines and program of Lisbon of the Community by
transposing the Lisbon Strategy into concrete actions for SMEs.
The existing forms of Community societies (9), in particular the European society (ES,
whose legal status was established by the Regulation (EC) No. 157/2001 of the Council on October
8th, 2001 on the status of the European Society (10) are designed for large enterprises, while a
private company (hereinafter "SPE"), is addressed to small businesses. Minimum capital
requirement for an ES and its restrictions on the setting makes this form of society to be inadequate
for many businesses, especially smaller. Given the problems faced by these businesses as a result of
legislations’ diversity on companies and the ES’ inadequate character for small businesses, it is
advisable to provide some form of European company designed especially for them, which can be
created in the entire European Union.
In this respect, the European Commission has proposed a new legal form for companies and
for the Private European Company, or “Societas Privata Europaea” (SPE). After the European
Stock Company (ESC), The European Cooperative (EC) and the European Grouping of Economic
Interest (EEIG), this new legal form is designed specifically for small and medium enterprises.
EPS has the legal personality from the moment since it was recorded in the register in the
State where the society has its social headquarters, nominated by the national law applicable in
accordance with Article 3 of Directive 68/151/EEC(11). For the purposes of Article 7 of the
Regulation: "An EPS has its registered office and central administration or headquarters of business
within the Community." A literal interpretation of the text shows that the two elements may be
63
located in different States of the European Union. Therefore, the head office and its headquarters
must not be identical being established in different Member States giving the EPS the possibility to
transfer their registered office from one Member State to another, without being obliged to transfer
its central administration or headquarters. The social capital is divided into shares, each shareholder
being liable only for social obligations only to the limit of the intake of the subscribed capital, but
the fact that shares cannot be offered for public trading (element characteristic of the limited
liability companies).
EPS can be composed of one or more individuals and/or legal entities (12), called 'the
founding shareholders”. Under the provisions of the Regulation inferred to presentation, Member
States shall authorize the establishment of an EPS in the following ways: the establishment of an
EPS in accordance with this Regulation; the conversion of an existing company; the merger of some
existing companies and the division of an existing company. Under Article 45 of this Regulation,
Member States shall notify the Commission the form of the limited liability companies referred to
in Article 4 Line 2 until July 1, 2010 at the latest.
III. BRIEF CONSIDERATION OF THE NEWEST ITEMS AND VIEWS

CONCERNING IT
a) Capital. This regulation provides that shareholders must flow the agreed intake in cash or
in kind agreed contribution. Its capital must be at least 1 euro (13). The previous proposal, of 1999,
stipulated a minimum capital of 25,000 Euros and the European Parliament has asked that this
threshold should lower to less than 10,000 Euros. Member States in which does not apply the third
stage of economic and monetary union may require the EPS's headquarters are situated in their
territory to express their capital in national currency which does not exclude the possibility that an
EPS’s capital to turn to o Euros. The exchange rate between euro and national currency is the one in
the last day of the month preceding the registration of the EPS.
We believe that through this regulation, the Community legislature has pursued that the new
legal form of the European company should not be subject to mandatory high capital requirements,
as this would constitute an obstacle to the creation of EPS's. On the other hand, it should be borne
in mind that one of the fundamental principles of commercial transactions is the protection of the
creditors. Thus, also in the presented case, meaning the one of the EPSs, the creditors must be
protect from excessive activities of shareholders, which could affect the ability of the EPS to pay its
debts. For this purpose, the distributions should be forbidden where the liabilities of the EPS is
superior to the asset value. However, shareholders should be free to require the management organ
of the EPS's to sign a certificate of solvency. Since the creditors’ protection has to be guaranteed in
case of reduction of capital of the EPS, certain rules relating to the date on which such capital
reductions are prerequisites should be settled.
b) The formation of an EPS is made in writing and signed by all founding shareholders.
Regarding its enforceability, the new Community provision holds that regarding on the
shareholders, the management and supervision of the EPS, if any, it becomes incident on the date
on which the integrant act was signed or, in the case of modifications, on the date on which they
were taken, and as regards to third parties in accordance with applicable national legislation which
transposes Article 3 Lines 5, 6 and 7 of Directive 68/151/EEC.
Another advantage conferred by the Regulation is that registration will be done
electronically (14), thus giving a higher speed for the establishment. Simplifications were made
with regard to the documentation that must accompany the application for registration of the EPS,
meaning that in the moment of the introduction of application, the Member States only require the
following information and documents: a) the name and address of the EPS’s head office; b) name,
address and any other information necessary to identify the persons authorized to represent EPS in
its relationships with third parties, in the court or involved in the administration, supervision or
control of the EPS; c) share capital of EPS; d) the categories and number of shares of each category,
the total number of shares; d) the nominal value or accountable equivalent of the shares; e) the
64
integrant act of the EPS; f) if the EPS was formed as the result of conversion, merger or division of
some societies, the decision of conversion, merger or division which led to the formation of the
EPS. In this respect, Article10 Line 4 of the Regulation decides that the registration of the EPS
must be subject to one of the following requirements: the control of legal documents and
information on the EPS, or certification of documents and information on the EPS made by a
judicial or administrative body, or certification of the documents and information regarding by the
EPS. Under Article 46, the authorities responsible for the mentioned books shall notify the
Commission before 31 March each year, about the name, registered office and registration number
of the EPS that have been registered and removed from the register during the preceding year and
the total number of registered EPS. The authorities cooperate to ensure that documents and
information on the EPS’s listed in Article 10 Line 2 are also available through the registers of all
Member States.
Checking the validity of the submitted documents is done only once, by the legal or
administrative state’s authorities (15).
According to the new Regulation, there will be a greater flexibility in the internal
organization of the new limited liability company, the European Commission does not impose a
model of statute, but certainly will establish a minimum list of issues related to organization,
capital, equity shares that are to be regulated by statute. The fact is that shareholders have a
relatively large freedom of configuration of the company, which makes this legal form to be
attractive to larger companies. National legislation will regulate those areas not covered by statute,
such as those elements related to employment law, taxation, and bankruptcy procedures. Flexibility
is seen by the fact that a dual EPS can operate as a limited liability company with a President and a
Board, or unitary, just with a Management Board.
On internal organizational issues, we believe that should be introduced binding rules to
ensure protection for minority shareholders in order to ensure their equal treatment in the sense that
the "essential" decisions should be adopted by a majority that does not represent less than two
thirds of all voting rights attached to shares issued by the EPS. In addition, the right to request
intervention of an independent expert to investigate abuses observed or seen before can be limited,
this right cannot be a condition for the possession of over 5% of the voting rights of the EPS, and so
the integrant act of the EPS can provide a lower limit.
c) The distribution of dividends can be made based on a proposal from the governing body
to shareholders provided that, after assignment, the EPS’s assets to cover fully the liabilities. The
EPS is not authorized to allocate those reserves which distribution is prohibited by the integrant act.
If the integrant act enforces that requirement, the management of the EPS signs a declaration called
the "certificate of solvency”, before the division, attesting the fact that the EPS is able to pay its
debts at maturity, under normal operation of the economic activities within one year from the date
of distribution. Shareholders who received dividends distributed in violation of Article 21 of the
Regulation must return it to the EPS, which has to prove that the shareholder knew or, taking into
account the circumstances, should have been aware of the deficiencies.
d) With regard to the responsibility for acts performed before the time of EPS’s registration,
Article 12 of this Regulation provides that if the acts were performed on behalf of the EPS before
registration, the EPS can assume the obligations arising from such acts, after registration. If the EPS
does not assume these obligations, individuals who have achieved it are unlimited and jointly
responsible for the actions in question. On two latter issues that have been presented, can hold that
the Romanian law provides exactly as the Union’s legislation.
e) Other provisions. According to the Community standard the EPS dissolves or at the
expiry of the period for which was established by decision of shareholders, or in the cases provided
for by the national applicable law. The national applicable law governs the dissolution. The national
applicable law and the Regulation (EC) No. 1346/2000 of the Council govern liquidation,
insolvency, suspension of payments and similar procedures. The dissolution of the EPS is
published. Also, the EPS’s nullity is governed by the national applicable legislation implementing
65
Article 11 Line 1 of the Directive 68/151/EEC [a], [b], [c] and [e], unless the objects of the
company as indicated by [c] and the provisions of Article 11 Line 2 and Article 12 of the Directive.
IV. RECOGNIZED WORKERS’ RIGHTS IN THE EPS
Regarding workers' rights recognized in the EPS, the relevant communitarian acquis,
granting employees’ border rights of information, consultation and participation, and ensuring the
participation rights of workers meaning the Directives 94/45/EC and Directive 2005/56/EC should
be fully kept. With regard to the rights of participation of employees, are applicable the laws of the
Member State where is the registered office of the EPS, called in literature “Member State” should
govern them. It requires a great attention to this case because the formation of the Private European
Companies must not evade these rights. Thus, if the national law of the Member State where the
EPS transfers its registered office does not provide the same level of employee participation as a
Member State of origin, the participation of employees in the company after the transfer should be,
in certain circumstances, negotiated. If negotiation fails, the provisions that apply in society before
the transfer should continue to apply after transfer. From the date of registration, the EPS is subject
to the provisions in force in the host Member State, if any, on the modalities of participation of the
employees. The above shall not apply where employees of the EPS in the home Member State for at
least one third of the total number of employees of the EPS, including branches or subsidiaries of
the EPS of any Member State, if the following conditions are met:
 The host Member State's legislation does not provide at least the same level of participation
with the existing Member State of origin before the registration in the host Member State
(16);
 The host Member State’s law does not give employees of the EPS’s offices in other Member
State the benefit of exercising rights of participation they enjoyed before the transfer.
The Board may refuse access to information only where this would cause serious harm the
economic interests of the EPS. We believe that the above falls under the Directive 2002/14/EC of
March 11, 2002 establishing a general framework for informing and consulting employees in the
European Community.
Other rights of employees than the rights of participation should remain subject to the
Directive 94/45/EC of September 22, 1994 establishing a European Works Council or a procedure
for informing and consulting employees in undertakings and groups of undertakings with a
Community dimension (17), the Directive 98/59/EC of July 20, 1998 on the proximity of laws of
the Member States relating to collective redundancies (18), the Directive 2001/23/EC of March 12,
2001 on the proximity of laws of Member States relating the maintenance of the rights of workers
in the event of transfers of undertakings, businesses or parts of undertakings or businesses (19), the
Directive 2002/14/EC of the European Parliament and the Council of March 11, 2002 establishing a
general framework for informing and consulting the employees in the Community (20).
V. SPECIFIC ELEMENTS REGARDING THE REGISTERED OFFICE

SUBJECTED TO TRANSFER
The transfer of the registered office is an issue governed by the present specific Community
rule imposed by even the specifics of this legal form of business in Europe. In practical terms, the
registered office of an EPS could be transferred in another Member State in accordance with
Chapter VII of this Regulation (21). The transfer of the registered office of an EPS should not
dissolve the EPS, the interruption or loss of its legal personality or affecting the rights and
obligations under any contract of the EPS existing before the transfer. The transfer takes effect from
the date of registration of the EPS in the host Member State (head office is located in the host
Member State’s territory). Thus, in order of transfer, the management of the EPS advocating a
transfer draws up a proposal to establish a transfer, which includes the following information:
 the EPS’s name and its registered office’s address in the State of origin;
66
 the name and address of the EPS proposed to its head office in the host Member State;
 the proposed act of integration for the EPS in the host Member State;
 the proposed transfer calendar;
 the date on which it is proposed that the EPS transactions to be considered in accounting as
operated in the host Member State;
 the transfer for employees and the proposed measures in this regard;
 where appropriate, detailed information on the transfer of central administration or principal
place of the EPS’s business.
At least one month before the decision to shareholders, the management of the EPS shall
submit the proposal of transfer to shareholders and employee representatives or, where no such
representatives, to the employees of the EPS to be considered and makes it available to creditors for
verification by which is published the proposal of transfer.
The management of the EPS in a report sent to shareholders explaining and justifying the
legal and economic aspects of the proposed transfer and stating the consequences of the transfer for
shareholders, creditors and employees. The report, together with the proposal for transfer is submit
to shareholders and employees’ representatives or, where there are no such representatives, to the
employees themselves. In the case in where the board receives in time the approval of the
employees’ representatives of the transfer that opinion is send to shareholders. The proposal of
transfer is submit to shareholders for approval in accordance with the provisions of the integration
of the EPS regarding its amendment. If the EPS is subject to a regime of employee participation, the
shareholders may reserve the right to connect the transfer to the express ratification of the
arrangements for the participation of employees in the host Member State. The laws of the Member
State of origin govern the protection of a minority of shareholders and EPS’s creditors who oppose
the transfer.
Regarding the legality of transferring the registered office, each Member State shall
designate a competent authority to control the legality of the transfer by verifying compliance with
the transfer procedure. The competent authority of the Member State shall verify if the requirements
met and, if so, shall issue a certificate certifying that all necessary formalities in accordance with
the transfer procedure was made in the State of origin. Within one month of receiving the
certificate, the mentioned European Private Company presents to the competent authority of the
host Member State the following documents: the certificate; the proposed act for the integration of
the SPE in the host Member State, as approved by shareholders; the proposal to transfer as
approved by shareholders.
These documents are considered sufficient to allow the registration of the EPS in the host
Member State. The competent authority of the host Member State shall, within 14 calendar days
from the receipt of documents, if the conditions of form and substance to transfer the registered
office met and, if so, respond appropriately for the registration of the SPE. The competent authority
of the host Member State shall notify the competent authority responsible for the deletion from the
SPE Member State with regard to registration of EPS in the host Member State. The registration
from the host Member State and removals from the home Member State shall be published.
VI. CONCLUSIONS
"Small Business Act" includes an ambitious set of measures to allow the SMEs to fully
benefit from the options of the market, enabling them to expand in international markets by
targeting more resources to small businesses access to finance, research, development and
innovation.
This paper also proposed to present a number of advantages of this new legal form
whichever has in this respect a greater flexibility, capital of one euro and lower costs due primarily
to the electronic records for SMEs who wish to pursue activities in other states of the European
Union than they are registered.
67
Not in the least, the issue of some Union uniform provisions regarding the settlement of a
European limited liability company is enforced; the need of some permissible provisions for SMEs
lies in the fact that according to the European Commission figures, about 99% of companies in the
EU are SMEs and they provide about 70% of jobs in the private sector, but only 8% of them unfold
transnational activities and only 5% of SMEs have subsidiaries abroad.
FOOTNOTES:
(1) For a comprehensive analysis of the meaning of the concept of corporate governance of companies see John
Lowry, Alan Dignam, Company Law, Third Edition, Oxford University Press, 2006, p. 387, Piperea Gheorghe Societăţi
comerciale. Piaţa de capital. Acquis comunitar, All Beck Publishing-house, Bucharest, 2005, pp. 534-593.
(2) The Commission’s Communication to the Council and Parliament of May 21, 2003 entitled “Modernizing
company law and strengthening corporate governance in the EU. A Plan to Move Forward”, COM (2003) 284,
CELEX: 52003DC0284.
(3) The Report of the Committee on Legal Affairs of the European Parliament on November 29, 2006, containing
recommendations for the European Commission on the European Company Statute and the proposal for a resolution of
the European Parliament in this direction [2006/2013 (INI)] Reporter Klaus-Heiner Lehne.
(4) The European Parliament’s resolution 2006/2013 (INI).
(5) Proposal Regulation on the European Private Company statute presented by the Commission COM (2008) 396
final, 2008/0130 (CNS) Brussels, June 25, 2008.
(6) For a detailed presentation of the companies see Stanciu D. Cărpenaru, Drept comercial român, Eighth Edition,
Bucharest, Legal Universe, 2008, p. 150 ff., Gheorghe Piperea, Drept Comercial. Ier Volume, C.H Beck Publishing-
house, Bucharest, 2009, p. 74 ff.
(7) A "Small Business Act” for Europe COM (2008) 394 final, Rapporteur: Mrs. Constance Hanniffy(IE/EPP)
Member of the Offal Local Council, Regional Authority for the Central District (Midland Regional Authority) and the
Regional Assembly for the Border Areas, Central and Western (Border, Midland and Western Regional Assembly).
(8) A new General Block Exemption Regulation on state aids will simplify the procedures and reduce costs. This will
increase the intensity of support for SMEs and will facilitate the benefit from aid for training, research and
development, environmental protection and other types of aid for SMEs.
(9) A new proposal on the VAT will offer Member States the option to apply reduced VAT rates for services provided
locally, including the services that use intensively the labor force that is provided in particular small and medium
enterprises.
(10) The European Public limited-liability Company governed by the Regulation (EC) no. 2001/2157, hereinafter the
"European society", the European Cooperative Society under Regulation (EC) no. 1435/2003 of the Council and a
European Economic Interest Grouping under Regulation (EEC) no. 2137/85; more details, Vâlcu Elise Nicoleta,
Societary Law. Universitary course, Sitech Publishing House, Craiova, 2008, pp.113-115
(11) OJ L 294, November 10, 2001, Regulation amended by the Regulation (EC) no. 1791/2006 (OJ L 363,
20.12.2006).
(12) OJ L 65, March 14, 1968.
(13) "Legal entity" means or a limited private company, hereinafter "European society", a European Cooperative
Society, Economic Interest Grouping and the European Private Company.
(14) Article 19 of the Regulation.
(16) For the registration, it is advisable to use the registers established by the first Directive 68/151/EEC of March 9,
1968 on the coordination, to the equivalence of the guarantees required by Member States to companies within the
meaning of Article 58, second paragraph of the Treaty, to protect the interests of members or third parties; OJ L 65,
March 14, 1968, Directive last amended by the Directive (EC) 2006/99/EC (OJ L 363, December 20, 2006,
(17) The level of employee participation is measured according to the proportion of the employees’ representatives in
the management or supervisory body or in their committees or in the management units that manage the company's
profit, subject to the existence of a representation of the employees; OJ L 254, September 30, 1994, p. 64. Directive as
last amended by the Directive (EC) 2006/109/CE (OJ L 363, December 20, 2006)
(18) OJ L 225, July 12, 1998
(19) OJ L 82, March 22, 2001
(20) OJ L 80, March 23, 2002
68
BIBLIOGRAPHY
1. The Commission’s Communication to the Council and Parliament of May 21, 2003 entitled
“Modernizing company law and strengthening corporate governance in the EU. A Plan to
Move Forward”, COM (2003) 284, CELEX: 52003DC0284.
2. The European Parliament’s resolution 2006/2013 (INI) containing recommendations for the
European Commission regarding the status of the SPE’s.
3. Proposal Regulation on the European Private Company statute presented by the
Commission COM (2008) 396 final, 2008/0130 (CNS) Brussels, June 25, 2008.
4. Vâlcu Elise Nicoleta, Societary Law. Universitary course, Sitech Publishing House,
Craiova, 2008
5. Stanciu D. Cărpenaru, Drept comercial român, Eighth Edition, Bucharest, Legal Universe
Publishing-house, 2008.
6. Gheorghe Piperea, Drept Comercial, Ier Volume, C.H Beck Publishing-house, Bucharest,
2009.
7. Directive 68/151/EEC of March 9, 1968 on the coordination, to the equivalence of the
guarantees required by Member, to protect the interests of members or third parties,
Directive last amended by the Directive (EC) 2006/99/EC
8. The Directive 2002/14/CE of the European Parliament and Council regarding a general
frame woek of information and consultation of the work ers in the EU
69
A THEORETICAL OVERVIEW ON INSTITUTIONS
PhD. Student Ana Iolanda VODĂ

Faculty of Economics and Business Administration
Department of Economics
“AL. I. Cuza” University, Iasi, Romania
yolandadr3i@yahoo.com
Abstract
In time, there were a series of studies on the role of institutions, a number of growth theories and models being
proposed, which have had different impacts on the real economic processes. Institutionalist approaches differ from one
author to another, however we must note that economic growth is due mainly to the institutional development. This
study proposes an interdisciplinary approach on the analysis of the institutionalism’s dimension as considered by some
specialists in the field.
Keywords: institutions, institutional analysis, organizations, growth
JEL classification: B52, B25, B0
INTRODUCTION
The literature is vast and diverse; many publications widened the area of possible theoretical
and methodological approaches. Institutions can be viewed as pragmatic solutions, solutions that
have to obey certain rules and norms that limit individual action without being restricted just to that.
The purpose of the research is to reflect the role of institutions on national and international level,
also the valorization of the historical, philosophical and economical experience as well as the
national set of rules.
We review some of the most important researchers in the field and concentrate on
institutionalism and institutional change. We begin by pointing to the new and various connotations
of the term ‘institution’ trying to underline the importance of the normative and rule frameworks in
a society.
THEORETICAL REFERENCE ON INSTITUTIONALISM
There is no universally accepted definition of institutions, therefore will review only some
of the most important.
The idea of ‘institutional analysis’ or ‘institutionalism’ became a common ground not only
in the literature but also in the common language. Institutional analysis represents a term with a
blurred definition, used commonly to name an eclectic combination of models and theories inspired
by all social disciplines, a combination that, by its very nature, raises questions not only about the
former disciplinary boundaries but on the very idea of social science with a rigid or almost rigid
framework of concepts and themes. (Aligică, 2002: 9-10)
Veblen (1919) defines institutions as deeply rooted habits of thinking, common to the
majority of people, while for Commons institutions in existence at a certain moment are just
imperfect pragmatic solutions for the reconciliation of past conflicts. These solutions consist of a
set of rights and duties, an authority that enforces them and a certain degree of adhesion to the
collective rules of relatively cautious behavior. (Scott, 2004)
Hogson (2006) maintains that institutions are systems of established and widespread social
norms that structure social interactions and institutional analysis represents the value of a mainly
descriptive work, concentrated on the nature and role of economical and political institutions.
Hall and Taylor (1996) argue that institutionalism, in all its forms helped understanding the
political world and DiMaggio and Powel (1991) describe the reappearance of the interest in
institutions as a renaissance. T. Parsons (1967) defined institutions as a motor for the socially given
rules but not for those established by agreement of contracting sides.
70
Institutions were defined as a set of conventions and rules of action dominating the
economy, which are summarized in the local social structure and present visible regional
differentiation (Krätke, 1999). Institutions are procedures rather than results, influencing the
behavior type that appears in a certain situation independent of individual objectives. The proof of
the existence of an institution is the regularity of individual action and the responses they offer to
questions regarding what they do (Elster, 1989). According to Neale (1987; 1994) an institution is a
mental construct, but in the same time institutions are both internalized rules that individuals
follow as well as actions to maintain these rules or to protect individuals inside the limits of the
liberties and the freedoms offered by institutions.
For North (1991) institutions are constraints created by people in order to structure social,
political and economical interactions, being comprised of informal constrains (sanctions, rules,
customs and rules of conduct) and formal rules (constitutions, laws, property rights). North also
states that institutions are the rules that govern the functioning of society, structures the stimuli
resulted from human interaction and influence the performance of economies in time (North, 1990)
while for Bush (1986) an institution is a socially correlated set of behavior models.
From the previous paragraphs we can clearly conclude that there is a wide variety of
definitions and descriptions of institution and institutions. These definitions and descriptions can be
grouped in three main groups (Saeed Parto):
1. First, the definitions based on profile, which refer mainly to form, structure and
appearance of an institution;
2. Second, the definitions based on behavior that concentrate on actions and activities.
These types of definitions also refer to the transactional implications of institutions;
3. Third, there are contextual descriptions of institutions that refer mainly to the
presence or absence of inter-institutional interactions. The focus in this groups drops
explicitly on the evolutionary aspects of the institutional context.
A first acceptance on the significance of institutions belongs to everyday language,
unspecialized, where institution has the same meaning as organization (Pohoaţă, 2009). The two
terms tend to identify one with the other in everyday language. Although they are often confused,
there is a clear distinction between the two terms, which does not exclude the fact that certain
institutions, especially the formal ones have a certain organizational component; in other words
institutions can be incorporated in organizations.
Organizations are special institutions that imply a) criteria for the establishment of their
limits and to distinguish members from non-members; b) principles of sovereignty regarding the
person in charge and c) chains of command that delineate responsibilities within the organization.
According to Philip Selznik, through his model, of the natural system, formal structures will
never succeed in taking over the non-rational dimensions of organizational behavior, and one of
these non-rational dimensions according to Jan Chong is the organizational structure that includes
both formal aspects as well as informal systems which connect members and the relationship
between them and those outside official borders. Parson applies cultural-institutional theory in the
case of organizations, examining the relationships between an organization and its environment and
the modalities by which the value system of an organization is legitimized by its connections with
the main values of the organization in different functional contexts. Each organization is a
subsystem of a wider social system which is the source of means, legitimacy and support on higher
level. (Scott, 2001)
Young (1994, 2002) underlines the physical difference between organizations and
institutions. Institutions are sets of rules or codes of conduct which define social practices, in
comparison to organizations which are material entities that posses bureaus, personnel, budgets,
equipments and, more than that, legal personality.
In a larger understanding, Coriat and Dosi (1998) see institutions as being represented by
formal organizations, modes of conduct and negative norms, as well as constrains. In sociology and
political theory, institutions are usually treated as different systems of rules that govern different
types of organizations and operational rules of organizations. Rules can be informal, actively
71
utilized or can remain buried in the law codes or customs long forgotten. Institutions influence the
behavior of organizations by defining satisfactory social practices and codes of conduct. Parson
(1960) finds another use for the concept of institution. He maintains that, on a vertical axis,
organizations tend to differentiate on three levels or layers someway different: the technical one,
related to production activities, the managerial one, which refers to activities of control and
coordination, procurement of resources and distribution of products and the institutional one,
regarding the compliance to community norms and conventions. Each organization is a subsystem
of a more comprehensive social system, which represents a source of <<sense>>, legitimacy or
support from a superior level, the one that makes possible the attainment of organizational
objectives. (Scott, 2001)
As stated by North (1990), if institutions are rules of game, organizations are social actors
or players, and the separation of institutions from organizations is crucial in understanding the
dynamics of institutional change. As argued by Hindess (1989) organizations can be treated as
social actors as long as they have the possibility to reach a decision and act accordingly. Coleman
(1982) reached a similar conclusion. Interestingly, the criteria that allow us to treat organizations as
actors necessitate an understanding of organizations as social systems with borders and rules. Still,
there is a problem defining organizations as actors. Organizations – such as syndicates and firms –
are structures made up of individual actors, often with conflicting aims. Even if the means of
reaching a decision and acting upon it [Hindess (1989)] are ubiquitous, treating the organization as
a social actor removes the possibility of internal conflicts; however removal should not become a
principle or a set definition that may hinder any consideration on conflicts and internal structure.
Eliminating and labeling are two completely distinct analytical procedures. When mathematicians
calculate the trajectory of a vehicle or satellite in space, they treat it often as a lone particle. In other
words, they ignore its internal structure and rotation of the vehicle and satellite. Nevertheless this
does not mean that the vehicle or the satellite is defined as particles.
Hogson (2006) has a different opinion, judging that North does not distinguish clearly
enough if he defines organizations as players or that taking into consideration of organizations as
players is just an analytical abstraction. This fact created a lot of confusion, some authors insisting
that organizations should be defined as players. Yet, North states clearly in his correspondence that
he treats organizations as players only with the purpose of analysis of the social economic system as
a whole and that he does not consider organizations as being essentially the same as players no
matter the circumstances. Noting that ‘organizations are players’ North creates an abstraction,
rather than defining organizations this way.
North (1994) notes organizations are ‘made up of groups of individuals with common
purpose’. Organizations entail structures or networks, which cannot function without rules of
communication, participation and management. The inevitable existence of rules in organizations
suggests that, from the point of view of the northian definition, organizations should be considered
a type of institution. Indeed, North accepted that organizations themselves possess players and
internal rule systems and, therefore, they represent a special type of institution. It is possible for
organizations to be treated as actors in certain circumstances and be regarded, in general, as
institutions. Individual agents act within the framework of organizational rule system. In turn, in
certain circumstances, organizations can be treated as actors and in others, as utilizing a rule
system. There are multiple levels in which organizations offer institutional rules for individuals, and
possibly, in turn, these organizations can be treated as actors in a wider institutional framework. For
example, individual act within nation, but the nation can also be viewed as an actor in an
international framework of institutions and rules.
The second concept about the meaning of institution is attributed to D. North (Pohoaţă,
2009) who considers that institutions represent ‘rules of game in society’, in other words the set of
restrictions and incentives which shape human interactions, adopted by individuals according to
the way they solve the problem of social cooperation’ (North, 1990). This allows the unification of
the approach of institutions as rules of play with the approach of institutions as rules of conduct,
meaning that organizational strategies influence the rules of the game. Consequently, institutions
72
appear endogenous within social and organizational interactions and represents, therefore, a result
of dynamic (lack of) equilibrium.
Finally, a third direction of research underlines the self-preservation side of the system of
institutions. Endogenous arguments prevail in determining their apparition and manifestation. It is
admitted in the opinion of the philosopher Hume who considered that it would be erroneous to
regard laws as state creations imposed to its citizens. And, starting from such a hypothesis, R.
Sugden, A. Greif, L. Hurwicz, M. Aoki et.al view institutions as the shared beliefs of the political,
economical, social and other such types of actors, in order not only to make the game possible but
also equipped with a high capacity of self-preservation (Pohoaţă, 2009).
According to R. Scott (2002), institution characteristics can summarize as such:
 Institutions are social structures with a high degree of mobility;
 Institutional are comprised of cultural-cognitive, normative and governing elements that,
together with some activities and resources associated to them, give stability and
significance to social life;
 Institutions are transmitted through several types of factors, including symbol systems,
relational systems, routines and artifacts;
 Institutions operate on multiple levels of authority, from global system to interpersonal
relationships;
 Institutions suggest, by definition, stability, but they are also subject to processes of change,
both of expansion or contraction.
The vision of R. Scott on institutions is a solid one, institutions being seen as structures with
a number of facets, a high degree of mobility, made up of symbolic elements, social activities and
material resources.
CONCLUSIONS:
Based on the documentation carried out we can assert that the term ‘institutionalism’ has no
universally-accepted definition. Thus we have: a) definitions based on form, structure and
appearance of an institutions; b) behavioral definitions which focus on action or activity and c)
contextual descriptions of institutions which refer mainly to the presence or absence of interaction
between institutions.
Institutions are social structures, devised deliberately, made up of cultural cognitive,
normative and regulating elements, which give stability and meaning to social life. A hierarchy of
institutions can be made using three criteria a) the degree of formalization; b) hierarchy criterion; c)
domain of analysis. What is necessary to be remembered is that, by definition institutions have a
connotation of stability, but in the same time they are subject to processes of change. This
institutional change may be an issue due to informal institutions, which are often inefficient. For not
until long ago, researchers directed their efforts towards understanding the ways by which
institutions develop. However, in the last decade growing attention has been given to the decline
and failure of institutions, processes that leave an open road to new logics and institutional forms.
All these changes are both endogenous and exogenous.
BIBLIOGRAPHY:
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University of Chicago Press, Chicago, 1991
73
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and Rationality, Aldershot: Edward Elgar, England, 1989
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România, in Efectele economico-sociale ale aderării României la Uniunea Europeană, Ed.
Sedcom Libris, Iaşi, 2006
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Sage, 2001, pp. 1-216 at
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74
THE ABILITY TO ASSUME THE DECISIONAL RISK IN THE CONSUMPTION

PROCESS
Assistant PhD. Student Laura DIACONU

“Al. I. Cuza” University Iaşi, Romania
dlaura_es@yahoo.com
Professor PhD. Corneliu C. DIACONU
„Gr. T. Popa” University Iaşi, România
cdiaconu_09@yahoo.com
Abstract
The individuals’ ability to assume the risk in taking the consumption decisions was largely debated both at the
theoretical and empirical level. While at the half of the XXth century there were many attempts to find out a
mathematical solution for this problem, with the help of the statistical and econometrical interpretations, at the
beginning of the XXIst century the analysts’ preoccupation for this subject imposed taking into consideration some
elements related not only to the goods acquired but also to the specific feature of the individuals. This is why the
present paper wants to analyze the individuals’ ability to assume the risk in taking the consumption decisions,
considering some objective and subjective aspects, such as the temperament and the character traits, the socio-cultural
particularities, the possibility to access the information or the products’ intangible characteristics - such as, for
example, the brand name. Assuming that the isoutility function does not reflect only the consumers’ preferences for
various goods, but it is also an assessment for the probability of occurrence of some states/events, in the end of this
paper we tried to determine the way in which the ability of assuming the risk may be associated with the shape of the
indifference curve.
Key words: uncertainty, risk, decisional process, consumption
JEL Classification: D81, D11
1. INTRODUCTION
Most of the analysts define the risk perceived by the individuals in taking the consumption
decisions with the help of other two concepts: the uncertainty degree and the implicit consequences,
resulting from the buyers’ choices. While the uncertainty is associated to the process of correlating
the individuals’ expectancies with the buying decision (1), the consequences of this decision refer
not only to the functional performances of the acquired goods but also to the time, effort and money
invested in order to reach the established goals. The uncertainty may also be regarded as an
“expression of the incomplete, approximate nature of the information related to the concerted
influence factors and to the consequences of their action, in time and space” (2). Analyzed from this
point of view, the nature of the uncertainty is more a cognitive one, resulting either from the lack of
the knowledge, or from the individuals’ limited intellectual abilities. Yet, from the organizational
theory point of view, the uncertainty is not an individuals’ cognitive feature any longer, but a
characteristic of the environment where people do their activities (3).
Due to the complexity of the subject, the present paper wants to analyze the individuals’
ability to assume the risk in taking the consumption decisions, considering some objective and
subjective aspects, such as the temperament and the character traits, the socio-cultural
particularities, the possibility to access the information or the products’ intangible characteristics -
such as, for example, the brand name. Assuming that the isoutility function does not reflect only the
consumers’ preferences for various goods, but it is also an assessment for the probability of
occurrence of some states/events, in the end of this paper we will try to determine the way in which
the ability of assuming the risk may be associated with the shape of the indifference curve.
75
2. THE RISK AND THE UNCERTAINTY IN THE DECISIONAL PROCESS. MAIN

DETERMINANTS
The idea according to which the analysis of the risk and uncertainty may generate relevant
information for the economic theory was firstly suggested by Frank H. Knight, in 1921, which
made a clear delimitation between the two concepts in the paper “Risk, Uncertainty and Profit”.
According to the Knight’s interpretation, the risk is limited to those situations in which the
individual may attach mathematic probabilities to the accidental events that may occur. Unlike risk,
the uncertainty refers to those cases in which the events can not be expressed in terms of specific
mathematical probabilities. Consequently, from the Knight’s perspective, the distinction between
risk and uncertainty is related to the assumption that individuals act in view of the existence of
some well-defined probabilities of the possible outcomes.
The analysis made by Knight was the starting point of some later approaches, among which
we do notice the paper of John von Neumann and Oskar Morgenstern „The Theory of Games and
Economic Behavior”(1944). They proposed an objective approach to the decisional process under
risk, formulating the hypotheses of the anticipated utility based on the statistical probabilities. The
purpose of these hypotheses was to study the individuals’ attitude towards risk. The conclusion of
the two analysts was that the maximization of the expected utility is the optimal attitude people
should take in situations of uncertainty. Therefore, consumers, facing the problem of taking a
decision, will opt for the situation that allows them to maximize the utility.
The analysis made by Von Neumann and Morgenstern had various subsequent
interpretations. Nicholson (2002), considering the risk a results’ variation of some decisions taken
under uncertainty, demonstrates why the individuals, when they have to choose between two
situations with the same expected value, will usually opt for the one that has the smallest variation
probability of the final result. In other words, when an individual may choose between two goods of
the same type, one having the price “n” USD and the other one “2n” USD, it is more likely that the
consumer opts for the first product because the risk generated by a possible loose would be greater
in the second case.
A similar approach is also met at Milton Friedman, Leonard J. Savage or Harry Markowitz,
who also analyzes the concept of risk aversion and the relative properties of the anticipated utility
(4). So, in order to classify the decisions taken under risk, Markowitz proposed an operational rule
based on the anticipated value and the standard deviation. While the anticipated value is considered
by Markowitz an indicator of the investment’s profitability, the standard deviation is used to
determine the degree of risk. The Markowitz rule starts from the hypothesis that the individuals are
adversaries of the risk, preferring the decision with highest anticipated value and lowest risk degree.
According to this rule, in the case of the alternative decisions A and B, with the anticipated values
E(xA) and, respectively, E(xB), with standard deviations σ(xA) and, respectively, σ(xB), if:
E(xA) = E(xB) (1) and
σ(xA) < σ(xB) (2),
then an individual with risk adversity will prefer the A decision detrimental to the B decision. The
individual’s preference for the A decision detrimental to the B decision will also occur when:
E(xA) > E(xB) (3) and
σ(xA) = σ(xB) (4).
The interpretation of this last situation is that, between two decisions with the same risk
degree, individuals will choose the alternative with the greatest anticipated value.
The importance of the Markowitz rule is limited because, in the case of two decisions with
different anticipated values and standard deviations, respectively:
E(xA) > E(xB) (5) and
σ(xA) > σ(xB), (6),
this rule does not provide any indication regarding the preferences of the individual with risk
aversion.
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To overcome the limits of the Markowitz rule, some analysts have suggested the usage of
the variation coefficient instead of the standard deviation, as an indicator of the risk degree. The
variation coefficient measures the normalized standard deviation through the anticipated value and
so the Markowitz rule “anticipated value – standard deviation” can be replaced with the rule
“anticipated value – variation coefficient” (5).
Few years later, in 1964, the problem of measuring the individuals’ risk aversion was
largely developed by Pratt. He determined the individuals’ risk aversion with the help of a
coefficient calculated as a ratio between the utilities of two goods among which the consumers have
to opt for. One of the most significant interpretations of this coefficient shows that the measure of
the individuals’ risk aversion is directly related to the money amount that they are willing to pay in
order to be sure of their decision’s result.
The analysts consider that the individuals’ risk aversion is determined by several factors
including the consequences of some previous risky decisions, the confidence degree, the
expectations and the aspirations (6). The ability to take the risk in the consumption decision was
also correlated with the personality traits. Chauvin, Hermand and Mullet (2007) noticed that the
persons that are extroverted, as well as those with a high level of emotional stability, are more
tempted to adopt risky decisions than the others. A possible explanation of this opinion is offered
by Torgensen and Vollrath (2002) which argue that, by definition, the extroverted individuals need
a shorter period of time to reflect on their decisions than to act. It was also found that the persons
with a high level of education and training, with high incomes, more conservative but very
confident in authorities, foresee a much lower risk than other people, in any decision they take.
Menon, Raghubir and Agrawal (2008) identify some specific features, which particularize
the individuals in terms of the ability to assume the risk. Thus, they consider that the people’s
temper and the predisposition to depression may strongly influence their decisions. More depressive
persons seem to be more realistic in estimations than the average of the population, in this case
Keller, Lipkus, and Rimer (2002) talking about a "depressive realism" (7). Chang (1996), analyzing
the consumption behavior of the Americans and of the Chinese, puts on the temperament the
differences in the ability of assuming the risk. According to his study, the Chinese are more
pessimistic than the Americans, which is why they are less willing to take risky decisions. Other
researches, which explain the differences between the decisions and the actions of the individuals
from the two nations with the help of the cultural influences - habits, beliefs and traditions -,
suggest that, on contrary, the Americans show a greater risk aversion than the Chinese (8). Arguing
this idea, Weber and Hsee (1998) are focusing their research on the cultural dimensions identified
by Hofstede (1980), paying a great attention to the issues related to individualism and collectivism.
They argue that in those cultures where the collectivism prevails, such as China, a person who made
a bad choice in a risky decision could overcome easier the negative consequences because he enjoys
the support and the help of the family members and of the group. On contrary, in the individualist
cultures, such as the United States, a person who takes a risky decision will have to face alone the
consequences, possibly unfavorable, of his choice. Therefore, the collectivism plays an important
role in surpassing the potential losses resulting from a decision, by the social diversification of the
risk. Thus, it can be noticed that the cultural foundation of the individuals is a more powerful
determinant of the risk perception than the income and even than the individuals’ profession.
A number of studies suggest that the individuals are approaching the risk in different ways,
depending on how they make the purchases (9) - (10). Due to the fact that the Internet does not give
consumers the opportunity to try or see the product before buying it, the risk will be greater in this
case than in the purchases made from the classical stores. However, even in this last situation, the
insufficient information about the price and the quality of the products from different markets
generates a high level of the risk. The limited and imperfect information may have several causes.
Firstly, the information could differ from the point of view of the credibility. Since not all the pieces
of information are correct and accurate, consumers have to consider their sources. Moreover, the
information is perishable and, therefore, it must be constantly updated. Secondly, it has to be
considered the intellectual abilities of the individuals, since not all have the intelligence or the
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education necessary to process correctly the available information. Collecting the information
generates a cost. Therefore, any rational individual would not be willing to pay for picking up the
information beyond the point where the marginal benefit equals the marginal cost of collecting the
information.
Considering all the factors that influence the risk aversion, the specialized literature
identifies more types of risk: the financial one, the risk of performance, the psychological and the
social risk (11). The financial risk consists in the fact that consumers may lose a sum of money by
choosing a product or a particular brand. Moreover, if the product is doubtful for the safety or the
health of the individuals, then we talk about a physical risk. If, however, the good proves to be
inadequate for the individuals’ personality, then the risk is a psychological one. The social risk can
be correlated to the cultural dimensions mentioned above - individualism versus collectivism –,
because it concerns the attitude that people have towards the decisions made by a person. The risk
of performance is correlated to the possibility that a good does not function as it would have been
expected. This type of risk also reflects the individuals’ uncertainty regarding the products’ quality.
It is difficult to distinguish between a good quality product and one with a lower quality because the
consumers’ decisions are often taken considering only the observable characteristics or attributes
that are easily determinable. The risk consists in the fact that these apparent features can mislead
people, the real value and performances of a good being noticeable only after the purchase decision
was taken.
Some analysts, such as Erdem and Swait (1998), consider that the product’s risk of
performance can be removed by focusing the purchases on the branded goods, because a firm’s
reputation can be, sometimes, a guarantee of the quality. The explanation of this statement is that a
company that wants to fidelizeze its consumers has a strong incentive to offer goods of high quality.
Moreover, the reputation of the brand does not only certify the quality of the products, but it also
gives consumers the possibility to return the goods if they do not meet their expectations. The idea
is emphasized by Dean (1999) who believes that individuals, in order to reduce the perceived risk in
taking the consumption decisions, use the brand name of the goods as a choice criterion. A previous
study conducted by Grewal and Krishnan (1998) comes to reinforce this conclusion, as they
demonstrated that individuals perceive a lower risk when purchasing products with strong brand
names than when buying private label goods or without a known brand. Starting from this idea,
other analysts consider that individuals make their consumption decisions based on the brand name
and on other extrinsic features of the products when they do not have enough information about
those goods. Thus, Brucks et al. (2000) have conducted a study on several products, both with
strong brand names and with private labels, in order to determine the way in which their price and
quality are perceived and the individuals’ intention to buy them. The conclusion of the study shows
that the brand name has a positive effect on the consumers’ decisions, reducing the cost of
searching and the cognitive effort, because the firm’s reputation reduces the risk related to the
products’ quality. Therefore, in the absence of the relevant information, a consumer who is not
familiar with a particular product will use the trademark as an indicator for the quality of that good.
At the opposite pole to the idea underlined in the studies mentioned above, which argues
that the brand name may reduce the uncertainty and the risk in taking the consumption decisions, it
is situated the opinion of Lynch, Miller, Porter and Plotters (1986). They argue that although some
companies enjoy reputation and strong brand names, the quality of their goods is often similar to
the products that do not have a known brand name. Moreover, even in the case of the purchases
made through the Internet, Donthu (1999) notes that the brand name of the goods is not a guarantee
of the products’ quality but, on the contrary, it increases the risk perceived by the individuals. He
justifies this finding by making reference to the nature of the sample included in his study. This was
composed of people aged between 19 and 25 years old, with a medium to low income, who
perceived the possible financial loss resulting from the purchase of a cheaper product smaller than
in the case of buying a branded good, more expensive.
The level of the risk perceived by individuals may also be correlated to the possibility of
determining the properties of the purchased goods and services. Taking into account this aspect,
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Asch and Wolfe (2001) classify the products into three categories: those with easily noticeable
properties, which can be identified prior to the purchase, those with characteristics resulting from
the experience, by using those goods and services, and services with features difficult to determine -
for example the medical, financial and other consultancy services. This last category is usually
focused on that services whose characteristics are impossible to be identified and evaluated by
individuals, even after they were purchased and consumed. There is a positive correlation between
the ability to easily determine the products’ characteristics and the size of the risk perceived by
individuals: the more obvious the characteristics of the goods and services are, the less risky the
purchase decision will be. Therefore, we notice that the acquisition of the third category mentioned
above will involve a high level of risk, because in this case the consumers do not have enough
information in order to determine whether the services provided were the appropriate ones.
According to the observations made by Asch and Wolfe (2001), it is possible that the individuals
are more reluctant regarding the purchase of services, in general, rather than of the goods because
the services are those who have multiple noticeable characteristics after their consumption or,
sometimes, even impossible to assess. The more risky, complex and expensive are the consumption
decisions, the longer will be the process of deliberation, in which the consumer will search and
analyze multiple sources of information.
The ability of the individuals to assume the risk was associated by Deaton and Muellbauer
(2007) with the shape of the indifference curve. The two analysts assume that the isoutility function
does not reflect only the consumers’ preferences for various goods, but it is also an assessment of
the probability of the occurrence of some states/events (states are used by Deaton and Muellbauer to
characterize all the outcomes possible to be achieved through the individuals’ actions).
The 2nd state I
I’
450 - п/(1-п)
0
B The first state
Figure no. 1 The indifference curve and the risk aversion

Source: adapted from Deaton, A., Muellbauer, J., Economics and Consumer Behavior,
Cambridge University Press, 2007, p. 386
In figure no. 1, the chosen good has the same value both in the first state and in the second
one. Considering this aspect, the path of the indifference curve will be calculated in the point where
it is crossed by the 450 line, also called by Deaton and Muellbauer “the certainty line”. Therefore,
the path of the AB line reflects the measure in which the consumer, starting from a certainty
position, is prepared to give up the good in the first state and to buy it in the second state.
Supposing that the value of the good is the same in both of the states, any degree of the path,
smaller or bigger than the unit, suggests that the person considers that one of the two states has a
79
higher probability of appearance. If we note the appearance probability of the first state with п, then
the path of the AB line will equal – п/(1-п). We notice that the path of the line is smaller than 1, so
the first state has the greatest probability of appearance.
As it is shown in the figure no. 1, the shape of the indifference curve is a normal one:
convex. Deaton and Muellbauer (2007) consider that this convex shape of the curve is particular to
those person that have a high risk aversion and, consequently, they will be willing to pay a greater
sum in order to avoid the risk. On contrary, in the case of the individuals that like the risk, the
indifference curve will be concave. When this curve is a straight line, we talk about the persons for
which the level of the risk is less important in taking the consumption decisions.
CONCLUSIONS
Considering all the aspects mentioned above, we can conclude that assuming the risk in the
consumption decisions is influenced both by the extrinsic and intrinsic characteristics of the
products, as well as by other subjective and objective factors that have a strong impact on the
individuals’ behavior. Therefore, we can notice that the risky decisions seem to be taken easier by
both the extroverted persons and by those who have a high level of emotional stability. Moreover,
the individuals that come from the collectivist cultures – such as China or Japan – will be more
tempted to take the decisions under a higher level of risk than those from the individualistic
societies, these last ones having a convex indifference curve. Of course, the consumers who can
easily access the information, who can permanently complete and keep them up to the date, will not
manifest a high risk aversion because there are small chances that they confront with an unforeseen
and risky situation. The same attitude can be met in the case of the individuals with a high level of
education and training, with high incomes, more conservatives but very confident in authorities.
NOTES
(1) Giarini, O., Stahel, W.R., Limitele certitudinii, Edimpress-Camro, Bucureşti, 1996, p. 64-68
(2) Popescu, C., Creşterea care sărăceşte, Tribuna Economică, Bucureşti, 2003, pp. 201-202
(3) Zey, M., Rational Choice Theory and Organizational Theory: A Critique, Sage Publications, 1997, pp. 25-
26
(4) Friedman, M., Savage, L.J., „The Utility Analysis of Choice Involving Risk”, Journal of Political Economy,
vol. 56, nr. 4, 1948, pp. 279-304; Markowitz, H., „Portfolio Selection”, Journal of Finance, vol. 7, nr. 1, 1952, pp. 77-
91
(5) Weston, J.F., Brigham, E.F., Managerial Finance, 4th edition, Holt, Rinehart & Winston, New York, 1972
(6) Bontempo, R.N., Bottom, W.P., Weber, E.U., „Cross-cultural Differences in Risk Perception: A Model
Based Approach”, Risk Analysis, nr., 17, pp. 479-488
(7) Keller, P.A., Lipkus, I.M., Rimer, B.K., „Depressive realism and health risk accuracy: The negative
consequences of positive mood”, Journal of Consumer Research, nr. 29, 2002, pp.57-69
(8) Weber, E.U., Hsee, C., „Cross-cultural Differences in Risk Perception, but Cross-cultural Similarities in
Attitudes towards Perceived Risk”, Management Science, vol. 44, nr. 9, 1998, pp. 1205-1217
(9) Sheehan, K.B., Hoy, M.G., „Dimensions of privacy concern among online consumers”, Journal of Public
Policy & Marketing, vol. 19, nr. 1, 2000, pp. 62-73
(10) Miyazaki, A.D., Fernandez, A., „Consumer Perceptions of Privacy and Security Risks for Online
Shopping”, The Journal of Consumer Affairs, vol. 35, nr. 1, 2001, pp. 27-44
(11) Huang, W., Schrank, H., Dubinsky, A.J., „Effect of Brand Name on Consumers’ Risk Perceptions of
Online Shopping”, Journal of Consumer Behaviour, vol. 4, nr. 1, 2004, pp. 40-50
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1. Asch, D., Wolfe, B., New Economy – New Competition: The Rise of the Consumer?,
Palgrave, 2001
2. Bontempo, R.N., Bottom, W.P., Weber, E.U., „Cross-cultural Differences in Risk
Perception: A Model Based Approach”, Risk Analysis, nr., 17, pp. 479-488
80
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Dimensions for Consumer Durables”, Journal of Academy of Marketing Science, vol. 28, nr. 3,
2000, pp. 359-374
4. Chang, E.C., „Evidence for the Cultural Specificity of Pessimism in Asians and
Caucasians: A Test of the General Negativity Hypothesis”, Personality and Individual Differences,
nr. 21, 1996, pp. 819-822
5. Chauvin, B., Hermand, D., Mullet, E., „Risk Perception and Personality Facets”, Risk
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Affecting Consumer Pre-Purchae Attitudes”, Journal of Advertising, vol. 28, nr. 3, 1999, pp. 1-12
8. Deaton, A., Muellbauer, J., Economics and Consumer Behavior, Cambridge University
Press, 2007
9. Donthu, N., „The Internet Shopper”, Journal of Advertising Research, vol. 39, nr. 3,
1999, pp. 52-58
10. Erdem, T., Swait, J., „Brand Equity as a Signaling Phenomenon”, Journal of Consumer
Psychology, vol. 7, nr. 2, 1998, pp. 131-157
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Political Economy, vol. 56, nr. 4, 1948, pp. 279-304
12. Giarini, O., Stahel, W.R., Limitele certitudinii, Edimpress-Camro, Bucureşti, 1996, p.
64-68
13. Grewal, D., Krishnan, R., “The Effect of Store Name, Brand Name and Price Discounts
on Consumers’ Evaluations and Purchase Intention”, Journal of Retailing, vol. 74, nr. 3, 1998, pp.
331-352
14. Hofstede, G., Culture’s Consequences, Sage Publications, Beverly Hills, 1980
15. Huang, W., Schrank, H., Dubinsky, A.J., „Effect of Brand Name on Consumers’ Risk
Perceptions of Online Shopping”, Journal of Consumer Behaviour, vol. 4, nr. 1, 2004, pp. 40-50
16. Keller, P.A., Lipkus, I.M., Rimer, B.K., „Depressive realism and health risk accuracy:
The negative consequences of positive mood”, Journal of Consumer Research, nr. 29, 2002, pp.57-
69
17. Knight, F., Risk, Uncertainty and Profit, Houghton Mifflin, 1921
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U.S. Government Printing Office, Washington D. C., 1986, pp. 22-26
19. Markowitz, H., „Portfolio Selection”, Journal of Finance, vol. 7, nr. 1, 1952, pp. 77-91
20. Menon, G., Raghubir, P., Agrawal, N., „Health Risk Perceptions and Consumer
Psychology”, în Haugtvedt, C.P., Herr, P.M., Kardes, F.R., Handbook of Consumer Psychology,
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for Online Shopping”, The Journal of Consumer Affairs, vol. 35, nr. 1, 2001, pp. 27-44
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1/2, 1964, pp. 122-136
81
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Store Brand Quality”, Journal of Marketing, vol. 58, nr. 4, 1994, pp. 28-36
28. Sheehan, K.B., Hoy, M.G., „Dimensions of privacy concern among online consumers”,
Journal of Public Policy & Marketing, vol. 19, nr. 1, 2000, pp. 62-73
29. Vollrath, M., Torgersen, S., „Who takes health risks? A probe into eight personality
types”, Personality and Individual Differences, vol. 32, nr. 7, 2002, pp. 1185-1197
30. Von Neumann, J., Morgenstern, O., The Theory of Games and Economic Behavior,
Princeton University Press, 1944
31. Weber, E.U., Hsee, C., „Cross-cultural Differences in Risk Perception, but Cross-
cultural Similarities in Attitudes towards Perceived Risk”, Management Science, vol. 44, nr. 9,
1998, pp. 1205-1217
32. Weston, J.F., Brigham, E.F., Managerial Finance, 4th edition, Holt, Rinehart & Winston,
New York, 1972
33. Zey, M., Rational Choice Theory and Organizational Theory: A Critique, Sage
Publications, 1997
82
CONCEPTS, MODELS, TECHNIQUES AND PRACTICES OF ECONOMIC AND

FINANCIAL ANALYSIS
Ec. PhD. Student Alina BALAN

ASE Bucharest, Romania
alinucai@yahoo.com
Abstract
„Information gives you power” is the slogan that guides companies nowadays, the world competition being
carried out in the filed of using the most efficient information and the newest technologies and instruments of
communication. The informational system of the financial- economic analysis has as purpose the satisfaction of all the
information requests at the level of the society that allows a detailed information about all the activities that are
developed. The modern system means the operation of a large volume of economic information from and for all the
levels of activity of the enterprise. That is why, the financial and economic power of the most important companies is
given by the their capacity to detain, control and use information in order to reach the desired objectives.
No matter the level at which the management activity is carried out implies the exact cognition of the concrete
situations from the studied unit in order to establish the complex of causes and factors that determine it, fact that claims
the carrying out of an economic- financial analysis that represents a map of reality that will have to be taken into
consideration in the future decisions.
The financial- economic analysis must be approached as a discipline, profession, management instrument and
preliminary process to any entrepreneurial initiative.
Key words: analysis, economic analysis, financial analysis, decision-making process, financial diagnostic.
JEL classification: B41, D12
INTRODUCTION
As any present process, the economic- financial analysis is submitted to the changing
process. The indicators reevaluation assessment, next to the expansion of the time and space
horizon, develops new capabilities and dimensions of the analysis based on historical data, statistics
supplied by the accountancy.
As a discipline, the modern economic- financial analysis is a complex and rigorous activity
that appeals to multidisciplinary techniques of phenomenon study that, in time and space, have a
multidimensional value that submits to evaluations and interpretations through different value
judgments, mainly for anticipating the clients’ tendencies and expectations.
There can be identified four possible dimensions for the value of an analyzed phenomenon:
1. intrinsic value;
2. an updated value under the influence of the conjuncture factors;
3. a real value accepted by the market at a certain moment;
4. an anticipated value.
Exactly the multidimensional value is the one that increases the complexity degree and
demands multidisciplinary techniques in the analysis activity of the financial economic phenomena.
An economic agent’s evaluation of the financial – economic activities for a credit agreement
is a study discipline but also a banking practice that is based on rules, principles and
multidisciplinary study techniques of the phenomena that determined and/or will influence the
company results and especially the reimbursement capacity.
The economic- financial analysis as a management instrument results from the need to
measure. „Measuring means understanding, understanding means achieving knowledge, having
knowledge means power”.
Analysis and evaluation are a necessity, not a luxury for the contemporary management.
Managers must understand that if you can not measure you can not control. And if you can not
control you can not administrate. Without measurement/evaluation there can not be carried out the
other functions of management. From here it results the strategic importance of the evaluation
83
system for the organization. A good system of evaluation directs the company towards a positive
and correct direction.
Analysis, as an instrument accessible to all decedents, favored the change and implicitly the
human kind evolution.
Unquestionably, the economic- financial analysis is a management instrument when appears
the problem of appreciation and resources measurement, including the financial ones and appealing
to a bank loan.
The economic- financial analysis, as any present process, is submitted to the changing laws
according to specific methods:
- reorganization, retechnologization and specialization at the level of the basic competences;
- rapid adaptation to the clients’ new requests through implementing a new flexible
organization, the establishment of a global logistics, the development of assistance for critical
activities and the expansion of collaboration in order to capitalize the existing opportunities at the
level of the world market;
- a flexible conscription that allows the successful exceeding of fluctuations or rapid
modifications that appear in global the economic- financial environment.
It can be said that the modern economic- financial analysis is a discipline, a profession, a
management instrument and an independent process with an antidote role of informational
moderator asymmetry of the time server tendencies, reducer of moral risk that can affect the
investor.
1. ECONOMIC AND FINANCIAL ANALYSIS - OBJECT, MAJOR CONCERNS,

PERSPECTIVES OF DEVELOPMENT
Regardless of the factory’s financial position, the main factor which can positively influence
the running of it is the human factor, the management / the manager. Therefore, it is necessary to
place real, operative, more analytical,information at the management team's disposal, witch will
draw attention to critical points order to intervene promptly and effectively. In providing this
information, an important role is aasigned to economic and financial analysis.
Economic and financial analysis is a set of concepts, methods, techniques, processes and
instrumens that provide treatment for internal and external information in order to formulate some
relevant considerations regarding the economic and financial situation of a trader, identifying
factors, causes and conditions that have caused it, as well as internal reserves to improve it in terms
of efficient use of human,material and financial resources [1].
A modern definition of economic analysis has been contoured by Lionel Robbins, in 1935,
which summarizes pretty well the object of the economic analysis [2]: economic analysis studies
the way in which individuals or society uses rare resources for alternative uses, to meet their
requirements.
Most of the contemporary economists consider their discipline such as a theory of human
behavior defined by the care for satisfy their needs witch the scarcity of resources. In the second
half of the twentieth century was the extension economists concerns about human behavior issues,
so there is an economic analysis of marriage, crime, policy, religion, etc..
Any subject witch involves the human rights are now a potential object of economic
analysis, so the selection of a material subject can not make distinguish between economy and other
humanities and social science, but the method of analysis can.
Economic and financial analysis, as a discipline study phenomena and processes of
economic and financial field, at the micro level, which in terms of studying the decomposition
factors, quantitatively and qualitatively; establish causal relationships between factors, quantitative
qualitative influences they have on this phenomenon: on this base, conclusions are formulated in the
summary, appreciating the concrete situation of the analyzed phenomenon and proposing variants
of necessary correction to ensure the amplification of positive influences and reduce or eliminate
the negative influences, for print the desired, normal behavior on the phenomenon.
84
For example the quantification of the influences caused by factors witch compose turnover
below factorial model are presented in Table. no 1.
Table no.1. Influence of changing the use of human resources and of production recovery
degree o turnover
Nr. Period
crt. Specification UM 2006 2007 2008
1 Personal no. (Np) pers. 296 285 258
2 Turnover (Ca) Lei 25.823.769 23.225.272 23.072.059
3 Labor productivity ( W ) Lei/pers. 87.242,46 81.492,18 89.426,59
4 Working days no. (z) days 278 280 278
5 Average daily productivity (wz) Lei 313,8218 291,0435 321,6784
6 Quantifying the influence of factors 2007-2006 2008-2005
7 Np influence Lei - 959.667,90 - 0,7
8 W influence, in witch Lei - 1.638.829,1 -153.212,3
9 - z influence Lei - 1.220.139,88 -2.350.467,3
10 - wz influence Lei - 1.378.357,12 +2197255,01
11 Total Lei - 2.598.497 -153.213
CAn – CAn-1 Lei - 2.598.497 -153.213
Ca  Np  W  Np  z  wz (1)
2007/2006
Absolute change :
Ca  Ca 2007  Ca 2006  23.225.272  25.823.769  2.598.497lei
1) influence of Np change:
Ca ( Np )  ( Np 2007  W2006 )  ( Np 2006  W2006 )  (285  87.242,46)  25.823.769  -959.667,9 lei
2) influence of W change:
 Ca (W )  ( Np 2007  W 2007 )  ( Np 2007  W 2006 )  23 . 225 . 272  (2 85   87 . 242 , 46 ) 
  1.638.829, 1 0 lei
but W = z  wz
2.1) influence of z change:
Ca ( z )  ( Np 2007  z 2007  wz 2006 )  ( Np 2007  z 2006  wz 2006 )  (280  280  313,8218)  (280  296 
 313,8218)  24.603.629,12  25.823.769  -1.220.139,88 lei
2.2) influence of w z change:
Ca ( wz )  ( Np 2007  z 2007  wz 2007 )  ( Np 2007  z 2007  wz 2006 )  23.225.272  24.603.629,12 
 -1.378.357,12 lei
Total change:
Ca  Ca ( Np )  Ca ( z )  Ca ( wz )  959.667,9  (1.220.139,88)  ( 1.378.357,12 
 2.598.497 lei
2008/2007
Absolute change :
Ca  Ca 2008  Ca 2007  23.072.059  23.225.272  -153.213lei
1) influence of Np change:
Ca ( Np )  ( Np 2008  W2007 )  ( Np 2007  W2007 )  (285  81.492,18)  23.225.272  23.225.271,3 
2)
 23.225.272   0,7 lei
2) influence of W change:
85
 Ca (W )  ( Np 2008  W 2008 )  ( Np 2008  W 2007 )  23 . 072 . 059  ( 285  81 . 492 ,18 ) 

 -153.212,3 lei
but W = z  wz
2.1) influence of z change:
Ca ( z )  ( Np 2008  z 2008  wz 2007 )  ( Np 2008  z 2007  wz 2007 )  (258  278  291,0435)  (285  280 
 291,0435)  20.874.803,99  23.225.271,3  2.350.467,31lei
2.2) influence of w z change:
Ca ( wz )  ( Np 2008  z 2008  wz 2008 )  ( Np 2008  z 2008  w z 2007 )  23.072.059  20.874.803.99) 
 2.197.255,01lei
Total change:
Ca  Ca ( Np )  Ca ( z )  Ca ( w z )  0,7  2.350.467,31  2.197.255,01  153.213 lei
The decrees of personal number from 298 persons in 2006 at 285 persons in 2007, and at
258 persons in 2008 has an decreasing effect on industry turnover. This effect was more marked in
2007-2006 period, when it was - 959.667,90 lei. In 2008-2007 period I observed an improvement of
quantitative factor’s influence, the influence on turnover is just -0,7 lei.
The decrees of labor productivity from 87.242,46 lei/pers. in first year, at 81.492,18 lei/pers.
In second year analyzed cause a decrease in turnover with 1.638.829,1 lei/pers. in 2006-2007
period, and the productivity growth in 2008 cause a decrease in turnover with 153.212,3 lei/pers. in
2007-2008 period.
The influence of working days number remains negative throughout the period of analysis,
mainly due to decrease in the indicator level throughout the period of analysis.
It notes the important contribution of labor productivity in the reduction of turnover in 2006-
2007 period, and the number of working days have a negative influence on turnover just as in 2006-
2007, but in 2007-2008 they are at a level managing low enough to offset the positive effects
generated by the average daily productivity.
Analysis, as a general research of the natural and social phenomena, means the
decomposition into their component parts to be studied and discovered causal relationships.
Economic analysis aims the economic activities which consume resources and generate results [3]
in meanwhile financial analysis is a methodical study of of an enterprise’s situation and evolution
on its financial structure and profitability, based on the balance sheet, the result and all other
information offered by the company or can be obtained about the company and it’s future [4].
Part of economic and financial analysis, financial analysis is included in the special purpose
tests, which appeared and developed especially in the last 20 years and are in permanent evolution.
Among the factors that imposed and stimulated the financial analysis’s development and
improvement can remember: development of anonymous stock, increase the role of banks and
financial institutions in the economy.
If the first financial analysis performed by the shareholders of limited companies are limited
to verification of financial balances, sufficient for repayment of loans granted by banks, regardless
of developments in the financial situation, the main criterion for granting loans remained just the
assets of the company. The financial analysis was limited to the study of rates on the financial
solvency of the enterprise.
This approach has proven limited, which required a modern approach to financial analysis,
which tends to become a system for handling information able to provide the data required by
manager for financial decisions. The role of this discipline has increased, meaning that it is not only
limited to financial data, but integrates economic data and stock, and analysis are integrated in the
models required to prepare financial forecasts.
The developments of financial analysis in recent years is due to several causes [5]:
86
1. The concentration tendency of firms has led to the development of large-sized

investments, whose returns are spread over several years, which required banks and financial
institutions develop and use methods of analysis developed for the grant or refusal of credit.
2. Failure of banks to require guaranties to cover risk of non-payment it imposed to make
analysis of economic and financial risk, because the concept of liquidity has become scarce for
long-term commitments.
3. The development of modern financing means required to deepen the study of financial
balance and of the capital cost, regardless of its origin.
4. Credit policy constraints, high interest rates, inflation, exchange rate variations have acute
financial problems of the enterprise.
5. International development of companies led to search for techniques suitable for making
comparisons between financial statements and accounts of various countries.
The complexity of economic phenomena analysis prints a double character, namely [6]:
1. discipline character with a theoretical background, a set of general principles that can be
applied in the interpretation of the economic past and present problems;
2. practical activity that provides answers to the questions on about causal relationships
between factors and phenomena.
In carrying out it’s object of study, analysis have some stage, which gives the content of this
process. Regardless of the phenomenon or process addressed in the study, analysis have the
following stages [7]:
a) the exact delimitation of the analyzed object, which means facts, processes, phenomena,
results.
b) identification of components, factors, causes which could help achieve a certain level of
phenomena.
c) establishing the causal relationship between factors and phenomena, and it’s inclusion in
a model used in analysis. The model is based on the causal, objective relationship between factors
and phenomena, such as applying different methods of quantitative analysis to identify the
contribution of each factor and the effect size on the level recorded phenomenon.
d) measuring the influence of each factor on the level and on the change of the phenomenon.
In this phase will apply a technical process, depending on the relationship between factors and
phenomena.
e) synthesizing the results of quantitative analysis and revaluation using the qualitative
analysis of the influences table.
f) development of corrective measures in order to increase positive influences and to reduce
or eliminate negative influences.
In foreign literature it can be found the following steps of the process of economic and
financial analysis [8]:
a) Setting objectives;
b) Identify alternatives for achieving the objectives;
c) Formulation of hypotheses;
d) Estimated costs and benefits - involves estimating all costs and benefits for each
alternative for entire duration of the project;
e) Comparison of costs and benefits with pre-estabilished values;
f) Realize a "sensitivity analysis" (the foreign literature is called "what-if");
g) Reporting results and making recommendations.
Attention of economic and financial analysts are focused mainly on three major aspects of
business entity taken in the study [9]:
(1) study on financing - the nature and composition of resources, stability, financial costs
and risks,
(2) study the use of resources - allocation, structure, level and variability,
(3) study the results witch allow the release of economic risks.
87
Confrontation between financing decisions and the decisions of resource allocation leads to
query and variable responses on the adjustment:
a) Structural adjustment between liquidity uses resources exigibility.
In common terms the company’s financial fundamental adjustment presupposes
harmonization between duration/maturity/falling due, as term attached ti resources and uses.
(b) Adjustment functional use - resources
The second approach requires a significant change of criteria and conditions of adjustment,
defined not by reference liquidity/chargeability, but by reference to cut down that lead to the
separation of uses and resources by the way for their participation in the four fundamental financial
cycles operations of a business structure (current operations, the operations of accumulation cycle,
the process of sharing revenue and earnings results).
c) Global adjustment of cost efficiency and resource uses.
Vision recently developed in theory considers the financial system as an open and stable
sistem put in value the resources as input - output of capital - resources - cash within the meaning of
adequate mobilization of efficiency and effectiveness criterion.
2. THE ROLE OF ECONOMIC ANALYSIS IN ACHIEVING FINANCIAL

MANAGEMENT FUNCTIONS IN CONTEMPORARY ECONOMY
Some authors consider that we deal, in the contemporary economy, with a trend of
economic and financial analysis’s emancipation regarding to it’s the accounting sources.
According to Cohen, the factors witch determinate this emancipation are [10]:
- Development of financial markets (which leads to development of portfolio management
tools, based largely on statistical methods of analysis);
- In traditional analysis (type analysis of credit in the savings bank based on financing), the
focus is on prospective information, so we are looking after economic, commercial, political, social
informative elements, to help achieve forecasts;
- Providers of information have an increasingly rich offers in contemporary business
environment (financial databases, information extra accounting), which relax the analysis
dependence of accounting source.
We can add to the factors listed by Cohen, the development of intangible elements in a
knowledge-based economy.
Users are an important category in the design and communication information process. In
time this category has suffered various changes, reflecting the social, cultural, economic aspects and
the system of government.
Analysis is important for all parties participating in the operation:
• management company: interested by analysis conclusions for substantiation financing and
investment decisions in order to increase enterprise value;
• investors, creditors, shareholders - are interested in company capacity, seen as a current or
potential investment option, to cover current and future liabilities and how are resources allocated
and controlled by the management enterprise;
• business partners (suppliers, customers, employees) interested in the future development of
the business, financial security and employment;
• State: interested in the company performance for determining fiscal objectives and for
formulating economic policies and assessing the macroeconomic performance etc..
But the company’s functions, held by all the leadership attributes, and each of these
attributes is achieved through a specific type of analysis.
Economic and financial analysis realizes, in management process a series of functions:
a) the information function, ensure that the data from the entire economic system of records
in order to inform decision centers on how to achieve economic and financial performance and the
causes that have generated any disorder in the settlement in the following period, position of states
compared with normative levels of competition in different markets, etc..
88
b) the assessment of technical and economic potential of the company, although defined as
the autonomous, it’s role is to implement in practice the function presented above.
c) the decision substantiation on grounds of efficiency, is an objective requirement of the
activity in any area of economic and social life.
d) the function of reflecting the effective management of assets and assessment of
management performance are made by accounting.
e) the function of making connection with the external economic and financial environment
involves analysis of relationships with: providers of capital (shareholders and their advisers,
investors in banks and other investors, the stock exchange), business partners (suppliers, customers
etc..), the state (fisk, government and quasi-governmental organizations, local authorities), other
users (professional organizations, analysts and external consultants, auditors, the prosecution or the
courts, the public).
Satisfy this requirements is subject to the provision by undertaking economic and financial
information as an expression of activity.
Diagnosing the business serves as a base for economic and financial decisions.
CONCLUSION
A global image of the company, an explanation of the way of functioning on the whole can
not be contoured than taking into account the specific of economic social, financial environment.
Analysis should not stop only at the financial aspects, should be assessed also the strategic, social
elements, taking into account their consistency both within and outside the enterprise.
Currently, "new international economic environment have made the information to become
a strategic weapon. Those who know how to obtain, interpret and to exploit to acquire a rapid
development of high capacity and strengthens its competitive advantages."
NOTES
[1] Niculescu Maria, Diagnostic economic, Ed. Bucureşti, 2003, pag. 22
[2] Munteanu Nicoleta, Analiza economico-financiară, Ed. Tiparului, Iaşi, 2006, pag. 5
[3] Dumitru Gheorghe, Analiza economico-financiară-note curs, Iaşi, 2007, pag. 3
[4] Bîrsan Mihaela, Analiza economico-financiară – note curs, Ed Universităţii, Suceava, in press
[5] Petrescu Silvia, Analiza economico-financiară. Teorie şi aplicaţii, Ed. Tiparul Iaşi, 2002, pag. 6
[6] Petrescu Silvia, Analiza economico-financiară. Teorie şi aplicaţii, Ed. Tiparul Iaşi, 2002, pag. 9
[7] Negrescu M., D., Valorificarea valenţelor de informare a bilanţului contabil, Ed. ASE, Bucureşti, 2005,
pag. 222
[8] Departament of the army, Economic analisys description and methods, Washington DC, 1992, pag. 7
[9] Negrescu M., D., Valorificarea valenţelor de informare ale bilanţului contabil, Ed. ASE, Bucureşti, 2005,
pag. 222
[10] Robu V., Sandu R., Problematica analizei performaţelor-o abordare critică în contextul teoriilor
informaţiei şi guvernanţei corporative-Economie teoretică şi aplicată, Ed. AGER, Bucureşti, nr. 1/2008, pag.
12
BIBLIOGRAPHY
1. Bîrsan Mihaela, Analiza economico-financiară – note curs, Ed Universităţii, Suceava, in

press;
2. Bîrsan Mihaela, Analiza diagnostic şi orientarea strategtică întreprinderii, Ed. Didactică şi
Pedagogică, Bucureşti, 2004;
3. Chirulescu Ciucaşu Elena, Diagnostic financiar al profitabilităţii şi riscului bancar în
acordarea de împumuturi agenţilor economici, Ed. ASE, Bucureşti, 2007;
4. Departament of the army, Economic analisys description and methods, Washington DC,
1992;
5. Dumitru Gheorghe, Analiza economico-financiară-note curs, Iaşi, 2007;
89
6. Harrington H.James, Management total în firma secolului 21, Editura Teora, Bucureşti,
2001;
7. Munteanu Nicoleta, Analiza economico-financiară, Ed. Tiparului, Iaşi, 2006;
8. Negrescu M., D., Valorificarea valenţelor de informare a bilanţului contabil, Ed. ASE,
Bucureşti, 2005;
9. Nicolescu Maria, Diagnostic economic, Ed. Bucureşti, 2003;
10. Petrescu Silvia, Analiza economico-financiară. Teorie şi aplicaţii, Ed. Tiparul Iaşi, 2002;
11. Robu V., Sandu R., Problematica analizei performaţelor – o abordare critică în contextul
teoriilor informaţiei şi guvernanţei corporative-Economie teoretică şi aplicată, Ed. AGER,
Bucureşti, nr. 1/2008;
12. www.amfiteatrueconomic.ase.ro.
90
SECTION 2
MANAGEMENT AND BUSINESS

ADMINISTRATION
91
HUMAN RESOURCES MANAGEMENT CONTROL*
Professor PhD. Mihaela DUMITRANA, ASE Bucharest, Romania, mihaelaadumitrana@yahoo.com

Lecturer PhD. Mădălina DUMITRU, ASE Bucharest, Romania, madidumitru2007@gmail.com
Lecturer PhD.Iulia JIANU, ASE Bucharest, Romania, iulia_jianu@yahoo.fr
Lecturer PhD.Gabriel JINGA, ASE Bucharest, Romania, gabriel.jinga@gmail.com
Lecturer PhD.Gabriel RADU, ASE Bucharest, Romania, gabi_v_radu@yahoo.com
Abstract
We consider that the human being is the most important asset of the company. In the context of the social
politics of the company and of the objectives of the management, along with all the other departments, the management
control contributes to the resources of the entity. In this paper we want to demonstrate the importance of human capital
as one of the key factors of the growth process in all countries and the necessity of the organization of a management
control to be able to provide information about human resources. Which are the axes for the reporting of the
information concerning the human resources? What kind of reports and indicators should be prepared by companies
for management? Which are the main concerns of the companies connected to profitableness – efficiency – wages? The
answer will be found in this paper. In the current conditions in which personnel restructuring processes, combined with
the costs reduction efforts and new requirements arise in the management control of the company, our paper will
present how we can make a correct assessment of the value created by the human resources component of the company.
Key words: Human resources, management control, indicators, reports, accounting.
JEL classification: M41; M51; M54
INTRODUCTION
The human being is the richest resource of the company. The profitableness of the company
is born out of the coordination of the human resources elements. As a consequence the companies
have to establish as objectives both the social and human profitableness. But the human being is not
driven as a car. His own complexity, variable in time, is added to the complexity of the
relationships between persons. A company that does not integrate the social criteria, doesn’t risk
only endangering its image, functioning, survival, but, which is more important, it won’t develop
through its trust capital as to its partners. The creation of the richness and value result not only from
the properties of a product, but also from the intangible services accompanying it. The way people
communicate and work together determines the profitableness of a company.
The relationship between the economical performance and human performance at the level
of a company is very tight. Even if this relationship cannot be established/measured dierctly, there
is however a range of indicators that can do this.
An important target of each country is to ensure a development that can continue “for ever”
or at least until the end of a politically relevant time horizon; long term policy. This development
must be a positive development that may be defined as a change over time that somehow increases
the welfare. Welfare can be considered as the outcome of consumption that consists of consumption
of goods and services that are produced and traded in markets as well as goods and services that are
produced in households for own consumption or directly harvested from nature. These goods and
services are produced from total resources or capital base. The capital base is produced by real or
produced capital, natural capital, human capital and social capital. Consequently, human capital
(HC) is also an important part of society’s resources base.
The notion of HC was introduced in literature by Becker and Schultze in 1960. Becker
(1964) defined HC this way: “HC, viewed education, on-the-job training and health as components
of HC with consequences for earnings and economic productivity”.
Rower (1987, 1990, 1994) considers HC as an important element in understanding
development.
OECD (2001) defines HC: “HC is the knowledge, skills, competences and attributes
embodied in individuals that facilitate the creation of personal, social and economic well-being”.
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OECD Growth Study (2003) reminds the importance of education and HC for economic
development.
HC is embodied in humans that all are free women and men. HC is therefore not, unlike
physical capital, traded separately in markets. In the literature HC is decomposed into raw labor,
education and skills, but in some literature the notion of HC is mostly only connected to education
and skills. HC as a notion is used to present how countries must developed, but for companies
inside a country the notion used is generally that of human resources (HR).
A group of people working together to achieve a common purpose is defined as an
organization (Bounds et al., 1995). Organizations vary in size, structural and the kind of activities
they engage. A common thing for al organizations is that they bring people and resources together
to fulfill some mission and purpose. All these resources must be controlled in order to explain how
purposes were attained. So that is why a part of management control must be directed towards
human resources. HR is recognized as an important function in an organization, so that it must be
controlled.
To organize a management control (MC) for HR, in our opinion that means: to identify
activities to control; to specify indicators to calculate; to select reports to prepare for different levels
of management; to reconciliate the data obtained by different departments (human resources,
different responsibility centers); to fight against absents, to measure the faithfulness and
attractiveness; to budget the need for work from one year to another; to integrate the juridical and
social constraints in the economic reflections; to manage the social risk; to know the assembly of
the components of the total remuneration; to direct the company’s strategy and the remuneration
politics; to manage the performance criteria (tool for control, indicators characteristics); to measure
the performance and the human resources costs.
HRMC is a permanent control performed for the social drive and for measuring the social
performances of the company, in a tight correlation with the economic performance.
PREVIOUS STUDIES CONCERNING THE HR
HR is an element of the intellectual capital, intangible in nature that creates substantial value
for the company because of its individual and collective competences developed. Obviously, there
are entities that know to value their industrial, technical and commercial intelligence capital; these
companies have a market advantage in today’s economy when the production is supported by the
knowledge and capacity to develop relationships with the partners. The human resources
management has to adapt to this economy of the networks conceiving common criteria with the
partners for the recruitment, training and management processes of the human capital.
Along the time the economists considered the human resources a component of the capital.
Starting from 1960 (Herman, Theeke, 2005) in USA started to develop the concept of Human
Resources Accounting. The first company interested in applying it was RG. Barry Corporation. It
included the HR as assets items in the company’s statement of financial position. Even if some of
the companies focused on the human resources appreciated the ides it is very difficult in practice to
apply it, because of a lack of standardization and measurement methods for the value created by the
human resources.
In France at the end of the years 1970 (Martory, 2003) appears the idea of a Social
Statement of Financial Position. This is a report that presents in connection with the social
environment the expenses and the services of an organization directed to social groups that have
relationships with it (employees, investors, customers, suppliers and the public). Here are also
disclosed some social politics, the targets, the measures considered for their achievement, the value
obtained by the organization etc.
There are many definitions of this concept, but, yet, a classification and a definition of the
intellectual capital presented in the project MERITUM 2002 was accepted by more authors in their
papers (Sveiby, 1997; Edvinsson, 1997; Guthrie, 2000); IFAC, 1998). It is detailed in the following
table:
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Table no. 1. The classification and definition of the intellectual capital

Category of Definition of intellectual capital
intellectual
capital
Human The knowledge that employees take with them when they leave the firm. Includes the
knowledge, skills, experiences and abilities of people. Some of this knowledge is unique to
the individual, some may be generic.
Structural The knowledge that stays within the firm at the end of the working day. Comprises the
organizational routines, procedure, systems, cultures, databases, etc. some may be legally
protected and become Intellectual Property Rights, legally owned by the firm under separate
title.
Relational All resources linked to the external relationships of the firm, with customers, suppliers or
R&D partners. Comprises that part of human and structural capital involved with the
company’s relations with stakeholders (investors, creditors, customers, suppliers, etc.) plus
the perceptions that they hold about the company.
Source: Meritum project, cited by Beattie & Thomson, 2007
Stanciu (2008) tried to synthesize the methods of assessment and recognition of the
intellectual capital in the financial statements. She presents various opinions regarding the
possibility of the recognition of the intellectual capital and the extent to which there is a need to
recognize it. The conclusion of the paper is that, the traditional accounting system needs to be
extended to capture the company’s value creation potential and to be based on the effectiveness of
its response to the stockholder’s expectations as well.
Sandu & Ioan (2008) asked themselves which are the axes of intellectual capital disclosure
in the annual reports of a recently privatized company and what would be the challenges, risks and
benefits involved of such disclosure. They analyzed the financial statements of Petrom Company on
a three years period. The study is interesting, as the foreign company that took over the Romanian
company brought an important intellectual capital. Their conclusion is that this company presents
most detailed information concerning the structural capital and less detailed information concerning
the human capital.
INDICATORS AND REPORTS FOR HR
Alvin Toffler, cited by Anghel & Ipate (2008), said: “I wonder if anybody buys shares to a
company which has not proven its management skills or in which the management system is not
competitive? Could anybody think to buy a company which has no reputation or credibility proved
long-time by the investors? And, in that logic of things, are there not the list of constant customers
or subscribers, the efficient distribution networks, the preferred customers or subscribers, the
efficient distribution networks, the preferred relationships or the skills of the managers in
concluding convenient agreements facts which determine a better or smaller value for a company in
regard to another?”
The main tools developed in order to facilitate HR and/or intellectual capital reporting are:
the market value of the company minus the accounting value (Gu & Lev, 2001; Hall, 1993; Luthy,
1998); the intangible asset monitor (Sveiby, 1997); the balanced scorecard (Kaplan & Norton,
1996); the Skandia Navigator (Edvinsson & Malone, 1997; Edvinsson, 1997); Tobin’s q (Stanciu,
2008); the calculated intangible value (Luthy, 1998); intangible value metrics (Lev, 2001); the
intellectual capital statements (DATI, 2000); and the model proposed by Anghel & Ipate (2008),
where the value of the intellectual capital is determined as a difference between the market value
and the net value of the tangible assets.
Indicators and reports to prepare play controllers for managers are in direct relation with the
activities that have to be identified by MC. In our opinion HRMC must be directed towards four
activities:
i) planning and recruitment
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ii) compensation
iii) training and development
iv) performance appraisal
i) Planning and recruitment
HR planning is a process for developing alignment between the organization’s strategy and
the people it employs to execute the strategy (Bounds, 1995).
Recruitment is a process of attracting the best qualified people to apply for the job and also
to motivate people to fulfill the mission of the organization. The candidates have to be recruited
quickly and with a minimum cost. The recruitment terms have to be minim and they are calculated
as the number of days between the recruitment request and the occupation of the position. The
recruitment costs have to be also minim and they include the cost with the announcement of the
recruitment, the costs with the resumes analysis, the costs of the recruitment department. In order to
succeed, the recruitment has to end with the occupation of the position by a person that has the
requested qualities.
We think that planning as the first part of this activity is important to be under control in
order to identify and to explain differences between forecast figure and real figure.
A report may be presented based on available information about planning and recruitment
divided into two categories: indicators about jobs and employees need for those jobs and indicators
about activity.
In the first category we think to report the following indicators:
Table no. 2. Planning and recruitment indicators

Indicators Plan Actual Variances Causes
1) Total number of jobs X X X X
2) Total number of employees X X X X
3) The need for personnel X X X X
4) Average salary X X X X
5) Total number of workers X X X X
- job 1
- job 2
…
- job n
6) Average salary per worker X X X X
7) Administrative employees total number and by type of jobs X X X X
8) Average salary per administrative employee X X X X
9) Distribution employees total number and by type of jobs X X X X
10) Average salary per distribution employee X X X X
11) The structure of the qualification of the personnel X X X X
12) The percentage of the personnel using various criteria X X X X
(qualification, sex, age, religion, nationality etc.)
The second category – indicators about activity – should contain information about expenses
incurred in this activity and different costs to be calculated such as:
- activity total cost;
- number of employees;
- employees salaries;
95
- average salary;
- number of interviews;
- number of recruitments;
- average cost for recruitment (total activity cost/number of recruitment);
- the degree of the coverage of the necessary personnel;
- the number of persons which were unsuitable (that were wrongly chosen for the job);
- the degree of the noncoverage of the personnel scheme and the costs for their supplanting.
ii) HR compensation
Compensation is considered as a payment from the organization to the employees for their
services based on wages and other benefits. Rewards are also considered as another form of
compensation to reward the employees for their contribution to the company’s performance. The
system of remuneration is an important system of the company’s culture, with its rules and
standards. The organization of the work and decentralization of the power within the teams requests
remuneration politics that need the development of the cooperation and collective competences.
From the manager’s point of view to analyze this activity he needs information about
compensation’s total value and components and information about this specific activity. The
remuneration system chosen has to be simple and easy to understand in order to be accepted by the
employees searching for equity and security, to be adapted to change and to incite the personnel for
the change. Consequently, a report will be divided into two parts to present relevant information
about HR compensation. Indicators about HR compensation may be as following:
- total employees number;
- employees salaries;
- average salary;
- activity total cost;
- average activity cost per employee;
- personnel expenses/value created
- average cost per hour;
- pay-list cost;
- average number of claims for errors;
- social expenses value.
In the second part of the report, we think to prepare for management a second statement
containing indicators about salaries/wages expense in order to analyze the importance of those
expenses in the total cost as follows:
- total salaries/wages expenses
- total wages/salaries productive workers expenses
- total salaries/wages administrative employees expenses
- total salaries/wages distributions employees expenses
- total period cost (only salaries/wages expenses)
- % of wages/salaries in production sector
- costs with the change of the personnel (unsuccessful recruitment and restarted).
In the meantime we consider that the value of the reward should be analyzed according to
the involvement of the personnel. For analyzing this section we suggest the following indicators:
- the time ratio;
- the degree of the yield/work productivity;
- the involvement degree;
- the structure of the working places;
- the supplementary hours/medium cost per supplementary hour;
- minimum/ maximum yield.
iii) Training and development (T & D)
96
Training helps employees to gain particular job skills and development involves on-going
education to help prepare employees for future jobs. On a short term, the training has to facilitate
the change: the evolution of the jobs, the development of the potential, the management of the
careers. On a long run, the training accompanies the culture change and helps the adaptability of
employees. Development involves more than learning a skill such as problem analysis, creativity,
team-building and leadership. Training and development is important for accomplishing the mission
and vision that managers chose for an organization.
To realize training and development’s targets companies often devote ample resources
presented in budgets. These resources are allocated to the employees that have the motivation to
stay within the organization. This is why, in the first part of the report, we will present indicators
that show the maintenance and motivation of the employees:
- fluctuation rate/ fluctuation costs;
- accidents frequency/ unused time/ work accidents costs;
- sickness frequency/ unused time/ sickness costs;
- wages structure/ bonuses etc.;
- cost-benefit-motivation analysis;
- the report between the personnel training (costs for training) and their stability within the
company;
- employees participation to profit;
- supplementary social services costs;
- the degree of personnel satisfaction;
- the time spent by the employees within the organization;
- the reason for the personnel for leaving the company.
Budgets contain information about total resources (T & D), number of employee implicated
in this process, T & D cost per employees. So that a report for management will contain the
following indicators:
- total resources amount;
- total number of T & D actions;
- total cost of each T & D action;
- total number of employees implicated in T & D process;
- average cost per employee trained;
- days for training per employee;
- the number of employees that change the function within the organization;
- the time for T & D per employee per year;
- the impact of the T & D in saving the resources within the company;
- the structure of the employees involved in the T & D process using different criteria (sex,
qualification, age etc.).
iv) Performance appraisal
In the social sciences the word performance knows two senses:

- the social performance can be defined as the intensity with which a person chooses to
cooperate for the objectives of the company, or, more general, the level of satisfaction touched
by the persons that are a part of the life of the company. The social performance reflects the
impact of the social politics on the attitude of the employees as to the company where they
work;
- the human performance is analyzed according to the result obtained by the employees
connected to their work. This result is expressed according to the richness created, added
value created, the supplement of value obtained by the company etc.
The two notions are distinct because (Jianu, 2007):
97
- the social performance reflects the aptitude to raise the level of satisfaction of the personnel,
to improve the social climate and the life conditions;
- the human performance supposes the optimization of the social cost to obtain a certain result
or to maximize this result.
The management of the human resources is an essential item for the financial performance
of a company. A study performed by the American counseling cabinet Watson Ayatt shows that the
most profitable companies in the management of the human resources create two times more value
than others. There are five motivations for each person at their working place (Levering &
Moskowitz, 1993):
- remuneration;
- professional development;
- working place environment;
- respect and consideration;
- work interest.
Performance appraisal is a way to evaluate how well employees have met expected levels of
accomplishment compared to some standards or goals. Performance appraisal influences HR
decisions on such issues as pay, promotion, training and development. The appraisal may focus on
outcome measures such as levels of quality, productivity or financial performance.
Values and methods in performance appraisal may be presented as follows:
- direct individuals or direction to the work force
- control people and processes
- feedback used for ratings, rewards and sanctions
- feedback useful for improvement
- motivating or de-motivating employees (source: adapted from Scholtes)
Regarding this activity, management controller must prepare a report where indicators about
types of appraisal actions are presented and also the activity cost per each type of action.
We consider that a company that wants to be profitable has to focus the management of its
human resources on achieving the following objectives:
- to integrate progressively the new employees;
- to participate actively in integrating and training the young persons;
- to participate in the integration or the persons with handicap;
- to update continuously the internal resources;
- to practice a responsible and equitable management of the jobs;
- to prove flexibility in the work organization;
- to take into account the individual aspirations;
- to assure the person’s security;
- to support the employees with problems;
- to value the personal richness;
- to recognize the individual and collective work;
- to practice a correct remuneration of the employees;
- to protect the results correctly;
- to manage the resignations;
- investments in personnel, by continuous training and development;
- the possibilities for the employees reconversion that are found on the working force market at
a certain moment;
- personnel leasing.
CONCLUSIONS
1) The management of the HR is more and more complex. We started this research by
presenting human capital concept, because this notion is used to calculate sustainable development
indicators. For all the countries it is necessary to value the human capital, but this is a difficult
98
action. In other way the value of human capital is determined based on human resource components
for each company. So that HRMC will be a consequence of the importance of these resources for
companies, geographic area and also for the countries.
2) HRMC may be divided into two parts: a part dedicated to the activity’s control and
another part representing outcomes activity control. In the French literature, HRMC focuses only on
the activities identified in the area of HR. In our opinion, HRMC is more than the activities’
control. For this reason, in this paper we presented indicators for two different parts of HRMC.
3) The economic environment along the social system has to propose a strategy at the HR
level, taking into account the demographic evolution, but also the professional qualification.
4) The preparation of different reports for managers needs information about expenses,
costs, number of employees, types of jobs, types of activities etc. Some information is obtained
from HR department (employees, jobs, activities) and often from accounting department (expenses,
costs, turnover etc).
5) We consider that indicators and reports that have been presented in our research represent
our concept about what HRMC must be. Our model is based on a theoretical research (books,
studies etc.) and on a practical documentation concerning the needs of companies in this area.
* This research was financed by CNCSIS-UEFISCU by the contract no. 1858 „MANAGEMENT CONTROL IN THE
SUSTAINABLE DEVELOPMENT OF THE HUMAN RESSOURCES”
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99
THE IMPLICATIONS OF THE FDI FLOWS ON THE ECONOMICAL GROWTH IN THE

CENTRAL AND EASTERN EUROPE COUNTRIES
Lecturer PhD. Mariana LUPAN

“Stefan cel Mare University” of Suceava, Romania
marianal@seap.usv.ro
Abstract:
In contemporary economy foreign direct investment (FDI) have become significant component of global
economic circuit because they have seen higher growth rates compared to world trade and the last two decades of XX
century and the beginning of XXI was a source to climb in developing countries. Increasing global flows of foreign
direct investment and international production reflected a significant economic performance for many countries of the
world and was partly driven by increasing corporate profits around the world and the high prices of shares that have
increased the value of mergers and acquisitions.
Key words: foreign direct investment, international production, multinational corporations, economic
performance
JEL Calssification: F02, F23, R21
INTRODUCTION
The capital, with all its forms, is probably the economical resource with the biggest amount
of mobility in the economical context of the new millennium. The capital fluxes are today common
presences also on the international circuits and also on the national tracks, inter-sector and intra-
sector. Not only the volume of the capital fluxes and the speed of their movement are in a
permanent ascendancy, but also the easiness which these are transformed (direct investments,
portfolio investments, banking and un-banking credits, loans), according to the characteristics of the
host-country environment and to the interest and profile of the holder.
According to the fact that in the contemporary economy the direct foreign investments have
became a significant component of the global economical circuit, and in the last two decades of the
XX century have represented a source in continuous ascension for the developing countries, in the
forth chapter I’ve analyzed the evolution of the FDI fluxes on the global level between 1990 and
2005. From this perspective, in the World Rapport of Investments, elaborated by UNCTAD in
2002, is accentuated the fact that the direct foreign investments constitutes the biggest component
of the capital fluxes to the developing countries, recording oscillations less than the portfolio
investments and commercial-banking loans. To relieve the importance of FDI in the global
contemporary economy, I’ve analyzed the global fluxes of direct foreign investments from the
perspective of the volume, of the influence factors, of the economical development, according to the
geographical distribution and sector distribution, and also in the relation with the internationality
modalities and with their component elements.
It is known that the flows of foreign direct investment attracted by a country or region is
influenced by local conditions and situation of economic, social and international policy.Thus, FDI
flows received worldwide have registered an ascendant trend in the period 1998-2000, but was
fallowed by a significant reduction in the period 2001-2003 based on the slowing pace of economic
growth worldwide, the trend was changed since 2004, when it recorded anew trend of increasing
international investment flows. In 2008 shows an inflexible point and this decrease in the volume of
FDI flows is a consequence of the current economic and global financial crises.
100
2000
1833
1500 1388 1411 1449

1087
1000 958
818
691 679 711
558
500
0
1998 2000 2002 2004 2006 2008*
Investments value
* preliminary data
Figure no. 1 – Annual FDI flows received worldwide in the period 1998-2008 ($ billion)
Source: World Investments Report, UNCTAD, 2001 -2008
Comparative analyses of global trends show that the developed countries, developing
countries and economies in Central and Eastern Europe have seen a different dynamic depending on
the economic situation and domestic politics and the share held in total world. Thus, developed
countries which hold the largest share in total flows of foreign capital have seen an evolution
similar to that of the world while the states of Central and Eastern Europe (CEE) have followed a
trend different from that.
Year 2000 was an important moment of development , as flows of foreign direct investment
reached a record level, registering an increase of 18%, increase was almost entirely absorbed by
developed countries, respectively Triad USA - Japan - EU had 80% share of total foreign direct
investment received (Table no. 1). Therefore, international production was heavily concentrated in
the triad, while flows received by CEE were maintained at the level recorded in the previous period.
Table no. 1 – FDI flows received worldwide in 2000 ($ billion)

Year 2000
Total off 1.388 100%
Developed countries 1.108 80%
Developing countries 252 18%
Central and Eastern Europe 28 2%
Source: World Investments Report, UNCTAD, 2002
In the period 2001-2003 FDI flows recorded a significant decrease as a result of decreased
growth recorded in 2001, but due the terrorist attacks in America. Thus, flows of foreign direct
investment received in 2001 fell significantly which was intensified competitive pressures, stressing
the need to seek out locations were costs were lower. We appreciate that this is the main cause that
has generated an increase in the relative size of FDI flows received by economies of Central and
Eastern Europe countries to 2% in 2000 to 5% in 2003, although in developing countries which has
been increased from 18% in 2000 to 31% in 2003.
At the end of 2002, flows of foreign direct investment followed the same downward trend
started in 2001 reaching $ 679 billion. This year, China recorded a record level of capital flows
received ($ 53 billion), becoming the largest recipient of FDI. As regards the countries of Central
and Eastern Europe they recorded an absolute growth of $ 4 billion to offset divergent evolution in
the sense that there were higher flows in 10 countries, mainly in the case of the nominees
101
integration into EU, while the other 9 countries, including Bulgaria, have received lower flows of
foreign direct investment. In Romania, the level of FDI attracted a slight increase (with 0,6%) over
the previous year.
Entries of foreign direct investment fell further in 2003, for the third consecutive year
reaching the lowest level recorded since 1998.The most drastic decrease in inputs of capital
registered in the US (53%) which totaled only $ 30 billion, being the lowest in the last 12 years.
Compared with developing countries that have recorded a rising trend of FDI flows attracted with
9% (from $ 158$ billion to $ 172 billion), the CEE countries have experienced a decline in their
from 31 billion to $ 21 billion (with 7%), which led to a reduction in total global share from 5% to 3
% (Table no. 2).
Table no. 2 –FDI flows received worldwide during 2001-2003 ($ billion)

Years 2001 2002 2003
Total off 818 100% 679 100% 558 100%
Developed countries 571 69% 490 72% 365 66%
Developing countries 220 27% 158 23% 172 31%
Central and Eastern Europe 27 4% 31 5% 21 3%
Following the analyses of investment flows towards Central and Eastern Europe in 2003,
notes the most part of the inputs of foreign capital registered in the candidate countries to EU
integration. Thus, the most significant flows were reported in Poland, which has posted the highest
volume of entries of foreign capital ($ 4.6 billion) followed by Hungary and Romania ($ 2.2 billion)
and Czech Republic and Bulgaria have recorded entries worth $ 2.1 billion.
Since 2004 is an amendment of the favorable trend of FDI flows received, resulted in
increased to $ 711 billion. After three years of decline recorded a slight return of FDI flows
received worldwide, particular in developed countries. the main receiver is the U. S. state, followed
by Britain and China, and this increase is made in particular on enhancing the mergers and
acquisitions operations.
Must point out that 2004 brought a change in integration of national economies
classification on categories in statistical development achieved by UNCTAD. Thus, European
countries that acceded to the EU in 2004 are included in the developed economies, while European
countries were not members of European Union appear in the category of developing economies
along with most countries in Asia, America and South Africa. As a result was defined a new region,
namely South East Europe (SEE) and Community of Independent States (CIS).
New polarization of the world economies was reflected on the flows of foreign capitals.
Thus, the main share in total FDI flows received worldwide (55.7%) was held by developed
economies, represented by 35 countries (EU -25, USA, Japan, Canada, Switzerland, Gibraltar,
Iceland, Norway, Israel, Australia an New Zeeland), while the majority states of the world, placed
in a group of economies in developing, recording only 38.68 % of total global FDI flows.
Although, FDI flows received by South Eastern Europe and CIS has been a trend upward,
only three villages received FDI flows higher than in 2003. Thus, foreign direct investment was
concentrated in five states that have totaled 81% from foreign capital inflows: Azerbaijan, Bulgaria,
Kazakhstan, Romania and Russian Federation. As regards the countries of South –Eastern Europe
which drew 1.87% of global FDI flows as the main receiver is remarkable Romania ($ 6517
million) and Bulgaria ($ 3443 million) candidate states for EU integration at that time.
102
Table no. 3 – FDI flow received during 2004-2006 ($ billion)

Year 2004 2005 2006
Region mld.$ % mld.$ % mld.$ %
Total off: 711 100 916 100 1.411 100
Developed countries: 396 55,7 542 59,17 941 66,69
Developing countries: 275 38,68 334 36,47 413 29,27
South and Eastern Europe and CSI 39,6 5,57% 39,7 4,34 57,17 13,84
Year 2005 is characterized by continuing upward trends of FDI flows received worldwide ($
958 billion, compared with $ 711 billion in 2004) which brings a favorable change to the developed
economies, whose shared in total input flows of foreign capital increased by about by 4 % (Table
no. 3).
Evolution flows of foreign direct investment in 2006 was influenced by events that took
place on the political and economic plan on intern and international level, but also the confidence of
foreign partners in the development strategy of Romania. Improving the business environment, the
effects of introduction of flat tax, have helped to attract a large volume of foreign investment.
Is notes that the reorientation of transnational companies activities in the countries of
Central and Eastern Europe aimed, primarily, the nominees states to integration which has
generated for the period 2001-2003 a significant increase in the input of foreign capital in the
integrated states in 2004. The same upward trend was noted, during that period and in Romania and
Bulgaria which were the main receivers of foreign direct investment in CEE.
Therefore, joining the European Union was an essential incentive for foreign investors
interested in gaining a better position on regional market, generating an increased attraction of the
countries of CEE candidate to integration, compared to other countries in the region.
The highest rates of FDI flows is achieved in 2007, with over $ 1833 billion (Table no. 4)
year in which EU is extends by joining Romania and Bulgaria on January 1.Emphasize that this
year our country is in UNCTAD analysis as developed country , with a volume of entries of FDI
flows worth $ 9.2 billion and for 2008 to $ 10.6 billion.
Table no. 4- FDI flow received in 2007 and 2005 ($ billion)

Year 2007 2008*
Region mld.$ % mld.$ %
Total of : 1.833 100 1.449 100
Developed countries 1.248 68,08 840 57,97
Developing countries, of: 499,7 27,26 518 35,75
South and Eastern Europe and CSI : 85,9 17,19 91,3 17,62
* preliminary data
103
The volume of foreign direct investment attracted by a national economy is measured in

terms of two major indicators, namely: the index of performance and potential index. The
performance index shows the comparison between FDI inputs in each country, calculated as a share
of total world economic power of each country’s share that it holds in world GDP. It is preferable
that the value of this indicator should be as close to 1, which shows that the countries performance
in attracting FDI is better in the sense that attracts FDI over their economic power, occupying such
a high position in the world hierarchy.
The potential index measures the potential of each country to attract FDI. Like the previous
index, potential index take the values 0 and 1. According to UNCTAD methodology this index is
determined by taking into account certain economic, political and social variables, such as the :the
stock of input FDI as a percentage of the total world, GDP at purchasing power parity per capita,
growth rate of real GDP, the level of total exports as a percentage of GDP, exports of natural
resources as a percentage of the total exports, exports of services as a percentage of the total world,
import of parts and accessories from electronic and auto industry as a percentage of total
worldwide, energy consumption per capita, researching and developing costs as a percentage of
GDP, the number of main telephone lines per 1000 inhabitants, the number of students in higher
education as a percentage of total population, country risk.
It is desirable that the index of potential to be as close to 1, which shows that the country’s
potential is larger, occupying a better place in the global hierarchy. According to the data from
UNCTAD, between the Central and Eastern Europe Countries are significant gaps both in terms of
performance and potential for attracting FDI.
Table no. 5 – The performance index of FDI for the countries of Central and
Eastern Europe (global position)
Performance index
Country
1995 2000 2002 2003 2004 2005 2006 2007
Bulgaria 96 30 23 14 9 7 3 2
Czech 31 17 13 19 29 31 34 41
Estonia 15 19 22 13 15 6 9 8
Poland 45 49 59 76 61 56 51 60
Romania 82 65 76 60 31 25 21 32
Slovakia 64 43 8 12 21 30 28 49
Slovenia 86 114 60 53 57 95 98 94
Hungary 3 26 28 39 43 52 48 50
Source: World Investments Report, UNCTAD, 2000,2006, 2008
From the analysis of performance index is observed that the changes in the performance of
states and the gap between them are significant. Regarding the evolution of performance index is an
apparent reversal of the situation. Thus, in the year 1995 Hungary, Estonia and the Czech Republic
attracts a large volume of FDI, While Romania, Bulgaria and Slovenia receive the share of foreign
capital under the power of GDP world. In 2005, Estonia ranks first place at the regional level, while
Bulgaria and Romania occupying two sets in the hierarchy of CEE states analyzed attracting FDI
over their economic power, while Hungary and Czech Republic recording foreign direct investment
appropriately the weighting that hold in world GDP. Slovenia is notable, in that throughout the
104
period analyzed, attracted foreign investment under its economic power. A similar event is recorded
in Poland.
Table no. 6 – The performance index of FDI for the countries of Central and
Eastern Europe (global position)
Potential index
Country
1995 2000 2002 2003 2004 2005 2006
Bulgaria 39 66 62 63 64 60 59
Czech 38 38 38 38 39 39 39
Estonia 67 37 34 34 34 35 34
Poland 56 41 43 42 43 44 43
Romania 83 96 79 78 78 74 69
Slovakia 47 47 45 47 47 54 53
Slovenia 42 29 27 28 29 33 33
hungary 54 42 36 37 37 89 89
Source: World Investmentrs Report, UNCTAD, 2000, 2006, 2008
I’ve started from the premise that drawing foreign capital under the direct foreign
investments shape is a specific activity, well defined on the international level, initiated and
perfected in the developed countries, that aren’t only the main global investors, but also the mains
receivers of the direct foreign investments fluxes. In these conditions, the success in drawing direct
foreign investments supposes the alignment to the international practices in the domain, considering
the participation in competition conditions to the global offer of investment projects.
The strategically objectives to draw the foreign direct investments aims for building an real
external credibility of our countries as potential investment market, and also the promotion of the
Romania as potential foreign investor, in the context of the competition with countries with
developing economy from Central and East Europe. In these conditions, the politics for drawing
foreign direct investments must be actively sustained, generating investments, and the business
initiative must start nut only by offering opportunities of internal investments but also by supporting
and keeping a stabile and profit generator business climate
CONCLUSIONS
In conclusion, this analysis highlights and completes the observations on the attractive states
of the CEE for foreign investors. Thus, the most attractive countries were the Czech Republic,
Estonia and Slovenia which had great potential and have attracted the most part of foreign direct
investment over their economic power. Latest positions were occupied by Romania and Bulgaria,
countries that were characterized by a low potential and appropriate attractiveness of their economic
power.
Should be note that our country had made an improvement on the potential of attracting FDI
flows, so that from 2000 to 2007, climbing 27 positions compared with Bulgaria which only goes
up 7 positions. This situation is explained if we consider the positive developments of the
economic, institutional and legal climate, registered in Romania in the European Union pre-
accession.
105
If we analyse the evolution of FDI presented in accordance with theories on the types of
foreign direct investments, we appreciate that foreign investors in CEE have watched especially:
 potential market capitalization as a result of foreign investors preference for trade
activities ;
 abundand and cheap labor, investors are attracted by industrial activities that do not
require highly skilled labor ;
 Exploitation of natural resources in countries that have such resources.
Following the evolution process of globalization in recent decades have been recorded
significant changes in the global economy and the most eloquent change consists of increasing the
share of services to the detriment of other sectors. This change is due, mostly unprecendented
progress in technology, particularly in communications technology, with the main source
transnational corporation (CTN). CTN exported this trend throughout the global economy, so in the
countries of Central and Eastern Europe through foreign direct investment made in this region.
REFERENCES:
1. Lupan Mariana - Evoluţia globalizării şi impactul acesteia asupra procesului

investiţional în perioada 1990-2005 în economia românească, Teza de doctorat, ASE
Bucureşti, 2009
2. Prelipcean Gabriela, Lupan Mariana, Analiza fluxului de investiţii străine directe în
România, în perioada 1990-2004 şi implicaţiile asupra creşterii economice, în vol.
Experienţe istorice de integrare europeană, Editura ASE Bucureşti, 2006, pp. 236-244
3. Stiglitz, Joseph, Mecanismele globalizării, Ed. Polirom, Iaşi, 2008
4. Voinea, Liviu, Corporaţiile transnaţionale şi capitalismul global, Ed. Plirom, Iaşi, 2007
5. *** PNUD, Human Development Report 1999. Globalization with a Human Face, New-
York, 1999
6. *** Rapoartele anuale ale Băncii Naţionale a României, 2003,2004,2005,2006, 2007,
2008
7. *** Raportul privind Investiţiile Străine Directe în România, Banca Naţională a
României, 2000-2008
8. *** UNCTAD, World Investment Report, 2000, 2001, 2002 2003, 2005, 2006, 2007,
2008
106
THE MANAGEMENT OF INNOVATION,

A CHANCE TO STRENGTHEN THE ORGANIZATION
PhD. Student Virgil Dan AMZA

virgilamza@yahoo.com
Professor PhD. Constantin BRĂTIANU
cbratianu@yahoo.com
MSc Student Miruna Vladia AMZA
SNSPA, Bucharest, Romania.
wmerilin@yahoo.com
Abstract :
The fifth edition of the "European Innovation Scoreboard (EIS)" memoir has been handed over to the
European Commission for the evaluation activities of innovative performances obtained in member states as well as in
other countries (such as Switzerland, Norway, Turkey, USA, Japan). It seeks to highlight the degree of achievement of
the Lisbon strategy which stipulated transforming Europe in the most advanced economy based on knowledge in order
to assure an economical and job market development. Romania is thus the 32nd of the list in the top of 33 countries
ranked according to the decreasing value of the synthetic indicator of innovation level SH.
Key Words : durable development, evaluation activities, management of innovation, organizational culture,
research & development.
JEL classification: M10
INTRODUCTION
Innovation is the sole process capable of maintaining a company “in business”, which does
not only imply introducing of new and competitive products, but also the implementation of the
most recent technical solutions found in licensed literature. It may bring its full contribution to the
transfiguration of your company into an innovative one, perfectly adapted to the demands of the
ever-changing market.
During 2004-2006, the percentage of Romanian companies that have innovated products
and/or processes, has reached 20%, slightly increasing in comparison to 2002-2004 when the
percentage of innovative businesses amounted to 17%, according to the most recent statistic
research conducted by the National Institute of Statistics. Among these innovative enterprises, 67%
have applied product and process innovations,9% have innovated only products and 24% only
processes. The most important impediments of innovation have been lack of financing as well as to
high innovation costs. For 2004, the total sum invested in innovation by companies amounted to 4.5
billion lei.
Of the businesses which have invested in innovation, 31% mentioned as an impediment to
innovation lack of financing and 30% indicated high innovation costs. Among developing regions ,
the highest percentage of innovative enterprises is found in Bucharest-Ilfov (22% of the total of
companies), whereas the lowest, only 4% is represented by the south-west region of Oltenia.
1.THE LISBON STRATEGY AND THE REVIVAL OF EUROPE
The European Council met on the 23/24 March 2000 in Lisbon to launch a strategic
objective for the European Union in order to reinforce de percentage of job occupation, economical
reform and social cohesion as part of the knowledge-based economy.
Aspects referring to innovation are explicitly discussed in two chapters: “The creation of a
European area of research and innovation ” and “The creation of an environment favorable to
establishing and developing innovative businesses , especially small and medium companies ”.
Among other things, the contents of these chapters promotes the idea of a superior incorporation
107
and coordination of research activities at European level in order to make them more innovative so
that Europe can assuredly offer attractive perspective to high qualified “brains”.
When talking of businesses, their competitiveness and dynamism are directly dependent on
the regulation context that encourages investment, innovation and entrepreneurship, and thus
innovation networks must be stimulated, the interface between companies and economical markets,
between research & development –R&D- and educational institutions, between consulting services
and technological markets (Bratianu and Lefter, 2001).
What We understanding, what we should understand about innovation? Schumpeter (apud
Drucker, 2000) identified five types of innovation:
1. new products
2. new methods of production
3. finding new sources
4. the exploitation of new markets and
5. new methods of organizing businesses
According to the documents introduced by the Communication of the European
Commission COM 688/1995, innovation is defined by:
- the revival and enlargement of the offer of products, services and associated markets;
- the establishment of new methods of production, purveyance and distribution;
- introducing changes of management , work efficiency , work conditions and personnel
training.
Research has highlighted that bigger companies invest more in innovation than smaller
businesses. Thus, of all the big enterprises, 42% are innovative. As for medium enterprises, the
percentage of companies that have invested in the innovation of products and processes is 25% and
in the case of small enterprises, only 16%. The results of the National Institute of Statistics were
obtained based on the data collected in June 2006 , on a cross-section of 11542 enterprises of over
10 employees. The results are guaranteed by a precision of ±5%. The National Institute of Statistics
has also announced that next year a new survey will be carried for the 2004-2006 period and its
results published in 2007.
2. INNOVATION AND COMPETITIVENESS
The analysis of the degree of performance in innovation is based on a relatively big amount
of factors, categorized in five groups (pointers), as follows:
2.1. Determinant factors for innovation, measuring structural conditions and the innovative
potential. This category comprises:
- the number of science and technological faculties graduates, aged 20 to 29 correlated to a
thousand inhabitants;
- the percentage of highly educated inhabitants aged 25 to 64
- the number of broadbands (BB) correlated to a hundred inhabitants
- the percentage of inhabitants aged 25-64 participating actively to the process of continuous
education
- the percentage of population aged 20-24 having graduated secondary education (possessing
secondary studies)
2.2. The establishment of informational elements, measuring investments in activities of

research& development. The elements of this category are:
- the percentage of the gross domestic product (GDP) used for the public financing of
research& development activities (R&D)
- the percentage of the GDP representing the contribution of the business sector to the
financing of research& development activities
108
- the percentage of the financing of medium and high technological R&D associated to
production costs
- the number of enterprises receiving public funds for innovation
- the degree of financing by the business sector of universities’ R&D costs
2.3. Innovation and entrepreneurship, measuring the efforts of innovation at company-level.This

category comprises:
- the percentage of small and medium enterprises developing their own innovating activities
the percentage of small and medium enterprises collaborating;
- the percentage of innovation costs out of the total turn-over;
- the percentage of GDP used for acquisitions of calculation and communication technology;
- the percentage of small and medium enterprises suffering non-technical metamorphosis
2.4. Implementation, evaluating the level of innovation correlated to lucrative activities,

workforce and of the value they add to the innovative sectors. The factors of this category
are:
- the percentage of employees working in the “high-tech” fields of activity;
- the amount of exported “high-tech” products;
- the percentage represented by the value of new products sold on the market associated to
the total turn-over;
- the percentage of new products for companies but which do not represent a novelty on the
market;
- the percentage of workers involved in the manufacture of medium and high-tech products.
2.5. Intellectual property, measuring results obtained during a “know-how” successful process.
This category comprises a series of factors correlated to a million inhabitants:
- the number of patents registered by the EPO(“European Patent Office”);
- the number of patents registered by the NIST(National Institute of Standards and
Technology);
- the number of “triadic” patent families (registered in Europe, the USA and Japan);
- the number of registered trademarks and the number of symbols
3. INNOVATIVE EUROPE AND ROMANIA
Without further detailing the 12 steps methodology used to calculate a Summary Innovation
Index (SII) and the result analysis, we will undertake some of the Report’s conclusions.
According to their SII, European countries can be classified into for categories:
1. highly developed countries (Switzerland, Finland, Sweden, Denmark and
Germany);
2. medium performing countries (France, Luxembourg, Ireland, Great Britain,
Holland, Belgium, Austria, Norway, Italy );
3. countries regaining ground (Slovenia, Hungary, Portugal, Czech Republic,
Lithuania, Leetonia, Cyprus and Malta);
4. countries loosing ground (Estonia, Spain, Bulgaria, Poland, Slovakia, Romania
and Turkey).
The gap between countries belonging to different categories is consistent. For example, it is
estimated that Hungary needs another 20 years in order to reach the European average
- There is also an important inequality according to the SII between Europe ,USA and Japan.
Analyzing the dynamics of the SII, one notices that the gap related to the USA is relatively
stable and is mostly caused by lower values of the pointers 1 and 3. The negative
discrepancy related to Japan is increasing and is caused by differences of the pointers 1 and
5.
109
- Romania occupies the 32nd place in the top of 33 countries ranked according to the
decreasing value of their SII. Nevertheless, even though the values of the pointers estimated
for 2005 were among the lowest, their rhythm of annual boost is proximate to the European
average, leaving hope for a potential redressing.
4. INNOVATION AND INCREASE OF COMPANIES PERFORMANCES
Innovation is the only process that can maintain "in business" a company and it does not
only mean to embed into manufacturing new and competitive products. By putting into effect new
technical solutions found in patent literature can utterly contribute on transforming your company
into an innovative one, perfectly adapted to market requirements that are always in a state of flux:
- The management of innovation consists of a complex combination of politics, practices and
procedures which organize and evaluate a company’s efforts of innovation and directly
depends on the promoting of an organizational culture encouraging brainstorming and
creativity. All the same, innovative management is synonymous to the ingeneration and
administration of internal innovative resources.
- The aspects facilitating innovation are usually of organizational nature and the most
important innovative competences are intern factors. Innovative competences are present on
all hierarchical levels, common to employees specialized in various domains. Nonetheless,
the capacity of innovation of an enterprise does not reside in the existence of individual
innovative competence but in their correlation and common use. Moreover, the coefficient
of innovation of a company depends on the coordination of the innovative competences
available inside the organization ,yet strategically making the most of opportunities offered
outside the company.
- Even though most of the innovation projects do not fulfill initial expectations concerning
high profits, an efficient management of innovation will always facilitate projects leading to
development and a clear outclassing of the competition. Of course, there are several success
factors which must be taken into consideration, the most important being a strategic
approach to the effort of innovation on the organizational level. This implies the
acknowledging of the necessity of developing an adequate environment and authentic
practices of innovation inside any company.
CONCLUSIONS
Finally, one can draw some conclusions:

- The increase of public financing for research and development activities is an important and
necessary measure, yet not sufficient , failure being guaranteed by low investments in R&D
in the context of globalization, harsh competition and informational (knowledge-based)
economy.
- The value of the synthetic SII (Summary Innovation Index) is essential, yet its dynamics
bears the same importance. Moreover, one must notice that, as well as any other
(internationally) recognized pointer, its numerical value depends on the calculation formulas
used. Thus, we believe that the analysis of individual factors may lead to more
relevant/useful conclusions, and, most important, to more efficient actions.
- Romania must adopt a more active attitude regarding the reconsideration of the function and
importance of innovation in its individualization as a viable partner in the European Union.
110
REFERENCES
1. Bratianu, C and Lefter I.(2001). Academic strategic management. Bucuresti: RAO

Publishing House.
2. Brezeanu, P. and Novac L.(2007). Quality techniques of estimating the impact risk has on
organizations . In: Management and Marketing Review. Bucuresti. Nr.1, p.148
3. Colibasanu, O.A. (2008). Between Intelligence and Espionage in the Contemporary
Business Environment. In: Ekonomika a Management. Praha. nr. 4, pp.12-24.- ISSN 1802-
8470.
4. Drucker, P.(2000). Innovation and entrepreneurship. Bucuresti: Teora Publishing House.
5. Gerber, M.(2004). Manager’s Myth. Bucuresti: Amaltea Publishing House.
6. Kotler, Ph.(2003). Kotler On Marketing: how to create, how to win and how to dominate
markets. Bucuresti: Curier Marketing Publishing House.
7. Puia, R. (2007). Human resources strategies – resourcing strategy. In: Analele Universităţii
din Oradea, Tom XVI, Volumul I, ISSN – 1582 – 5450
8. Tripon , A. (2002). Innovation Management: synthesis and applications. Targu-Mures:
Universitatea Petru Maior Publishing House.
9. ***Institutul National de Statisitica. (2007). Bucuresti: Anuarul Statisitic al Romaniei.
111
THE INFLUENCES FINANCIAL MANAGEMENT IN DEVELOPING THE FUTURE

FIRM`S BUSINESS
Lecturer PhD. Student Valeria Arina BĂLĂCEANU

Ecological Univeristy of Bucharest, Faculty of Economics, Romania
arina.balaceanu@gmail.com
Abstract:
The role of the financial management is to create a system of managerial reports in order to efficiently develop
the business.
In the economy of the future, the intelligent company will put an end to the principle according to which a
higher profit incurrs a higher risk, as the efficient management will reduce the risk to a great extent, by influencing the
conditional environmental factors.
Entrepreneurs and managers consider the financial management very important as it is strongly connected
with the business controllable development and maximizing the profit. Economic analysis and financial diagnosis
identify the “areas” in which the firm wins or loses money.
A modern entrepreneur must be acquainted with the news of his area, must be up to date with the specialized
knowledge, and must be able to reflect these in the decision-making process, considering the modern evolutions. He
also has to be very clear and precise in denominating the principles and operational alternatives, he has to corroborate
the set objectives and the paths for achievement, he must respect the opinions and individuality of the human resources
he cooperates with, and to consider the positive elements coming from them.
The managers of the future firms will be relatively young but will have a solid background of operational and
business experience and will benefit from a highly logistic support from training in specialized institutions in the
country and abroad. Their concern for competence will be highly interleaved with their activities which will lead to
remarkable performances.
Key words: management, financial management, future firms, business, performance
JEL Classification: L21, M21, O16 , P34
INTRODUCTION
While eliminating the old organizational structures and remodelling them, one must
consider the opinions of the great historian Nicolae Iorga in this matter, according to which «never
overturn if you can not replace/never tear down if you can not rebuild /never promise if you can not
accomplish».
The financial managers profession is interconnected with the consultance activity in the
financial management, accounting, control, audit, structural organization and efficient use of human
resources areas.
The managerial behaviour is closely connected to all the skills and the success personality of
the manager, as it represents their practical configuration and it is formed by self-teaching and by
acquiring basic principles of the culture in this field.
Given his cultural component and his qualities, the financial manager may be considered a
real artist that gives advice and offers valid alternatives in order to overcome the economic and
financial obstacles of the future, in the XXI century.
Here are the major directions of a manager’s successful behaviour (Chart no. 1):
a. The manager’s attitude towards the managing authority, namely:
- The safety one must show while managing. This feature, which is essential for the manager’s
behaviour, is difficult to acquire and it brings together some defining features, among which
there are:
 Calmness, that is having a moderate attitude (the so-called Olympic calm), which means
avoiding any tensions or stress, both when analyzing facts and when offering solutions and
ways of solving some disputed issues;
 The objective evaluation of the firm activity and of its development possibilities;
 Professional competence, which is the core of managing efficiency and which leads to
performance;
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 Self-improvement and right time management allow a better interaction with the group
members and improve the collaboration (internal and external) with the business partners;
 Coordination, which means that the manager establishes a logical development of the firm;
the appropriate sizing of all stages and the inter-collaboration between parts and
components; involving the responsible factors for achieving the strategic and tactic
objectives of the firm under qualitative conditions.
- The manager’s position is also shown throughout the faith in knowing reality and deciding
accordingly, as it follows:
 Being oriented towards knowing, analyzing and researching data and facts, with no
subjective approach (emotional reporting, opinions with no real grounds, gossip etc); thus
the manager can objectively investigate the quality of financial-economic phenomena and
processes;
 Under these circumstances, the manager will be able to: investigate new aspects of the
phenomena and processes interfering with the firm development; serious research in order to
find the best solutions for the functioning of the firm.
- A permanent search for economic and social progress, which is an important element of
successful management; it is accompanied by:
 Creativity and a perseverant promotion of new ethnic, economic and social elements;
 A competent manager must have high quality results due to high productivity, efficiency
and remarkable performances.
b. A successful manager must collaborate both ways, as it follows:

- Internal collaboration, by drawing managing collaborators; it can be achieved by:
 An appropriate delegation of responsibilities to collaborators who can act on their own
responsibility and who can find solutions for those issues they are specialized in. By
delegating tasks and competences, the manager will be able to focus on more important
issues in the firm’s activity;
 A close collaboration with certain collaborators during board meetings and solving together
the most important issues;
 The managers’ collaborators must take decisions and control the way they are achieved
throughout their own contribution, according to their talent, specialization and skills.
- External collaboration – by choosing collaborators and activities that are to be outsourced: when
outsourcing, the manager can start collaborating with people in related fields, services and
maintenance.
c. The attitude towards third parties is an important feature of a successful manager’s

behaviour; it means:
- Respecting the employees, which can be done in several ways, and which consists in:
 Having a permanent dialogue with the employees, encouraging them to express their own
opinions and conclusions, including the negative ones, which must be analyzed calmly and
considering all possible implications;
 Being polite and affable with the employees;
 Carefully selecting the new employees and training them to be professionals, demanding
and responsible towards the firm’s activity;
 Clarifying arguments, early identifying their causes, and making arrangements to avoid
them;
 Being interested in maintaining a state of equilibrium, that is not to allow the existence of
“small groups” with a hostile attitude towards the others, trying to guide all the employees
towards a the same goal, even if it means choosing the best option among all the opinions
expressed. Therefore it is important to promote educational ways to form a steady
organizational culture, based on being attached to the firm and identifying the staff’s hopes
to the firm’s development requests.
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- Creating and keeping the relationship with the firm’s financial, banking, insurance and other
field partners, which means:
 Affability, mutual respect, being interested in the partners’ interests and suggestions,
understanding them;
 Communicating intensely in order to transmit information as fast as possible and to find out
about the main economical and social changes in the field and in economy on the whole;
 An efficient partnership also means beginning lucrative business for all the parties, as well
as practising coordinated and harmonized policies which can contribute to offering a good
position on the market and an increase of the business figure;
 According to the Western model, business relations must be in agreement with close
relations after the working hours; private business relationships; closer family relationships
are also very important.
- The attitude towards third parties can also be seen from the authorities’ opinion about the
manager’s activity, as it follows:
 A positive attitude towards the manager’s activity, which is characterised by completely
observing the laws, which the managers knows and executes according to the instructions
provided by the authorities;
 Carrying out with promptitude the financial, banking, administrative and environment
obligations increases the manager’s credibility in the Business environment and the firm
gets superior reliability;
 A very important element to be considered when appreciating the manager’s activity is his
organizational and financial contribution to the right management of the local issues and the
support given to the mayoralty;
 A lucrative management means carrying out in due time and in accordance with the laws all
the obligations deriving from international agreements and conventions, thus internationally
increasing the appreciation of the firm and its rating.
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CHOOSING THE OPTIMUM ALTERNATIVES TO DEVELOP THE FINANCIAL

MANAGEMENT
In order to choose the optimum alternatives for the development of the financial
management, we present in the table no. 1 below the following elements:
A) The development areas:
a. economic: new input resources; renewable and non-renewable resources ; evolved
organizational and operational structure; strategical grounding and designing a full-scale plan;
b. technical: performant equipmen; modernizing the production; know-how; competitive costs
and productivity;
c. social: motivating waging level; learning incentives; social and cultural facilities (canteen,
club); labor protection; medical treatment; the guarantee of retirement; work benefits;
professional satisfaction;
d. ecologic: anti-pollution measures; compliance with the standards specific for the area; the
manufacture of ecological industrial or agricultural products;
B) The means used in the future development of the financial management that include:
a. research-quality domain: designing a model for the future, using caution and creative
imagination; market research and the adequate adjustment of the company on the market; new
trends in the company’s activity; cooperation with the research institutes and elite universities
in the country and abroad; total quality management;
b. communication domain: electronic clerk that uses the Internet, Mobile-banking, e-Business;
leadership, the ability to influence the personnel; open communication environment;
C) Revealing the goals in the company’s evolution, meaning:

a. to ensure a high living standard, efficient healthcare; solving adjacent problems (domestic
services, baby care, elderly people care); the good preservation of the environment;
b. company’s expectations as to the employees’ moral behaviour: cultural and educational level;
commitment and dedication; readiness to sacrifice oneself; passion for work; close
relationships with collaborators; honesty; correctness; ethical behaviour;
c. individual freedoms: taking part in decision-making, time dedicated to ordinary and connex
activities (leisure, entertainment); work teams mobility; prospect visits in the country and
abroad; trips for the entire family.
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Table no. 1 - TRENDS IN THE FUTURE DEVELOPMENT OF THE

FINANCIAL MANAGEMENT
CHANGES IN THE FINANCIAL-ACCOUNTING FUNCTION, MODERN

DIRECTIONS
- elaborating the firm’s strategy and global policy, which means having important profits and
efficiently using the funds;
- elaborating a modern financial policy, which means selecting capital and credit sources;
- determining the liquidities, solvency and reliability of the firm;
- elaborating income and expense budgets, which means maximizing incomes, turnover, and
rationing the expenses;
- thorough book-keeping and management;
- elaborating and approving balance sheets so as to reflect the real status of the firm’s assets;
- (thorough) financial and management control, which means expenses of the firm.
L L – legalty: there must be laws that allow (authorize) that specific

expense;
O – oportunity;
EX. O
E – efficiency, which is given by comparative analysis; organizing an
auction; taking the best decision; luarea deciziei celei mai
E bune.
In order to develop the business, financial management must collaborate with other
departments in the firm and use their input:
- From the informational system and accounting department, data regarding the accounting
value, gross income, net profit, production costs and the business market evaluation. This
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information must be neutral, transparent, easy to check and predictable. It must be in

accordance with the reality and within a short term from the moment of occurrence;
- From the marketing department, data about the market, client target systems, sales
development, competition in order to draw a marketing plan to promote new products and
services on the market; the marketing department undertakes the major responsibility to
identify and predict the important environment changes; its methods are well organized to
acquire data about the surrounding environment. The marketing staff spends a lot of time in
the real environment with the clients and the competition. By systematic analysis, the
marketing agents can review and adopt marketing strategies in order to face the new
challenges and opportunities on the market;
- From the human resource, provisioning – sales and investment departments, data about the
modern technology needed, cheaper provisioning sources with materials and energy, as well
as the quality of the employees and ways of training them inside and outside the country
borders;
- From the programming, planning and prevision department, elements and analysis about
the development of economic and financial factors that influence the business figure; at the
same time, informing about threats and risks that may occur;
- The control and audit compartments can have a positive influence on the ways of promoting
and supplementing capital, selecting business considering efficiency and performance.
Profit is the main purpose of a business. Entrepreneurs and managers consider the financial
management very important as it is strongly connected with the business controllable development
and maximizing the profit. Economic analysis and financial diagnosis identify the “areas” in which
the firm wins or loses money. Financial objectives and budgets are drawn in order to improve future
performance.
Financial management means analysing, planning and controlling the financial
performances of the firm.
Regardless of the size and the property form, financial management is mostly responsible
for the financial policy adopted at the micro-economic level, which is to be enforced in order to
achieve the objectives established by the owners and/or the managers of the financial resources.
The role of the financial management is to create a system of managerial reports in order to
efficiently develop the business. This system has two major elements: economic analysis and
budgets. It is highly important to implement a system of financial management, represented by all
the internal reports adapted to the managing team’s requests.
CONCLUSIONS
Managers perform prospective analyses from which there result the influences of
globalization over the considerable increase of business, in general, and especially over trade, an
accelerated trend of investments’ growth, the expansion of privatization, alongside new
opportunities for the companies on the new markets. In this way, possessing these features, the
managers will have to observe and to adapt the strategy and the company’s tactics to the following
aspects: to the speed of mergers and to protect the company of some slumps and crises on the
internal and international markets; to the expansion of business by an accelerated dynamic; to the
possible growth of market share; to the quality and efficiency in serving the clients; to the cost
cutting; to additional profits for the stockholders; to faster rates of development for the products and
services of the company in accordance with the financial and economic trade performed through the
Internet and its components, internet-banking and mobile internet-banking; to ensure a high rate of
liquidity, including the transaction of securities on the stock exchange; to the low debt rate on a
short term; to adopt measures and paths that reduce the risks about the uncertainty of a business
relations network; to recover invested funds by banking credits substitution, by securities issuance;
to promote highly sophisticated financial innovations; to prognosis and diagnosis analysis of the
financial flows evolution; to develop the research and development activity, in order to cope with
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the more challenging competition; to the control and audit of the activities; to the favorable trend of
stocks on the market and to grant stimulating dividends.
The managers of the future will be relatively young but will have a solid background of
operational and business experience and will benefit from a highly logistic support from training in
specialized institutions in the country and abroad. Their concern for competence will be highly
interleaved with their activities which will lead to remarkable performances.
Among their qualities, knowledge and abilities, the XXI managers must possess a visionary
thinking, in accordance with their company’s adaptation to the environment evolution, an ability to
inspire strength and perseverance to the work team, in achieving the set objectives and in
implementing the designed projects.
In order to promote the business, the manager must have a complex personality, possessing
solid knowledge in various fields: investments, marketing, financial, human resources and
informatics. At the same time, the manager must have innate qualities in order to be able to assess
the changes in the financial and economic environment and to make the right decisions.
REFERENCES:
1. Berea O.A., Grigoruţ C., Bălăceanu V.A., (2008), Evaluarea afacerilor. Managementul
financiar şi realizarea performanţelor, Editura Bren, Bucureşti;
2. Collin A. Carnall, (1990), Managing change in organisations, Editura Prentice Hall
International, Londra;
3. Davies, D., (2000), The art of managing finance, Mc Graw – Hill Book Company, New York;
4. Harringtion M.J., (2001), Management total în firma secolului XXI, Editura Teora, Bucureşti;
5. M. Le Saget, (1999), Managerul intuitiv, Editura Economică, Bucureşti;
6. Tichy M.N., (2000), Liderul – arta de a conduce, Editura Teora, Bucureşti.
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BALANCED SCORECARD AND THE MANAGEMENT INTRUMENTS

COMPLEMENTARITY
Lecturer dr. ing. ec. Sunhilde CUC

University of Oradea, Romania
sunhilde_cuc@yahoo.com
Abstract.
The Balanced Scorecard (BSC) presents the quantitative goals selected from multiple perspectives for
implementing the organizational strategy and vision. This article considers how Total Quality Management, Activity
Based Management (ABM), Customer Value Analysis, EVA and Budgets approaches may complement a balanced
scorecard effort. It briefly outlines how this tools are defined, considers their strengths and weaknesses. The paper
concludes that when other tools used in conjunction with BSC approach, the resulting hybrid tool can be a powerful
basis for encouraging organizational change and performance improvement.
Keywords: strategic management, Balanced Scorecard, performance, Activity Based Management, Total
Quality Management, Economic Value Added
JEL Classification: G39, M21
1. INTRODUCTION
Strategic management has become more and more important to different kinds of
organisations. Development of a management and strategic planning system, including total quality
management, moving towards the management of processes, improving customer intimacy, and
better management of people are among the most topical management issues. Focusing on the
future, and on the enablers, instead of only measuring the consequences of past actions, is essential.
Performance is the final result of all activities. Performance means the efforts extended to
achieve the targets efficiently and effectively.
Efficiency means “doing things right” and effectiveness means “doing the right things”
(Peter F. Drucker, 1981 p. 83.). Efficiency refers to the ability to get things done in the correct
manner. It is the degree to which inputs are used in relation to a given level of outputs. A manager
is regarded efficient when “he achieves results or outputs that measures up to the inputs (i.e.
labour, materials and time) used to achieve them. Managers who are able to minimise the cost of
the resources, are able to attain their goals efficiently” (Stoner, James A.F., 2006, p.13) .
Effectiveness has a different connotation from efficiency. “Effectiveness is concerned with
the effect of work on people, with the appropriateness of goals, with long term results and with
humanistic and idealistic values. It is the ability to choose appropriate objectives. An effective
manager is one who selects the right things to get done. A manager who selects an inappropriate
objective is an inefficient manager. No amount of efficiency can compensate for lack of
effectiveness”(Stoner, James A.F., 2006, p.14) .
2. CONCEPT OF BALANCED SCORECARD
Balanced Scorecard is a new dimension in the field of performance evaluation. The concept
of “Balanced Scorecard” was first introduced in the journal “Harvard Business Review” (January-
February, 1992) by Robert S. Kaplan and David P. Norton . Aim of this model is to give managers
and leaders a comprehensive view of the business and allow them to focus on critical areas, as
customer perspective, financial perspective, internal business perspective and innovation and
learning (Wongrassamee, Gardiner and Simmons, 2003) . The Balanced Scorecard is a simple yet
powerful concept. It has evolved based on the recognition that organizations create value for
shareholders in several ways:
 through synergies and linkages based on corporate strategies- at the corporate level;
 with emphasis on creation of a differentiated value proposition- at the Strategic Business
Unit (SBU) level;
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 by reducing the risk of a shareholder's investment through transparency and governance - at

the board level.
The organization's overall vision and strategy are particularized for the various
organizational structures within each of these dimensions -e.g., accounting for the financial
dimension, marketing and customer support for the customer dimension, logistic for business
processes, and human resources and business development for the learning and growth dimension.
Metrics for calibration performance against the specific strategic goals of the organization's
structures are then devised.
Kaplan and Norton describe the innovation of the balanced scorecard as follows: "The
balanced scorecard retains traditional financial measures. But financial measures tell the story of
past events, an adequate story for industrial age companies for which investments in long-term
capabilities and customer relationships were not critical for success. These financial measures are
inadequate, however, for guiding and evaluating the journey that information age companies must
make to create future value through investment in customers, suppliers, employees, processes,
technology, and innovation."
Customers
To achieve our vision,
how should we appear to
our customers ?
Objctives Measures
Learning & Growth

To achieve our vision,
Financial
To succeed financially,
how will we sustain our
abilitz to improve ? Vision how should we appear to
our shareholders?
and
Objctives Measures Strategie Objctives Measures
Internal Business Process

To satisfy our stakeholders
what business process must we
excell at?
Objctives Measures
Fig.1. Balanced Scorecard adapted from Kaplan and Norton
The concept of Balanced Scorecard is new by its name but not by its origin. It has made
only a development over a number of existing concepts and theories like Activity Based
Management, Management By Objectives, Total Quality Management, Strategic Management,
Behavioural Theory Of Economics, Delegation Of Authority, Decentralization Of Decision-Making
etc.; but what is unique about Balanced Scorecard is that it brought and pooled together the benefits
of such theories and concepts into a single integrated measure of corporate performance covering
all aspects of an organization.
The appropriate performance measurement tool should be:
 Relevant to the strategic goals of the organization and accountable to the individuals
concerned.
 Focus on measurable outputs.
 Verifiable.
One of the strengths of the Balanced Scorecard is the ability to work well in combination
with existing management theories and associated tools. Figure 1 shows the BSC at the centre of a
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strategic management system and five other management tools that can be applied in the pursuit of
strategic goals.
SVA & EVA
CVA&CRM ABM
Balanced
Scorecard
TQM Budgets
Fig.1. Links to Balanced Scorecard

Further we look at how some of these common management tools can link with the
Balanced Scorecard.
3. TOTAL QUALITY MANAGEMENT (TQM)
Total Quality Management, TQM, is a management philosophy that seeks to integrate all
organizational functions (marketing, finance, design, engineering, and production, customer service,
etc.) to focus on meeting customer needs and organizational objectives. It is a method by which
management and employees can become involved in the continuous improvement of the production
of goods and services. The goal of TQM is to deliver the highest value for the customer at the
lowest cost, while achieving sustained profit and economic stability for the company. Top
management must commit to a vision and align and train its employees toward a common mission.
Finally, it is a combination of quality and management tools aimed at increasing business and
reducing losses due to wasteful practices.
The BSC and TQM share a common theme of improving communication in an organization.
Organizations must communicate their mission and goals to their employees and customers.
Communication links employees and customers to achieve the ultimate goal of an organization,
which is to provide “the best product, at the lowest cost, at the right time.”
Other shared goals of the BSC and TQM are the reduction of costs and improvement of
services of an organization. The BSC and TQM base decisions on quantitative data and not opinion,
to improve services and reduce costs. Furthermore, each management tool stresses the importance
of organizations managing the system and not the people. By analyzing the business process,
companies reengineer business processes and improve the overall product quality and services
while reducing costs. Another similarity between the BSC and TQM is top management support;
each is a long-term process. Top management support is vital to ensure that all employees support
the new initiatives. Without it, each of the business measurement/management systems will fail.
People within an organization generally resist change, and it is the job of the chief executive
officer/commander to inform employees and customers of any changes within the organization.
Neither measurement/ management system is a quick fix solution. Although most organizations
may see initial improvements, the true benefits will not be seen for 1 to 5 years. As a result, top
management must encourage employees to support whatever strategy the company adopts.
The major difference between the BSC and TQM is that the BSC places more emphasis on
finance. TQM does not diminish the importance of financial solvency but focuses more on the
system(s) of the organization, the concept of empowering people, and employee involvement.
4. CUSTOMER VALUE ANALYSIS AND CRM
From the outside, customers interacting with a company perceive the business as a single
entity, despite often interacting with a number of employees in different roles and departments. The
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higher level of product or service quality means higher level of customer satisfaction and results in
better customer loyalty and high level of profitability (Ghobadian, A., Speller, S. and Jones, M.,
1993). To transfer the quality to service means to satisfy customers’ requirements. So that the firms
aspiring to adopt the customer oriented approach should determine the customer requirements and
associate the customer requirements with service design and capabilities. (Chow-Chua, C. and
Komaran, R., 2002)
Customer relationship management (CRM) consists of the processes a company uses to
track and organize its contacts with its current and prospective customers.
Several CVA/CRM frameworks have evolved over the years. One illustrative framework
(Ghobadian, A., Speller, S. and Jones, M., 1993) decomposes the customer problem down to three
top-level areas, with further decomposition beneath each of the three:
 Value equity refers to the customers’ perceptions of value;
 Brand equity refers to the customers’ subjective appraisal of the brand;
 Retention equity refers to the firm building relationships with customers and
encouraging repeat-purchasing.
These three areas correspond to three distinct disciplines in the CVA/CRM and marketing
literature (brand management, customer value analysis, and customer loyalty analysis)—each with
its own detailed measurement approaches.
The implications for organizational performance measurement systems are clear: measuring
business activities and outcomes regarding customers is becoming increasingly complex and
increasingly important to the successful execution of a firm’s strategy.
Proponents of the BSC note that the BSC framework includes the customer as one of four
perspectives, while CVA and CRM techniques fail to account for important noncustomer aspects of
a business. That being said, CVA and CRM are often used by BSC practitioners to drive
improvements in the customer perspective of the BSC. In other words, the benefits of CVA and
CRM technologies are increasingly used in a BSC framework evaluation.
5. SHAREHOLDER VALUE & ECONOMIC VALUE ADDED
Value dimensions identified include market, supply chain, customer, enterprise, and product
and service, and therefore the adapted value-based BSC framework contains market, supply chain,
customer, as well as business structure and process as balanced perspectives.
Shareholder value has become an increasingly important demand among investors now
more than ever. In the 1980’s, shareholder activism reached unforeseen levels among companies in
the United States . (Mäkeläinen 1998, p.1)
The theory of Economic Value Added has traditionally suggested that every company’s
primary goal is to maximize the wealth of its shareholders, which should be a given since it is the
shareholders that own the company and any sensible investor expects a good return on his
investment. Economic value added is a fashionable management performance measure pioneered
by Stern Stewart & Company, a management consulting firm. EVA emphasizes the residual wealth
creation in a company after all costs and expenses have been charged including the firm's cost of
capital invested. In its simplest terms, EVA measures how much economic value the company is
creating, taking into account the cost of debt and equity capital. EVA is designed to give managers
better information and motivation to make decisions that will create the greatest shareholder wealth.
Since EVA is a single metric (although it can cascade down and across an enterprise to
evaluate the performance of specific investments) it is complementary to the BSC and can be
included in a BSC framework (for example, as a financial perspective measure). Because it is a
pure financial model, EVA does not serve as a vehicle for articulating a strategy but when coupled
with the BSC, the tradeoffs between short-term productivity improvements and long-term growth
goals can be managed. (Kaplan, Robert, 2001)
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6. ACTIVITY BASED MANAGEMENT (ABM)
Activity-Based Management (ABM) is a discipline that focuses on the management of

activities to maximize the profit from each activity and to improve the value received by the
customer. This discipline includes cost-driver analysis, activity analysis, and performance
measurement. ABM draws on ABC as its major source of information.
The concept of ABC looks at how resource costs like salaries, utilities and rental, are
consumed by work activities, which are components of various processes in an organisation. The
activities and processes are in turn consumed by the output of the organisation. The output includes
products and services provided to the customers.
Using the ABC approach, companies get insights into profitable and profitless activities
based on a customer or a product viewpoint. ABC then is a way of measuring which of the firm’s
activities generate revenues in excess of costs and, as a result, provide keen insight into what is
really providing value for customers. (Meyer, Marshall W. 2002)
A major benefit of ABC is thus higher accuracy in products and services costing, and hence
in profitability computations. Bear in mind that in today's competitive environment, profitability
analysis is not just about looking at the last figure in the Profit & Loss statement. It is more about
knowing which the profitable products are and which the unprofitable ones are. Above all, the ABC
methodology provides critical information for the effective management of the activities and
processes of the organisation.
ABC is used by many organizations that implement the BSC because ABC enables
businesses to more accurately define and measure their metrics. While firms will likely benefit from
ABC, the system is mainly an accounting and cost-based method of viewing and analyzing an
organization and its activities. ABC also lacks the strategic and nonfinancial elements that are
captured in the BSC.
The BSC benefits from the inclusion of ABC performance measures. These include the cost
of activities and activity outputs which are used in the internal business process dimension of the
BSC of the organizations. This activity information covers support services as well as primary
business processes. For companies, ABC profit measures by customer, market segment, market area
and distribution channel are used in the customer dimension of the BSC. Thus, most successful
firms use ABC and BSC to manage costs and gain insight into their internal competitive
advantages.
7. BUDGETS
A “budget” can be described as an action plan to transform strategic goals into action and
lead the company toward achieving its goals. Simply, a budget is a plan that identifies the financial
resources required to achieve programmatic objectives. Once constructed, this plan assists staff and
board in managing the organization both programmatically and financially throughout the year.
Budgeting is done by estimating values for various financial parameters relating to future financial
requirements in all organizational activities. This starts with an estimation of ‘sales’, covers the
“recruitment needs” to accomplish this, zeroing on the “appropriate sources of funds” and
“arranging for the repayments of debts, if any”. Some of the directions in which Balanced
Scorecard can be formed include management perspective, structural perspective, continuous
improvement and learning, and conformance perspective.
Understanding budgeting is a core competency for all leadership teams. The budgeting
process, if applied correctly, can effectively manage a company's operations. But its approaches and
techniques need to be improved in accordance with changes in the company's business environment
or objectives in corporate management.
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8. CONCLUSION
The Balanced Scorecard allows strategy to be clearly communicated and links performance
to desired outcomes. In the increasingly competitive world faced by professional firms it gives
managers a key tool to measure and direct actions, and provides professionals with the information
they need to outline their performance in pursuit of firm-wide objectives. It helps organizations
manage the value creation process at each of these levels. In each situation, the Balanced Scorecard
creates a strategy map that links financial results with the key drivers of the business including
customers, internal processes, and employees.
Successful firms use the most part of the presented tools in combination with the Balanced
Scorecard to drive the achievement of a firm’s strategy and competitive advantage.
REFERENCES
1. Chow-Chua, C. and Komaran, R., (2002), “Managing Service Quality by Combining Voice
of the Service Provider and Voice of Their Customers”, Managing Service Quality, Vol. 12
No. 2, pp.77-86.
2. Drucker, Peter F.,(1981), “Behind Japan's Success”, Harvard Business Review, 59 No. I
(Jan-Feb, 1981)
3. Ghobadian, A., Speller, S. and Jones, M. , (1993), “Service quality : concepts and models”,
International Journal of Quality&Reliability Management, Vol.11, No.9, pp.43-66.
4. Kaplan, R.S. and Norton, D. P. (1992), “The Balanced Scorecard–Measures That Drive
Performance”, Harvard Business Review, Jan. - Feb., pp. 71 - 79.
5. Kaplan, R. (2001), “ Integrating shareholder value and activity-based costing with the
balanced scorecard”, in Balanced Scorecard Report. 15 January.
6. Mäkeläinen, Esa. (1998), “Economic Value Added as a management tool” Helsinki School
of Economics, Finland. February 9, 1998, pp.1-34
7. Meyer, Marshall W. (2002), “Finding performance: The new discipline of management”. In
Business Performance Measurement: Theory and Practice, edited by Andrew Neely.
Cambridge University Press.
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Excellence, Vol. 7 No 1, pp. 14-29
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THE WAY IN WHICH METAPROGRAMS AND METAMODELS INFLUENCE

LEADERS OF ORGANIZATIONS
Ec. PhD. Student Cornel IOSIF

”Al. I. Cuza” University of Iasi, Romania
cornel_iosif@yahoo.com
Abstract
Metaprograms ensure the soft necessary for the operation of „routine programs” within the parameters.
Metaprograms mean essentially the comparison of two stimuli. Metaprograms represent the higher level of mental
processes through which we sort experiences and we react. The metamodel has some linguistic distinctions which help
in identifying the linguistic types which hide the meaning in the communication process of deletion and generalization.
The metalanguage studies the rules of phrases (syntax), and not phrases as such. Metamodels are very powerful
instruments used to gather information, to find alternatives and clarify meanings. They are used in the interior dialogue
and on the other hand internal reality is built from the words used but it can be used as resource. Lacking report, the
metamodel generates metamutilation and metainfatuation.
Key words: Metamodel, metaprogram, process, leader, metalanguage
JEL Classification: M11
1. PREAMBLE
Metaprograms can be defined as „general order structures, content independent, which

determines our manner of approaching experience” (12). Another definition refers to metaprograms
as: “a superior decision program which filters information coming from the subconscious, giving
specific information to the conscious” (13). There are two different types of metaprograms: the first
includes motivational types, while the second includes working types. Motivational types indicate
what releasers of action a certain person needs so that he wouldn’t lose his motivation. Working
types describe a person’s mental processes, in a particular situation (Charvet, 2006).
Metaprograms ensure the soft necessary for the operation of „routine programs” within the
parameters (Knight, 2003). The metamessage may be defined as everything we do making an
impression to the other people. For example: we sleep on the same side, smoke using the same
hand, wash our teeth starting from the same part of the mouth, etc. This information is sorted with
the help of two filters: option filters and procedure filters. (Knight, 2003) Metaprograms mean
essentially the comparison of two stimuli. An old one, already existent with a new one, from the
environment. We accept the new stimulus if we had a pleasant experience towards the old one and
we reject it if we had an unpleasant experience towards the old stimulus. This helps us in selecting
the information and in enlarging our perspective over the world and our own person. (14). The main
metaprograms are the following: closeness-farness, options-procedures, details-entirety, internal-
external (16).
Various methods of information processing are called metaprograms in the NLP, as they are
programs which start other programs at brain level. The simplest metaprogram is the sensory
preference – auditory, visual, kinesthetic (Bandler, 1975).
The second part comprises the review of the main basic concepts of metaprograms.
The third part contains the concepts and methodological specifications of metaprograms.
The fourth part presents the influence of metaprograms upon leaders in company
management.
The fifth part comprises the conclusions of leaders using metaprograms in management..
Could the leaders’ metaprograms have an influence upon the company behavior?
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2. CONCEPTS USED IN METAPROGRAMS
Metaprograms use the following concepts: metaprogram, closeness-farness, options-

procedures, details-entirety, and internal-external.
Metamodels use the following concepts: deletion, unspecified verbs, unspecified referential
indexes, comparisons, nominalizations, search in past experiences, modal operators, nominalization,
presuppositions, cause – effect, universal quantifiers, the importance of sensors experience,
complex equivalence, mind-reading, lost performatives
Operational levels of the metamodel:

1. Deletion appears when the person misses a stimulus, doesn’t consider it important or isn’t able to
express himself clearly. At NLP level, it is made of: deletion, unspecified referential index,
unspecified verbs, nominalizations, comparisons.
2. Generalization represents reliving some personal experiences in other contexts than the initial
one. Generalization comprises: universal quantifiers, modal operators, lost performatives.
3. Distortions represent our own manner of seeing and interpreting the world through the sensory
system we have, and it also appears when we communicate and interact. The following are part of
distortions: nominalization, complex equivalence, cause – effect, mind-reading, presuppositions,
and lost performatives.
3. CONCEPTS AND METHODOLOGICAL INDICATIONS OF METAPROGRAMS

AND METAMODELS
The motivational type represents that structure necessary to a person in order to stay
motivated in a context and which helps that person not to lose it; other elements are necessary:
attention, availability, and practice. Any motivational type can be learned by applying various
questions specific to each one. Once these types are internalized, the questions come by themselves,
their distinctions being very easy.
The metamodel closeness – farness combines on the one hand the solutions for future but
anticipated problems, and on the other hand it has in view the optimization of the solutions for an
organization.
The metamodel options – procedures shows the way in which objectives can be reached. It
is creative, each time different, strictly keeping to either the regulation or procedures.
The metaprogram details – entirety represents the way in which a leader sees the elements
which make the whole. Either he sees the whole and doesn’t see the parts, or he sees only the parts
and doesn’t see the whole. The ideal situation is that in which the filter is in the middle, but more
inclined to the details and more to the entirety.
The metaprogram „resemblance, resemblance with one exception, difference” represents the
relation between the processes and results in the NLP point of view. Therefore, the metaprogram
resemblance shows how one can become a very good professional but never a leader, as it refers to
using always what you have already done before, without innovating anything. The metaprogram
resemblance with an exception means trying to do something new once in a while, and it can be
used as a training formula for the metaprogram difference. This one means that the leader is never
doing the same thing twice. It represents ultimate creativity. It is exactly the opposite of
metaprogram resemblance.
The metaprogram internal – external presents the source of motivation. Therefore, if a leader
has the internal metaprogram, the source for motivation will come each time from inside, but the
disadvantage is that he will appear as a too calculating person, while filtering the entire information
through the personal filter may take a lot of time. Instead, a person with the external metaprogram
has his motivational source in the exterior. Usually, the information is no longer filtered but only
executed. This metaprogram is very good for the employees. Thereby, the best leader should be
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more inclined towards an internal metaprogram than an external one, but the proportions shouldn’t
be unbalanced.
The metaprogram closeness – farness presents the motivation of reaching an objective, and
what should one do to avoid a problem, a crisis.
Deletion represents the elimination of that information considered to be redundant or which
cannot pass the VAK sensory filter.
Comparisons such as „the best”, „worse” represents, according to Bandler, another way of
deleting information.
Unspecified referential indexes, words such as „who”, „what”, „these”, „people” which
delete other words, but also replace them maintaining the same meaning of the clause or sentence.
Nominalizations ensure the transformation of an action, usually a verb in a noun. For
example, „I feel youth running through my veins” can turn into „Youth runs through the
youngster’s veins” [3, p.96].
The search in past experiences – generally, words play the role of references. In this case, it
goes to finding the last reference and accessing it, so that it becomes an anchor.
Unspecified verbs are generally sensory verbs, which when becoming aware of a process,
they also activate the sensory impulses, that is the sensory acuity.
Modal operators are of possibility and of necessity. They indicate "the mode" in which a
person "operates" the mode of necessity, of possibility, of wish, obligation, etc. The predicates
”can”, „cannot”, ”possibly”, ”impossibly”, ”should”, ”would”, etc. are used to motivate us.
Presuppositions are used in a process when there aren’t enough elements, and the decision is
taken based on intuition.
Cause-effect – all our interpersonal relations are governed by this connection. From another
point of view, the relation can be seen as a presupposition because you presuppose that something
causes something else. (Bandler,1993).
Universal quantifiers “always”, “everything”, as a way of generalization, helps at deleting
the information.
The importance of sensory experience – eye orientation, tonality, mimicry, gestures, may
provide enough information in order to take a decision or in case of a less communicative person.
Complex equivalence – refers to finding the „breach word” and its reintroduction in another
sentence, without changing its meaning. „Having a high market share means increased sales” may
be changed into „Did you make an attempt to increase your sales using new marketing methods?”
The person alone must discover what are those experiences which lead to a change in the initial
state or, in other words, what experiences help in collecting pieces of information.
The structure of a complex equivalence

I.S. = E.B.
Interior state/meaning = Exterior behavior
Nominalization = something referred to, which can be seen, heard, felt
We encode on our mind display the exterior event or the event referred to, usually presented
as an action or a set of actions. By contrast, the map of significance which we build is
usually a static image, a semantic interpretation, hence the static code involved in
nominalization – selfish, trust, love.
The structure of cause-effect statement

S → A (answer to stimulus)
This event object → Causes this event
We usually create on our mind display a map of an object or event (noun or nominalization)
as producing, causing or leading to another object or event.
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Chart taken from Dr. Hall Michaell L. – The neuro–linguistic programming, Editura Curtea veche,
Bucureşti, 2007, p.148
Mind reading is a model correlating with the presuppositions. „I know what you are
thinking of”, „You don’t have to be upset” means that you can read the other person’s mind. „You
don’t have to be upset”, „They really hate me” lack the presupposition that the person is upset or
hated by somebody. „Speaking in a low voice helps me relax” is a cause-effect relationship but
there is also the presupposition that it may have the same effect on the other person as it has on me.
Lost performatives are things such as „mad”, „bad”, and “resistant”. Is there is an
assessment of a lost performative, and the person who made it left and the criteria taken into
consideration are at present unknown, then the performances can be „recovered” by the use of such
questions as „Who is mad, bad or resistant?”. Other such questions to recover the data
are:”Resistant compared to what/whom?”.
4. THE INFLUENCE OF METAPROGRAMS AND METAMODELS OF LEADERS

IN COMPANY MANAGEMENT
„Firstly, the significance of our communication represents the effect it produces. Everything
that happens to us, every reaction we obtain is the result of our actions and the way we act.
Secondly, every person has a unique perception over the world. We can even say that there is no
reality, just perception. This aspect doesn’t make a person’s perception to be correct and another
one’s not, but simply to be different” (Knight, 2003). In order to have an efficient communication in
an organization, the leader must succeed in using the significant elements in speech, the reaction in
behavior, so that his result would be a position and to reflect in the same manner on the employees.
„The environment is a part of the metamessage and it often represents the first harbor for making
new business connections.” (Knight, 2003). No answer could be found to the question if
metaprograms are inborn or acquired. But they can transform. Two elements influence their change:
the context where the person lies and the time when the change must take place. The environment
represents the „vehicle” used to carry the codes in the messages. The environment may
„impoverish”, or „enrich” a message, depending on the information used previously to load it.
Metaprograms represent „the higher level of mental processes through which we sort
experiences and we react” (Szekely, 2003). A leader who is unable to sort experiences and to react
to them is a weak leader, but a very good executor. The role of metaprograms is to interconnect the
person with the internal and external environment. Three axes interconnect in metaprograms: „the
first axis is represented by the logical levels – identity, beliefs, skills, and the second axis –
behavior and environment, while the third axis – our own person, the others” (Dilts, 2007). When a
leader succeeds in combining these three axes: logical levels, behavior and his own person, it means
that on the one side he succeeds in coping with the requirements from the internal environment, to
meet them well and in time, and on the other hand he can successfully comply with the external
pressure, stress sources and he can react very well, so much for him as for an organization.
On the other hand, the role of metaprograms is to filter the information coming up daily
from the environment and assailing the person. They „sort” the information received according to
the stimuli, keeping the most important ones and sending them to the brain to be processed. A
dominant stimulus can help a piece of information pass the filter barriers of the metaprograms and
reach the brain to be processed. For example, a prisoner who escaped from jail and reached a town
will see around him only policemen, although they were there before. But metaprograms are
programmed to follow a certain type of information in the environment while the others are
ignored. Their number should be improved, as metaprograms ensure the operation of routine
programs.
In the technical literature of the 70’s, they varied from 20 to 70. Today, it is considered that
14 metaprograms represents an optimum number. (14).
“Our behavior, the manner in which we dress, affects on one side the others and on the other
side it sends messages about what is important to us” (Knight, 2003). „It is important the manner in
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which we communicate, verbally or non-verbally, as well as the way in which we turn to advantage
our skills in order to reach a certain result” (Knight, 2003). In order to communicate efficiently, a
leader must succeed in transmitting first of all non-verbal messages. Based on Albert Mahrebian’s
study, 93% of what we communicate is non-verbal that is 55% non-verbal language and 38%
tonality, while only 7% is represented by words of the total message sent. (17). Indeed, it is really
difficult to consciously decode the non-verbal language, but sending it at a conscious level is done
quite easy.
The metaprogram „closeness - farness”
A leader using the metaprogram „I turn to ...” almost always tries to delete the dangers, the
traps. The motivation of such a leader is done by anticipating possible dangers but having at hand
the backup solutions to such problems, also in case of managing priorities. This leader’s weak point
is that they don’t always admit the problems which should be avoided. The other category of
metaprograms which might be used is „closeness to result”, „closeness to winning”. Their
motivation appears when it exists or it is foreshadowed an obstacle or a problem.
Such leaders’ weak point is the poor management of priorities, being attracted a lot by
details, by things which don’t work and they don’t always have a general point of view. Unlike the
first model, these leaders don’t take dangers seriously, being more preoccupied by finding
opportunities and solutions. A leader must be in the middle, but more towards farness. Adopted
ideas (Charvet, 2006).
The metaprogram „options – procedures”
A leader with the metaprogram options will have „trials”, „probabilities”, „alternatives”. A
leader who currently uses „alternatives”, „options”, „possibilities” means that he uses the
metaprogram options. Creativity is their strong point. This also manifests through breaking the
regulations, the rules and procedures. The leaders’ weak point is that even though they start a plan
or a new idea they don’t finish it. The non-verbal language may help in the identification of the type
of filter used in the metaprograms. Therefore, if a leader gesticulates fully, openly, in many
directions, it means that he uses the filter options. A leader using in his current speech „a well
established plan”, „from this point to that point”, „procedures”, „just so” it means that he uses the
filter procedures. Such a leader having the metaprogram procedures, after knowing the „procedure”
he will be able to use it in need, will finish what he has begun. Instead, their weak point is exactly
the procedures – they feel lost without them, they cannot work otherwise (Charvet, 2006). The non-
verbal language may help in identifying the type of filter used in metaprograms. If the gesticulation
is calm, steady, rare, it mean that in the metaprograms he uses the filter procedures. In order to be
an optimum leader, the balance must be more towards the optional, as he is more flexible in thought
more courageous, capable of risking, tries new ways, than the procedural who is always more
calculated, will always do very well the same thing, but sometimes in order to get out of a crises
situation some ingenuity is needed, and the filter options provides this. (14).
The metaprogram details - entirety

For the metaprogram details, the leader will observe all the details in his surroundings. For
example: „two accounts”, „three workers”, „six windows”. The information is filtered and
processed in small packages, as detailed as possible (Charvet, 2006). In other words, the person sees
the trees, but he doesn’t see the forest. The weak point of such a leader is that he doesn’t succeed
easily in establishing priorities. As for the metaprogram entirety, the person will „see” the image as
a whole. For example, he will say „this accounting program is very easy to use”.
The notion of metamodel was taken from Noam Chomsky. He defined them as being those
filters of „deletion, distortion, generalization”, but these are limited in amplitude/scope. In other
words, when receiving information from the environment, a person deletes certain elements he finds
inconvenient, in excess, which don’t pass over a certain intensity level. Then the information is
distorted by the receiver as it was determined that the subject attaches his own emotional state
received from the environment which then he generalizes and attributes the value of truth. But at
this point, the information resulted doesn’t always have much to do with the initial information. For
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this reason there often appear many deficiencies in interpreting the information. Some
classifications find 12 such deletions, distortions, generalizations, other 10. We can put the best
question in any situation, so that we become more and more efficient (14).
The metaprogram „ resemblance, resemblance with one exception, difference”
The leader with the metamodel resemblance is doing the same things and has the same
results as before. He can be an executor, a very good professional, but not a very good leader. These
persons usually observe the resemblance and some exceptions. (Dilts, 2007) The leader with the
metamodel difference is doing something else every time, is trying something new all the time. He
never repeats the same thing. The persons with this metamodel usually observe the differences and
some exceptions. (Dilts, 2007) The leader with the metaprogram resemblance with an exception is
generally an even-minded person, with a combination of the characteristics of both metaprograms
resemblance and difference, but with more accents on resemblance than on difference. This
represents a reasonable compromise for an optimum leader.
The metaprogram „internal – external”

The leader with the internal filter is motivated from the inside. When a subordinate has the
metaprogram internal, and he receives an order from his superior he will act according to his own
experience. The techniques used to convince a person with en internal filter „I wonder what is your
opinion about…”, „I am curious of what you say about..”, „You probably know already that you
have to write the report..”. These linguistic attenuators allow you to be heard by a person having a
very strong internal filter.” (14) Generally, the persons with such metaprograms gather information
from the external environment, filters them using their own tools, but the decision belong to them
entirely, nobody from the exterior must interfere in the decision-taking (Charvet, 2006).
„The leaders with an external filter have their motivational source in the exterior; they get
motivated by doing something. When receiving an order from his superior, the person with an
exterior filter executes the order immediately. Such a person is persuaded by being polite with
him”(14). The feedback represents for these leaders the reason to go on. Therefore, they confirm to
themselves that what they did was good. The weak point of the leaders with such a metaprogram is
that they will never succeed in starting a new activity without an exterior feedback (Charvet, 2006).
The metaprogram „closeness - farness”

The leaders with the metamodel „closeness” succeed in focusing easily on the objectives to
be accomplished. The source of the motivation is represented by: to reach, to accomplish, to win.
The persons with such a metaprogram have as their strong point the optimum usage of priorities.
Their weak point is the poor identification of possible problems which might appear during a
project.
The leaders with the metamodel „farness” focus mainly on the obstacles which should be
avoided. Their motivational source is represented by the obstacles which must be avoided. The
strong point of the leaders having this metaprogram is the successful crises management, while their
weak point is the adverse treatment of priorities, almost all the time being preoccupied with crises
solving.
The metamodel has some linguistic distinctions which help in identifying the linguistic
types which hide the meaning in the communication process of deletion and generalization (15).
The metalanguage studies the rules of phrases (syntax), and not phrases as such. On the other side,
any person is capable of using his/her own cognitive abilities in order to realize if a group of words
forms a clause or not and which is its meaning. One of the aims of language is of transformation
and modeling, these being accessible to every native speaker (Bandler, 1975). „The metamodel has
as its premise the idea that words (surface structure) get meaning only when they anchor to a person
an internal sensory representation or an experience (deep structure)” (Dilts, 2007)
Operations specific to metamodels are the following: deletion, comparisons, unspecified
referential indexes, nominalizations, search in past experiences, unspecified verbs, modal operators,
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presuppositions, cause-effect, universal quantifiers, the importance of sensory experience, complex

equivalence, mind reading, lost performatives (Bandler, 1993).
Deletion – we delete information at any moment. The idea is not to delete important
information and how to do that. Certain models such as „I’m confused”, „I’m upset”, „I’m happy”
provide the recovery of the information previously deleted. Words such as „happy”, „upset”,
„confused”, „scared”, are predicates. In a clause such as „John ordered wine, while Mary a
Martini.” In certain cases, certain information can be deleted.
Comparisons – „The best...”, „The worst..”, „Better than..”, „Worse than..”, „Compared
to..”, „many comparisons are a way of deleting.”, according to Bandler (Bandler, 1993). For
example „This is important.” „How important is it exactly? And especially for whom?”.
Unspecified referential indexes – words such as „who”, „what”, „them”, „this”, „people” are
words that can delete information referring to people or objects (Bandler, 1993). For example „I
tried to sell in the area you indicated, but I simply can’t do it”, „How come you can’t do it?”.
Nominalizations – The transformation of the action in a noun as static entity or object. The
tension built in the room" is like saying, "The carpenter built in the room (Bandler, 1993)."
Search in past experiences – for example „I had a meeting...” means searching in the
previous experience until finding a reference of that word, in this case „meeting”. The search is
done until finding the „meeting” which was attended to. This word has also the role of anchor
(Bandler, 1993).
Unspecified verbs – „believe”, „know”, „feel”, „touch”, generally verbs of sensation are
considered to be unspecified verbs. These verbs have the characteristic of making you think of a
certain process and also to become aware of your senses (Bandler, 1993). For example: „I think I
made a good impression.”, „How do you think you made a good impression ?”.
Modal operators –, „must”, „mustn’t”, „necessary”, „unnecessary”. Modal operators can be
of possibility and of necessity. The modal operators of possibility „I can do this operation, but it
will take a while.”, „I can’t send this....”. They can be „I can”, „I can’t”, „possible”, „impossible”.
The modal operators of necessity „should”, „shouldn’t”, „must”, „have to”. For example: „What
would happen if you did that operation? (Bandler, 1993)”. For example „I could have made an
effort”, „And what would have happened if you hadn’t done it?”
Presuppositions – are used when one guesses that something will happen. The
presupposition will only make reference to a presupposed moment of the action. „Next week when
we shall meet you will tell me how much you have changed? (Bandler, 1993)”. For example: “.
Their team also succeeded in reaching their sales plan.”, “That means that you too have reached
your sales plan?”.
Cause-effect – follows the relation „She makes me feel bad...”. All our interpersonal
relations are governed by this connection. From another point of view, the relation can be seen as a
presupposition because you presuppose that something causes something else (Bandler, 1993). For
example: „These excuses are annoying!”, „Why exactly are this excuses annoying?”
Universal quantifiers – „everything”, „each”, „never”, „always”. Universal quantifiers are a
way of deleting information because these terms help at generalizations, and at including some
terms in other categories, usually less (Bandler, 1993).
The importance of sensory acuity – eye orientation, tonality, mimicry, gestures may give
enough information in order to take a decision or in case of a less communicative person (Bandler,
1993).
Complex equivalence – means finding the „breach word” and its reintroduction in another
sentence, without changing its meaning. „Having a high market share means having big sales” can
be changed in „Did you try to change your sales plan using new marketing methods?” The person
alone must discover what are the experiences which lead to changing the initial state or in other
words, what experiences help in collecting information. In other cases, the need for challenges is
felt, depending on the perception on the self and also on the interventions the person wants to make
(Bandler, 1993). „My secretary resigned. I will be bankrupt until the end of the year.”, „Do you
mean that your business success depended on your secretary’s status as employee?”
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Unlike the metaprogram which is singularized according to each person’s peculiarity, the
metamodel succeeds to a certain extent to generalize certain questions, doubt, problems. For
example, a leader may think that the last presentations were not really a success or that the
employees’ expectations in what concerns the technical demonstrations are really high. For
example, „These presentations never go as they should”. The challenge the leader should answer to
is – „Did a presentation ever go as it should have? How well should a presentation go for me to be
content? What presentation go wrong?”. Another sentence which is worth analyzing is the
following: „They expect me to coordinate the material and all the technical demonstrations”. The
challenge the leader should answer to is the following: „Who expects me to coordinate both
aspects? How can I manage the presentation? How do they know that I will coordinate the material
as well as the demonstrations?” Answering to such questions raises the leaders’ personal trust,
while the management’s visible, tangible results don’t cease to appear (Knight, 2003).
Managing the exterior dialogue – the exterior dialogue influences the people we work with
as we influence ourselves through the internal dialogue. Questions follow us until we find the
answer or until we question the people aimed. People relate with us and interact based on the state
we mainly induce them. Personal limitations in what concerns the achievement of objectives may
be accomplished by using modal operators of possibility and necessity, such as: „I can”, „I want”,
„I must”, „I should”.
5. CONCLUSIONS
Metaprograms are fundamental instruments used by a leader to ensure success and stability
of the organization. Any incompatibility between the leader’s metaprograms and those of the
members of the organization may lead to serious functional disorders, in human resources as well as
in reaching the objectives set. Therefore, there are certain „incompatibilities” between various
metaprograms, which are to be avoided for better results at organization level. The following chart
is relevant:
Leader Organization Recommendation

Closeness-farness Closeness-farness To be avoided
Options-procedures Options-procedures To be avoided
Details-entirety Details-entirety To be avoided
Internal - external Internal - external To be avoided
Closeness-farness Options-procedures To be used
Options-procedures Closeness-farness To be used
Closeness-farness Details-entirety To be avoided
Details-entirety Closeness-farness To be avoided
Closeness-farness Internal - external Neutral
Internal - external Closeness-farness Neutral
„Metaprograms are „things” that people do, and not things that just „exist”. They are a form
of generalization and usually have a specific context. Metaprograms may change in time by using
various NLP techniques. Metaprograms are useful in certain contexts, therefore having different
results, and they cannot be listed as being just „ good” or just „bad” (Charvet, 2006).
Metamodels are very powerful instruments used to gather information, to find alternatives
and clarify meanings. They are used in the interior dialogue and on the other hand internal reality is
built from the words used but it can be used as resource. Lacking report, the metamodel generates
metamutilation and metainfatuation. Unconsciously, we delete information when we speak because
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we assume a context divided between all speakers and in that context we share presuppositions and
knowledge with the others (O’Connor, 2001).
Grinder and Bandler, the founders of NLP, took from Noam Chomsky the theory on
metaprograms and adapted it, keeping though his theory on “deletion, distortion, generalization”. In
other words, using our own sensory apparatus, we delete certain information, or those which don’t
pass over a certain level we disconsider, then we distort them, because the information we receive
are interpreted by us through our already existing knowledge or we transpose on the information
our own personal experience. Firstly, we generalize what we obtained at the second level, in this
situation the same information seen by two or more people may have two completely different
meanings. This shouldn’t happen, or at least not very often, inside organizations.
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limited, Carmarthen, Wales, 1999
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7. Dilts, Robert – Bazele programării neuro lingvistice, Editura Excalibur, Bucureşti, 2007
8. [8] Dilts, Robert - Schimbarea sistemului de crezuri prin programare neuro lingvistică,
Editura Excalibur, Bucureşti, 2007 p226
9. [9] Knight, Sue – Tehnicile programării neuro lingvistice, Editura Curtea veche, Bucureşti
2003
10. Szekely, Andy - Calea succesului, Editura Amaltea, București, 2003
11. O’Connor, Joseph, - The NLP workbook, Harper Collins Publishers, London, 2001
Resurse web:
12. http://carti.itarea.org/
http://carti.itarea.org/carti/Arta%20Manipularii/Programarea%20Neuro-Lingvistica%20-
%20Arta%20de%20a%20deveni...%20simpatic.txt
13. http://www.nlpedia.ro http://www.nlpedia.ro/index.php/Metaprogram
14. www.managementsipsihologie.ro
15. http://ro.wikipedia.org
16. http://www.nlpedia.ro/index.php/Metaprogram
17. http://en.wikipedia.org/wiki/Albert_Mehrabian
133
CURRENT TRENDS IN HRM

Assistant Otilia ALBU
otilia@seap.usv.ro
Assistant PhD. Student Lucia MOROŞAN-DĂNILĂ
luciad@seap.usv.ro
Abstract:
The goal of this article is to establish the importance of human resource management (HRM) and how it
emerged, to provide some evidence of its context, to discuss its potential and future development. Many specialists
underlined the fact that human resource requires more attention and careful management then any other resource of
an organization.
The role of the HR manager must parallel the needs of the changing organization. Successful organizations are
becoming more adaptable, resilient, quick to change directions, and customer-centered. Within this environment, the
HR professional must learn how to manage effectively through planning, organizing, leading and controlling the
human resource and be knowledgeable of emerging trends in training and employee development.
Keywords: management, human resource, personnel administration, talent management, skills, knowledge,
international HRM, HRM trends, policies, motivation, relation, HR manager
JEL classification: M12
INTRODUCTION
Human resource management is a process of bringing people and organizations together so

that the goals of each other are met. The role of HR manager is shifting from that of a protector and
screener to the role of a planner and change agent. Personnel directors are the new corporate
“heroes”. The today focus in business is personnel. Nowadays it is not possible to show a good
financial or operating report unless your personnel relations are in order. The major purpose of
HRM is to increase and improve the productive contribution of personnel to the organization in
more ethical, social, and administratively responsible way. This purpose emerged from commonly
called industrial relations, personnel administration, industrial psychology and personal
management. Research shows that its aim is to create a whole organizational culture that binds
workers to the company’s objectives with full professional commitment, integration, and quality
work.
The 21st century brings with it enormous opportunities but also enormous pressure, if the
companies will not improve the productivity of the people and treat them “human being’ which are
the vital objects of all the economic activities leading towards industrial development. Now there is
worldwide consensus on human resource being one of the major means of increasing efficiency,
productivity and prosperity of the firm.
Over the years, highly skilled and knowledge based jobs are increasing while low skilled
jobs are decreasing. This calls for future skill mapping through proper HRM initiatives.
Organizations are also witnessing a change in systems, management cultures and philosophy
due to the global alignment of Indian organizations. There is a need for multi skill development.
Role of HRM is becoming all the more important.
With the increase in competition, locally or globally, organizations must become more
adaptable, resilient, agile, and customer-focused to succeed. And within this change in environment,
the HR professional has to evolve to become a strategic partner, an employee sponsor or advocate,
and a change mentor within the organization. In order to succeed, HR must be a business driven
function with a thorough understanding of the organization’s big picture and be able to influence
key decisions and policies. In general, the focus of today’s HR Manager is on strategic personnel
retention and talents development. HR professionals will be coaches, counselors, mentors, and
succession planners to help motivate organization’s members and their loyalty. The HR manager
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will also promote and fight for values, ethics, beliefs, and spirituality within their organizations,
especially in the management of workplace diversity.
New Trends in international HRM

International HRM places greater emphasis on a number of responsibilities and functions
such as relocation, orientation and translation services to help employees adapt to a new and
different environment outside their own country.
 Selection of employees requires careful evaluation of the personal characteristics of the
candidate and his/her spouse.
 Training and development extends beyond information and orientation training to include
sensitivity training and field experiences that will enable the manager to understand cultural
differences better. Managers need to be protected from career development risks, re-entry problems
and culture shock.
 To balance the pros and cons of home country and host country evaluations, performance
evaluations should combine the two sources of appraisal information.
 Compensation systems should support the overall strategic intent of the organization but
should be customized for local conditions.
 In many European countries - Germany for one, law establishes representation.
Organizations typically negotiate the agreement with the unions at a national level. In Europe it is
more likely for salaried employees and managers to be unionized.
HR Managers should take into account the following aspects to ensure success:
 Use workforce skills and abilities in order to exploit environmental opportunities and
neutralize threats.
 Employ innovative reward plans that recognize employee contributions
 Indulge in continuous quality improvement through TQM and HR contributions like
training, development, counseling, etc
 Utilize people with distinctive capabilities
 Decentralize operations and rely on self-managed teams to deliver goods in difficult
times e.g. Motorola is famous for short product development cycles. It has quickly commercialized
ideas from its research labs.
 Lay off workers in a smooth way explaining facts to unions, workers and other affected
groups
HR Managers today are focusing attention on the followings:

a) Policies- HR policies based on trust, openness, equity and consensus.
b) Motivation- Create conditions in which people are willing to work with zeal, initiative
and enthusiasm; make people feel like winners.
c) Relations- Fair treatment of people for healthy work-place relations.
d) Change agent- Prepare workers to accept technological changes by clarifying doubts.
e) Quality Consciousness- Commitment to quality in all aspects of personnel
administration will ensure success.
Due to the new trends in HR, the HR manager should treat people as resources, reward them
equitably, and integrate their aspirations with corporate goals through suitable HR policies.
OTHER TRENDS AND CHALLENGES FACED BY HRM
- Workplace Diversity
The dimensions of workplace diversity include, but are not limited to: age, ethnicity,
ancestry, gender, physical abilities/qualities, race, sexual orientation, educational background,
geographic location, income, marital status, military experience, religious beliefs, parental status,
and work experience. The challenges of workplace diversity refers to the fact that the future success
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of any organizations relies on the ability to manage a diverse body of talent that can bring
innovative ideas, perspectives and views to their work. The challenge and problems faced of
workplace diversity can be turned into a strategic organizational asset if an organization is able to
capitalize on this melting pot of diverse talents. With the mixture of talents of diverse cultural
backgrounds, genders, ages and lifestyles, an organization can respond to business opportunities
more rapidly and creatively, especially in the global arena (Cox, 1993), which must be one of the
important organisational goals to be attained. More importantly, if the organizational environment
does not support diversity broadly, one risks losing talent to competitors.
This is especially true for multinational companies (MNCs) who have operations on a global
scale and employ people of different countries, ethical and cultural backgrounds. Thus, a HR
manager needs to be mindful and may employ a ‘Think Global, Act Local’ approach in most
circumstances. many local HR managers have to undergo cultural-based Human Resource
Management training to further their abilities to motivate a group of professional that are highly
qualified but culturally diverse. Furthermore, the HR professional must assure the local
professionals that these foreign talents are not a threat to their career advancement (Toh, 1993). In
many ways, the effectiveness of workplace diversity management is dependent on the skilful
balancing act of the HR manager.
One of the main reasons for ineffective workplace diversity management is the
predisposition to pigeonhole employees, placing them in a different silo based on their diversity
profile (Thomas, 1992). In the real world, diversity cannot be easily categorized and those
organizations that respond to human complexity by leveraging the talents of a broad workforce will
be the most effective in growing their businesses and their customer base.
In order to effectively manage workplace diversity, Cox (1993) suggests that a HR Manager
needs to change from an ethnocentric view ("our way is the best way") to a culturally relative
perspective ("let's take the best of a variety of ways"). This shift in philosophy has to be ingrained
in the managerial framework of the HR Manager in his/her planning, organizing, leading and
controlling of organizational resources.
As suggested by Thomas (1992) and Cox (1993), there are several best practices that a HR
manager can adopt in ensuring effective management of workplace diversity in order to attain
organizational goals.
- Talent management
Talent management refers to the process of developing and integrating new workers,
developing and keeping current workers and attracting highly skilled workers to work for your
company. Talent management is a process that emerged in the 1990s and continues to be adopted,
as more companies come to realize that their employees’ talents and skills drive their business
success. These companies develop plans and processes to track and manage their employee talent,
including the following:
 Attracting and recruiting qualified candidates with competitive backgrounds
 Managing and defining competitive salaries
 Training and development opportunities
 Performance management processes
 Retention programs
 Promotion and transitioning
Talent management is also known as HCM (Human Capital Management), HRIS (HR
Information Systems) or HRMS (HR Management Systems), and HR Modules.
Companies that are engaged in talent management (Human Capital Management) are
strategic and deliberate in how they source, attract, select, train, develop, retain, promote, and move
employees through the organization. This term also incorporates how companies drive performance
at the individual level (performance management). The term talent management means different
things to different people. To some it is about the management of high-worth individuals or "the
talented" whilst to others it is about how talent is managed generally - i.e. on the assumption that all
people have talent which should be identified and liberated.
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This term is usually associated with competency-based human resource management

practices. Talent management decisions are often driven by a set of organizational core
competencies as well as position-specific competencies. The competency set may include
knowledge, skills, experience, and personal traits (demonstrated through defined behaviors).
Older competency models might also contain attributes that rarely predict success (e.g.
education, tenure, and diversity factors that are illegal to consider in many countries)
- Organizing Talents Strategically
Many companies are now realizing the advantages of a diverse workplace. As more and more
companies are going global in their market expansions either physically or virtually (for example,
E-commerce-related companies), there is a necessity to employ diverse talents to understand the
various niches of the market. For example, when China was opening up its markets and exporting
their products globally in the late 1980s, the Chinese companies (such as China’s electronic giants
such as Haier) were seeking the marketing expertise of Singaporeans. This is because Singapore’s
marketing talents were able to understand the local China markets relatively well (almost 75% of
Singaporeans are of Chinese descent) and as well as being attuned to the markets in the West due to
Singapore’s open economic policies and English language abilities. (Toh, R, 1993)
With this trend in place, a HR Manager must be able to organize the pool of diverse talents
strategically for the organization. He/She must consider how a diverse workforce can enable the
company to attain new markets and other organizational goals in order to harness the full potential
of workplace diversity.
An organization that sees the existence of a diverse workforce as an organizational asset rather than
a liability would indirectly help the organization to positively take in its stride some of the less
positive aspects of workforce diversity.
- Control and Measure Results
A HR Manager must conduct regular organizational assessments on issues like pay, benefits, work
environment, management and promotional opportunities to assess the progress over the long term.
There is also a need to develop appropriate measuring tools to measure the impact of diversity
initiatives at the organization through organization-wide feedback surveys and other methods.
Without proper control and evaluation, some of these diversity initiatives may just fizzle out,
without resolving any real problems that may surface due to workplace diversity.
- Motivational Approaches
Workplace motivation can be defined as the influence that makes us do things to achieve
organizational goals: this is a result of our individual needs being satisfied (or met) so that we are
motivated to complete organizational tasks effectively. As these needs vary from person to person,
an organization must be able to utilize different motivational tools to encourage their employees to
put in the required effort and increase productivity for the company.
Why do we need motivated employees? The answer is survival (Smith, 1994). In our
changing workplace and competitive market environments, motivated employees and their
contributions are the necessary currency for an organization’s survival and success. Motivational
factors in an organizational context include working environment, job characteristics, appropriate
organizational reward system and so on.
The development of an appropriate organizational reward system is probably one of the
strongest motivational factors. This can influence both job satisfaction and employee motivation.
The reward system affects job satisfaction by making the employee more comfortable and
contented as a result of the rewards received. The reward system influences motivation primarily
through the perceived value of the rewards and their contingency on performance (Hickins, 1998).
To be effective, an organizational reward system should be based on sound understanding of
the motivation of people at work. One of the more popular methods of reward systems is gain-
sharing.
Gain-sharing programs generally refer to incentive plans that involve employees in a
common effort to improve organizational performance, and are based on the concept that the
resulting incremental economic gains are shared among employees and the company. In most cases,
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workers voluntarily participate in management to accept responsibility for major reforms. This type
of pay is based on factors directly under a worker’s control (i.e., productivity or costs). Gains are
measured and distributions are made frequently through a predetermined formula. Because this pay
is only implemented when gains are achieved, gain-sharing plans do not adversely affect company
costs (Paulsen, 1991).
In order for a gain-sharing program that meets the minimum requirements for success to be
in place, Paulsen (1991) and Boyett (1988) have suggested a few pointers in the effective
management of a gain-sharing program. They are as follows:
 A HR manager must ensure that the people who will be participating in the plan are
influencing the performance measured by the gain-sharing formula in a significant way by changes
in their day-to-day behavior. The main idea of the gain sharing is to motivate members to increase
productivity through their behavioral changes and working attitudes. If the increase in the
performance measurement was due to external factors, then it would have defeated the purpose of
having a gain-sharing program.
 An effective manager must ensure that the gain-sharing targets are challenging but
legitimate and attainable. In addition, the targets should be specific and challenging but reasonable
and justifiable given the historical performance, the business strategy and the competitive
environment. If the gain-sharing participants perceive the target as an impossibility and are not
motivated at all, the whole program will be a disaster.
 A manager must provide useful feedback as a guidance to the gain-sharing participants
concerning how they need to change their behavior(s) to realize gain-sharing payouts The feedback
should be frequent, objective and clearly based on the members’ performance in relation to the
gain-sharing target.
 A manager must have an effective mechanism in place to allow gain-sharing participants to
initiate changes in work procedures and methods and/or requesting new or additional resources such
as new technology to improve performance and realize gains. Though a manager must have a tight
control of company’s resources, reasonable and justifiable requests for additional resources and/or
changes in work methods from gain-sharing participants should be considered.
- Executive Information Systems
Executive Information System (EIS) is the most common term used for the unified collections of
computer hardware and software that track the essential data of a business' daily performance and
present it to managers as an aid to their planning and decision-making (Choo, 1991). With an EIS in
place, a company can track inventory, sales, and receivables, compare today's data with historical
patterns. In addition, an EIS will aid in spotting significant variations from "normal" trends almost
as soon as it develops, giving the company the maximum amount of time to make decisions and
implement required changes to put your business back on the right track. This would enable EIS to
be a useful tool in an organization’s strategic planning, as well as day-to-day management (Laudon,
K and Laudon, J, 2003).
- Managing EIS
As information is the basis of decision-making in an organization, there lies a great need for
effective managerial control. A good control system would ensure the communication of the right
information at the right time and relayed to the right people to take prompt actions.
When managing an Executive Information System, a HR manager must first find out exactly what
information decision-makers would like to have available in the field of human resource
management, and then to include it in the EIS. This is because having people simply use an EIS that
lacks critical information is of no value-add to the organization. In addition, the manager must
ensure that the use of information technology has to be brought into alignment with strategic
business goals (Laudon, K and Laudon, J, 2003).
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CONCLUSIONS
We live in the era of not just change, but an accelerated rate of change. As compared to the
past, the twenty-first century corporations are getting to be globally market driven ones with ‘invest
anywhere and share everywhere’ concept.
At a practical level, we must anticipate and prepare for the likely HR challenges in general
that exists, or may be expected in the coming future - the main purpose and theme of this article.
They are consequent to the vastly increased competition for many, and likely in future, due to rapid
development of technology, especially, the impact of IT, and internal necessities, and/or resulting
from above stated causes. With technology up-gradations, much greater use of it and forthcoming e-
commerce etc. new breed of ‘knowledge workers’ in ‘learning organizations’ will make the
differentiation. This intellectual capital will demand much nurturing from the enterprise, in order to
give back in the shape of superior results.
Considerable work will be essential in building a positive organizational climate, within
which improving performance level is not only appreciated and rewarded, but becomes a way of
life. The HR team will be only one of the important pillars, and the other functions will certainly
and equally have to do a lot of upgrading for improving the organizational results. Team work, will
therefore, be a key driver in any organization, that will demand and result in high performance both
at all individual levels and also across functions and teams continuously and consistently.
It goes without saying that the effective management of Industrial relations will continue to
demand a very high priority - not just to ‘do well’, but now for the very survival of both the
organization as well as employee jobs. They will need far greater support and involvement from the
top management and other functions towards maintaining and ensuring the future success of the
21st century organizations.
In short, the early practices of jobs forecasting succession planning has broadened into a
concern with establishing a more explicit linkage between human resource planning and the larger
organization strategy and business planning of the organization. Moreover the idea of selection,
training, performance appraisal and compensation decisions being heavenly-centred on the role of
individual employee, with their details of job description, has guided that effective team working
and participative decisions are playing important roles to achieve the effective performance in
business organization.
In conclusion, still there is a strong contention and race of struggle to take the lead in the
academic and professional field but obviously only time will fill which of these and other possible
rival scenarios will offer more accurate description of the reality in future. The new technological
change, downsizing, right sizing and privatization management can also play role for future
developments/trends and accepts the challenges of the future.
BIBLIOGRAPHY:
1. Torrington, D., Hall, L., Personnel Management, Englewood Cliffs, NJ: Prentice Hall, 1995
2. Armstrong, Michael, A handbook of human resource management practice, Kogan Page, 2001
3. Sparrow, Paul; Brewster, Chris ; Harris, Hilary, Globalizing human resource management,
Routledge, 2004
4. Harrison, Rosemary; Kessels, Joseph, Human resource development in a knowledge economy: an
organisational view, Palgrave Macmillan, 2004
5. Beardwell, Ian; Claydon, Tim, ed.; Holden, Len, ed., Human resource management : a
contemporary approach, Prentice Hall, 2004
6. http://howtomanagehumanresources.blogspot.com
7. http://www.chillibreeze.com
139
THE OUTSET AND DEVELOPMENT OF PUBLIC RELATIONS (PR) IN ROMANIAN

ECONOMY AFTER 1990
Assistant Raluca ZOLTAN

ralucaz@seap.usv.ro
Associate Professor PhD. Romulus VANCEA
Abstract:
Currently, even in Romania the public relations (PR) develops in extremely diverse organizations, have varied
frames of work and implies objectives sometimes hard to conciliate; they are practiced in and for governmental
institutions, also in / for non-governmental organizations, for companies which pursue the profit, but also for civic
associations, for banks, for educational or cultural institutions. The objectives of public relations are different too: from
inducement of the public in favor of an organization to compelling an organization for changing its attitude towards
public, and from sustaining democracy in a society to promotion of a company or celebrity interests.
The present paper is pointing out the reviewing of public relations evolution in Romanian economy after 1990,
emphasizing the stage reached in the last years, as well as the trends in development of Romanian PR. Thus, are
presented the results of different studies regarding the way of perceiving the PR activities by the local organizations,
the understanding degree of their importance for companies development, the preferences for certain types of
communication that are specific to the vast domain of public relations. Based on these data, it is prefigured the
direction of PR Romanian market development, which is mainly represented by the agencies specialized in carrying out
PR activities.
Keywords: PR, PR activities, PRS (PR specialist), PR agencies, PR market, on-line PR
1. INTRODUCTION
The public relations (PR) represent a continuous, systematic and planned effort through
which the organizations try to obtain and maintain the confidence, sympathy, understanding and
support of the public.
Despite the difficulties of rigorous quantification of PR activities results, even in Romanian
business environment the companies need to create their own public communication structures
(services, bureaus, public relations offices, bureaus and press attaché, spokesmen) and to develop a
coherent relationship policy with the diverse public categories represents an imperativeness because
the importance of public relations consist in the fact that they constitute a multiplier of organization
power when they are used properly.
2. PREREQUISITES OF THE PR BEGINNING IN ROMANIA
As a consequence of the results registered during the too world wars, the PR activity records
a considerable raising in post-war period; after a decade, almost all governmental agencies from
West had a public relations structure; at the same time, as a very important matter, the public
relations succeed in being recognized as indispensable for any organization which (come in the (to)
mass-media attention) compel the mass-media attention.
Nevertheless, the public relations were late enough recognized in Europe as an independent
profession. In 1964, France was the first state who made this by establishing a definition for public
relations and press practitioners, which has been published in Journal Officiel de la République
Française (the French „Official Gazette”). (1)
After 1990, the public relations have developed rapidly also in Central and East Europe,
even in some states in which still exist totalitarian regimes because the public relations involve from
140
the organizations the cultivation of some direct contacts, consequently and systematic accomplished
with the different public categories, with influent persons from other local or foreign organizations
management, with mass-media, with public power representatives, with opinion leaders etc., for
the purpose of obtaining the support of all these categories in the organizations effort to preserve
and develop their interests. As a distinctive activity area, public relations are placed among the most
modern instruments of communication policy in contemporaneous society, in the same time
comprising also veritable promotional attributes.
In Romania, after a pioneering first stage, in which some journalists have „migrated” to
public relations, the discipline began to be studied in schools and universities, which provides basic
concepts about the general process of communication and public relations in particular. Meanwhile,
government institutions and business organizations have realized more deeply the public relations
significance for their general activity success. (2)
The multinational companies entrance (and not only) on the Romanian market, companies
that develop businesses in the order of hundreds and even billions of euros annually, is and will be
the ideal prerequisite for developing of a real business in public relations domain. (3) Whereas these
multinational companies have come up with a specific organizational culture, but also sets of
procedures, rules extremely well defined, inclusively for communication activities and public
relations. (4)
If the necessity of a PR department inside the organization or the call to a company
specialized in these type of services have been well understood by the multinationals and very large
Romanian companies, not the same thing can be said about the Romanian companies which are
developing now. This is due rather to the lack of tradition of the Romanian PR, and not to the
quality of services provided by agencies on the market (even in the West boundaries between what
is PR, media relations, communication, marketing and promotion are still quite vague).
However, increasing competition has made domestic entrepreneurs to realize that PR is not
only the relationship with the press, but much more; that’s for they begun to increasingly resort to
the services provided by PR agencies. (5) The existence itself of these agencies is due to the
increasingly demand for professionals and specialized communication services on the part of
multinational companies which operate in Romania. And they need a local adaptation of their
international message, approach that involves the call to Romanian PRS, whether employees in
their PR department, whether they are employed in multinational agencies with branches in
Romania or local PR agencies.
3. THE DEVELOPMENT OF PR ROMANIAN MARKET
The term of „PR agencies” has been applied to firms, individuals, partnerships and
companies that were founded in the early years after the Second World War. At this stage, most of
the services offered to customers consisted in the practical implementation of public relations
tactics. Because only a few practitioners were trained in the journalism field, the consultancy
element has developed based on the knowledge of the mass-media, on how the public may react to
advertising media. (6)
The public relations companies (agencies) have developed in the United States along with
business and American industry. At present, a public relations agency may have from some people
(local agencies) to hundreds of people employed permanently or temporarily, placed in the same
office or expanded in the world (international agencies), working on the same project or several
projects, simultaneously or at different times.
The public relations agency is the institution whose main goal is to create the image, to
make the communication media for a cause, an idea, a country etc., planning and carrying out
concrete the public relations campaign. (7) In business area, this definition is broad, covering a
wide range of services that may be offered by a PR agency, including advice on communication
issues and not only.
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The PR agencies market in Romania occurred with the entrance of multinational companies,
which have brought with them the need to communicate with the public in a professional manner,
especially with the press, and has developed with the economic and companies growth.
If 14 years ago, the PR agencies in Romania included only a few names, there are now over
20 major players who „dispute” the PR budgets of the larger and many companies on the market.
According to a study on the use of image and public relations conducted by the Club of
Public Relations Companies (CPRC), the companies budget for PR in 2006 was approximately 70
000 euros, over 70% of managers from 200 local companies saying that they will allocate more
financial resources to PR in the next periods, which shows a significant increase in interest for such
services. (8)
As stated the CPRC representatives, the study targeted the top companies in terms of
turnover and budget invested in advertising, companies from Fortune or Forbes tops that have
branches in Romania, companies working with a PR agency or which have potential for public
relations.
The study sought to identify general perceptions and attitudes of companies towards the PR
and the role and importance of this type of communication management. Also, the questions
concerned the circumstances of use the public relations as a form of communication - the type of
services used, situations where PR is becoming a necessity, ways of planning, evaluation and
budgeting activities. (9)
Thus, in 62,5% of cases, the top management is the one who decides to hire a PR agency. In
53,3% of cases, marketing departments are the main structures that are conducting the PR activities
within the company, and distinctive public relations departments are found in only 35,7% of
companies. (10)
Over half of those interviewed said that they use public relations both in marketing mix to
promote brands and for corporate communication: 34,6% of companies are using exclusively
corporate communication, and 13,7% use only marketing communication.
Over two thirds of companies interviewed stake on the continuity of public relations
activity, while 31,9% use occasionally PR as a communication tool, when it is necessary.
Moreover, 62,4% of companies consider that the PR activity must be continuously to be effective.
This percentage, which will continue to grow, shows great understanding of the fact that major
market leaders do not stop doing any time what communication suppose to mean, because they look
beyond the moment. (11)
Then, the services of media relations remain the most requested even in our country,
followed by organizing events, internal communication programs, media monitoring, crisis
monitoring and CSR* (Corporate Social Responsibility) programs. As a consequence, companies in
Romania have identified five categories of public relations use:
• creating a favorable image of the company;
• supporting services and products through communication;
• creating the reputation of company;
• involving and motivating the employees;
• crisis management.
The same categories are funded again in an similar order in the types of services required by
companies to PR agencies: the organization of events and media relations dominate the top, with
quite equal values (68,2% and 67,1%), being followed by media monitoring with 62,5%,
consultancy on communication problems – 35,2%, crisis monitoring – 14,8% and CSR activities –
14,8%.
Among the companies which carry on PR activities, one third (32,4%) includes them in the
marketing plan, while 37,4% included in the business strategy of the company, and 18,1% consider
them as a part of integrated communication strategy. Only 12,1% considered the PR as a tactic
activity, as a support for the general strategy of the company. (12)
Regarding the number of PRS, in Romania is currently working about 15 000 experts,
compared with Italy, for example, where 75 000 are registered, but „qualitative differences are
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present at the public administration level, where most officials are recycled, who not have
specialized faculties. (...) On the other hand, where there are specialists, they are not taking into
account by management or are used under the „designed parameters”, usually in relation with the
press and the protocol” considers Borţun Dumitru, former president of the Association of Romanian
Professionals in Public Relations (ARPR).
„The situation is different in the West, where the PR directory is part of active decision-
making process. Another significant difference between the Romanian PR and civilized world”,
says Borţun, „is represented by the areas which were developed: in our country, in many places the
PR is reduced to the events organizing and media relations; abroad, it attaches great importance to
communication campaigns, image campaigns and internal communication. (13)
However, the public relations sector in Romania has real professionals in the field, but their
number is insignificant for the growth level of the market (14), whereas „a public relations person
must know his customers very well, must know which their strengths are and be a good friend in
times of crisis. A PRS is not just a pretty smiling girl, but an informed, professional person,
involved in the business which he represents” said Raluca Anghel, Managing Partner A & M PR
Agency. (15) And these qualities require years of experience, difficult to gain in circumstances in
which, although in Romania there is some PRS with at least 10 years seniority, we can talk about a
real market of public relations and communication not more than 4 - 5 years.
However, currently, the market value of PR in Romania is estimated by industry players
from around 20 million euros (according to data held by the agency „4 ACE”). Annual growth of
around 25-30% registered constantly over the past 5 years make the public relations agencies
attractive both to large groups of international communication, and for new local players. (16)
However, the PR market in Romania is difficult to estimate in the absence of rigorous
specialized studies, especially at regional level. If the estimates are not made based on the invoiced
amount of actual work performed by public relations agency (fee billings), but on the basis of
turnover, the information is irrelevant, since there are agencies to which the fee billings share of the
total turnover is 15-20% and others to which this share may be 60-70%, case which does not allow
a comparison. Thus, the market share of an agency or another is relative. In addition, PR agencies
reported higher turnover compared to low profit margins. This is because they run through the
counts of agency the entire budget of the client, even if most of expenditure is for an event.
On the other hand, the PR budgets can be consumed directly by the companies, without the
support of agencies or can be used the PR services provided by the advertising agencies
departments, which do not report separate amounts for PR.
It should also be noted that in order to quantify the PR Romanian market, can be applied the
principle that 20% make 80%: practically, the 20% of public relations agencies conducted 80% of
the market. (17)
Regarding the comparison with markets in the region, Romania is on one of the first places,
long before Hungary and being get ahead only of the Czech Republic. Explanation is given to the
fact that here have central offices on the region many multinational companies; therefore, the need
for PR is much higher. But the position held proves that Romania has grown with this market at a
pace much faster than they neighbors (18), and the PR seems to found its bench marks and to have
earned its place in the Romanian business environment.
Thus, in 2008, Paul Holmescel, the best known international PR analyst, said during the
SABER awards that „Romania is the most creative and competitive market with such profile in
Europe" (19).
4. THE TRENDS IN PR ACTIVITIES APPROACH
In the past five years, the public relations industry in Romania has an increasingly growth
about 15-20% and will continue to grow at a sustained pace because its main engines of growth are
related to education, and not only to economic conditions. Constantly increase the number of PR
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clients and the companies which began to use this communication tool not waive it, but develops it.
(20)
Thus, communication is no longer seen as an exercise to promote easy, but a serious
investment of time and experience both from the client / company and the PR agency / department.
The briefs** does not include as an objective „the launching of press statements”, but presents the
business situations, vision of development and concrete plans and seek to incorporate the
communication in the transformation processes. (21)
An example in this meaning, along with many others in multinationals case, is the Unilever
passing through a globally repositioning over the past two years. This strategic repositioning
assumed the introduction of the Vitality concept for all its brands, redefining the logo, the mission
and the environment in which the company has understood to express publicly. „It is a great
advantage to have a keyword to help you send a message to all environments. It brings coherence,
consistency and, ultimately, reputation”, is the opinion of Alexandra Olaru, corporate affairs
director of Unilever South Central Europe (USCE). (22)
Evensys conducted a survey which involved questioning of 65 specialists from PR and
advertising agencies and from communications departments of companies. (23) The survey
revealed that the PR image in the business environment has evolved to better last year and that in
the field exist many development opportunities. In view of PR specialists, the biggest trend in 2009
aims the increasing of initiatives in on-line environment, which is followed by diversification of
PR. (24)
Thus, as a result of the survey, a hierarchical organization of the major trends of this year,
according to the percentage that each trend occupies, is:
• the increasing of PR initiatives in the on-line environment (78%);
• the diversification of PR activities beyond its relationship with the press (70%);
• the increasing of number of CSR programs (67%).
Less „fashionable” in 2009 is the increasing of PR freelancer*** segment (34%), the
detachment of several PR departments in independent agencies (25%) and less „trendy" is the
entrance of some new international PR agencies (22%). (25) The small percentage in terms of
entering on the Romanian market of some new international PR agencies can be put on the choice
of multinational firms that operate in Romania either to call for the services offered by international
agencies already on the market or for those offered by the Romanian agencies or to develop their
own PR departments. Both hypotheses sustain the hiring of Romanian PRS because they know
better the Romanian economic reality and the local publics level of understanding of various PR
activities.
Moreover, the category of the most requested services PR this year is comprised of media
relations (72%), on-line PR (61%) and CSR (48%). Regarding the evolution of perception of the PR
in the business environment, 70% of practitioner respondents said that it is better, 28% think that it
not has changed much and only 2% said that it is less good than before. However, at the question
whether the benefits of PR are well understood, 94% of the public relations practitioners who took
part in the poll have a negative answer.
Then, 95% of respondents replied that the main tool used as on-line PR is the e-mail.
Reading blogs is a current activity for 75% of practitioners, while 74% use the on-line monitoring.
Also, 25% helps themselves by group’s discussion, but only 15% use text ads, e.g. Google
AdWords. (26)
In addition, the communication people interviewed about the factors limiting the
development of on-line PR considered in proportion of 63%, that the main barrier is the
misunderstanding of the environment. The next limiting factor is the absence of competences in the
field, response with which agreed 60% of respondents, while 42% said that the on-line environment
is very unpredictable and very difficult to control. The results of this survey are presented in a
partial synthesis in Table no. 1. (27)
As a worldwide trend, „73% of U.S. journalists use blogs as a communication tool. So, PR
does not have opportunities to develop as an industry if it does not use tools such as blogs. At this
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time, even in the U.S. only 30% of specialists use PR blogging ", explained Loredana Visa, PR
manager at Avon Canada. „Today, PR is using language accessible to all, not only to the press, but
also to the public. In 2009 blogs, are called the new press statements”, said Loredana Visa. Thus,
the blogers are looked in 2009 as a different kind of journalists. Their power to influence the public
has been called Social Media, concept which describes a living organism that is very sensitive to the
authenticity of PR messages. (28)
It seems that in the next period, any PR message will be followed by users and verified. If it
will not be authentic, the reaction can be very powerful, because now any citizen may express
opinions on the blog and company image can be easily affected.
Table no.1. The synthesis results of the survey on the factors limiting the PR and the trends in
the field
The factors limiting the development of several PR Major trends
activities in the online environment
Environment misunderstanding 63% The increase of PR initiatives in on-line 78%
environment
There is not many competences in the field 60% The diversification of PR activities beyond the 70%
media relation
On-line environment is very unpredictable and 42% The increase in number of CSR programs 67%
very difficult to control
Too small budgets at disposal 34% The pronouncement of some distinct 47%
specialization on the part of some agencies
There is worry about the data security 34% The finding out of some new canals for PR 45%
activities
There isn’t instruments for measuring the PR 29% The increase of budgets allocated to public 42%
activities in on-line environment relations
The costumers consider that the on-line 29% The consolidation of PR agencies 34%
environment is not adequate for PR
There is no interest toward media covering on the 26% The increase of „ PR freelancer” segment 34%
Internet
The technology is hard to implemented 18%
The detachment of several PR departments in 25%
independent agencies
There is no interest from community toward PR 11% The entrance of some new international PR 22%
agencies
The source: Adapted from www.adevarul.ro – The PR develops on-line.
5. CONCLUSIONS
It can be concluded that the areas of great interest for the present state and future of public
relations in the Romanian economy are:
 the integrated communication (as a new way of communication with a public
increasingly varied and pretentious; involves the use of synergistic opportunities for communication
and a good understanding of all the company's operational activities and coordination within the
team);
 the internal communication (to be effective for a better prevention of potential conflicts
within the company, which has the duty to use those channels and means of communication
recognized and appreciated by its employees, so they retain the loyalty and fidelity to the
company);
 the financial communication (whatever is happening on global financial markets may
affect firms in Romania, whether local or subsidiaries of multinational companies, in a very short
time and with a huge impact);
 the crisis communication (with special emphasis placed on crisis prevention);
 the CSR programs (their role in the communication strategy of any mature and modern
company);
 the relationship between PR and the press (to be effective and productive);
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 the on-line in public relations activity.

Since Romania has passed the stage where the PR mean only press conferences and
statements, and the Internet has become a relevant area to urban communities and this will increase
(29), the conclusion of public relations specialists is that the communication market will increase
due to increasing number of companies and customers who will need specialized communication
services, respectively the complex services which belong to the public relations domain.
Along with the evolution of the companies, internationalization of business and growing
competitiveness will be developed new types of communications activities appropriate to each
category of publics, will diversify audiences and will enhance the PR activities.
ENDNOTES:
* CSR (Corporate Social Responsibility) – is a concept regarding to the contribution that the companies should
have in the development of modern society. In time, this contribution was different theorize by more currents of
thinking. The companies „responsible” initiatives were named in a variety of terms: corporate citizenship, corporate
philantropy, corporate societal marketing, community affairs, community development etc.
(www.responsabilitatesociala.ro)
** Brief – (1) Accurate exposure, written or oral, which lay the foundations of a problem and the objectives to
be achieved. (2) Term often used to describe the speech given by an announcer before his agency. (Şerbănică, D. –
Dicţionarul comunicării integrate de marketing, Ed. ROSETTI EDUCATIONAL, Bucureşti, 2006, p. 31)
*** Freelancer – an independent contractor who provides services to different employers without being tied to
any one of them, through a conventional long term commitment. From the employer point of view, the freelancer is a
flexible source of working that can be called and also can be easily exempt from, depending on its needs. From the
perspective of a freelancer, the main advantages are translated into a greater variety of tasks and a greater freedom to
choose which hours, days or weeks are convenient to him. (www.cariereonline.ro)
BIBLIOGRAPHIC REFERENCES:
(1) Newsom, D.; VanSlyke Turk, J.; Kruckeberg, D. – Totul despre relaţii publice, Ed. POLIROM, Iaşi, 2003,
p.59
(2) David, G. – Relaţii publice - garanţia succesului, Ed. Oscar Print, Bucureşti, 2003, p. 15-16
(3), (14) www.curierulnational.ro – Matache, L. - Specialiştii din PR promovează o piaţă de doar 20 de mil. de
euro
(4), (11) www.markmedia.ro – Sandu, L. - La început a fost marketing-ul
(5), (16), (18) www.standard.ro – PR-ul românesc face 30 milioane de euro
(6) Marconi, J. – Ghid practic de relaţii publice, Ed. POLIROM, Iaşi, 2007, p.22
(7) Şerbănică, D. – Dicţionarul comunicării integrate de marketing, Ed. ROSETTI EDUCATIONAL,
Bucureşti, 2006, p.13
(8), (12), (17) www.praward.ro/resurse-pr.html
(9) www.iaa.ro – Primul studiu asupra imaginii şi utilizării PR-ului în România
(10), (13), (15) www.cariereonline.ro – Cu PR-ul la specialist
(19) www.dailybusiness.ro
(20) www.adevarul.ro – Lipsa profesioniştilor, marea problemă a PR-ului
(21) www.sfin.ro – PR-ul românesc. Ce e în tendinţe pentru 2009?
(22) www.unilever.ro
(23) www.iqads.ro – Public Relations Report prezintă tendinţele locale în relaţii publice din 2008
(24), (27), www.adevarul.ro – PR-ul se dezvoltă pe on-line
(25), (26) www.iaa.ro – A doua ediţie a PR Forum a ajuns la final, dar şi la nişte concluzii
(28) www.standard.ro – În 2009, PR-ul este influenţat de blog-uri
(29) www.euractiv.ro – Cresc iniţiativele de PR în mediul online
BIBLIOGRAPHY:
1. David, G. – Relaţii publice - garanţia succesului, Ed. Oscar Print, Bucureşti, 2003
2. Marconi, J. – Ghid practic de relaţii publice, Ed. POLIROM, Iaşi, 2007
3. Newsom, D.; VanSlyke Turk, J.; Kruckeberg, D. – Totul despre relaţii publice, Ed.
POLIROM, Iaşi, 2003
146
4. Şerbănică, D. – Dicţionarul comunicării integrate de marketing, Ed. ROSETTI

EDUCATIONAL, Bucureşti, 2006
5. www.adevarul.ro
6. www.cariereonline.ro
7. www.curierulnational.ro
8. www.dailybusiness.ro
9. www.euractiv.ro
10. www.iaa.ro
11. www.iqads.ro
12. www.markmedia.ro
13. www.praward.ro/resurse-pr.html
14. www.sfin.ro
15. www.standard.ro
16. www.unilever.ro
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HOW TO UNDERSTAND THE NEW ECONOMY
Assistant Ph.D. Student Angela-Nicoleta COZORICI

”Ştefan cel Mare” University of Suceava, România
angelac@seap.usv.ro
Assistant Ph.D. Student Simona BUTA
”Ştefan cel Mare” University of Suceava, România
simonab@seap.usv.ro
Abstract
The work presents the main evolutions towards the New Economy based on knowledge by passing from the
Industrial Era to the Informational Era. The new economy is the result of a veritable economic revolution, with a
powerful impact on the society’s functioning manner. We have introduced the fact that the novelty of the global
economy derives from the appearance and the potentiating of a new economic factor, that is the knowledge, and the
companies’ leaderships have been obliged to accept the capital importance of the fifth resource: the information.
For understanding the concept of new economy based on knowledge, which, according to the New School from
Cambridge, are classified as follows: the principle of the human existence in a closed circle; the principle of
reintegrating the human in nature; primum non nocere; preserving and developing biomass, biodiversity and bio-
productivity; the permanent insurance of the resources; the principle of the economic, social and ecologic efficiency;
the societal existence is interactive with the environment; the passing from the discretionary demographic growth to
another one, based on the conscious responsibility of the man-woman couple and on the adequate implication of the
society; the principle of the social equity; government accountability for the way the policies promoted, manage and
enhance resources and to ensure the new generations’ future, too.
We concluded the work by introducing the main features of the new society and of the new economy based on
knowledge, specific to the post-capitalist society.
Key words: the new economy, economy based on knowledge, knowledge revolution, informational
revolution, knowledge, information.
JEL classification: D 83
1. INTRODUCTION
The motivation for the theme chosen for this work is due to the fact that the New Economy
became a reality of the present world. The impact of the information technologies and of the
communications is great; they determine a competitive advantage and accelerate the globalization.
The globalization leads to a more accelerated competition, but also to a better quality of life through
the access to the information available in electronic format, regardless of the geographical location
and to new conveniences in a business environment characterized by the reduction of the economic
cycles.
Using the analytic approach, this work presents a theoretical frame referring to certain
aspects related to the New Economy based on knowledge and its implications.
The change determined by using the information and communication technologies (ICT)
affects all the domains and all the enterprises. The Internet phenomenon amplifies the
transformation, offering, on a large scale, to the people and to the organizations, the informational
resources.
2. THE NEW ECONOMY BASED ON KNOWLEDGE
The name of “The New Economy” has been given for the first time by the Business Week
publication in 1996 to a complex reality, already manifested since several years in the most
advanced economies. Although so far any precise definition hasn’t been adopted, together with the
subsequent literary effervescence, it has been accepted on a large scale that The New Economy
refers to permanently improved products, commercialized by innovative agents who firstly exploit
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the newly opened niches or the ones created by themselves on the markets in process of
globalization. This suggests the entering into a new paradigm of the economy as social activity (1).
It has to be mentioned that this assertion is sometimes disputed. For example, Gordon (2001)
sustains that the New Economy isn’t a new industrial revolution (that’s because any new paradigm).
Thus, the new historical-economic hasn’t a single name, but a multitude, each one having a
justification, distinguishing a specific feature of the new economic and technologic forces which
come into view. Here are some of these:
- Post-industrial society,
- Informational society
- Technological civilization
- Post-capitalist society
- Economy based on knowledge and information etc.
In this period, we discuss more and more insistently about a knowledge revolution and/or an
informational revolution, like an indistinguishable passing from an economy based on material
resources to an economy based on knowledge (2); it is hard to clearly distinguish between the two
revolutions, because their essence is permanently “mixed” (3) At the heart of this informational
revolution is the Internet and the computer networks, with all the socio-economic implications
induced by this technical component (4).
We can describe the information as being “something new” we find out about a certain
system or about the manner in which this functions. But the knowledge is more than simple
information; it represents, besides the purely mathematical value, the understanding of that
information. As the knowledge is superior to the information, also the economy based on
knowledge is superior to the informational economy.
The novelty of the global economy derives from the appearance and the potentiating of a
new economic factor: the knowledge (5). We can define the economy based on knowledge as being
the economy which surpassed the development step beyond which the knowledge represents the key
resource (6). What makes this knowledge such an important resource? There are a lot of factors
which have this as consequence, the most important being: the progress registered in IT&C (7), the
growth of the development speed of the new technologies, the competition at a global level, the
market liberalization, the continuous change of the demand determined by the growth of the number
of persons with medium and big incomes (who develop a sophisticated demand, of good quality
products), the increase of the life quality importance.
This type of economy has imposed together with the phrase the economy of the knowledge.
“The real impact of the informational revolution, Drucker says, is hardly beginning to be felt”; yet
not the information or the computer are at the origin of this revolution, but the Internet phenomenon
and the electronic commerce, which has become the main means of distributing the merchandise,
the workplaces and the managers; this phenomenon thoroughly modifies the economies, the
markets, the industrial structures, the goods distribution, the consumers’ behavior, the values
category and the labor market (8).
In order to elucidate the meanings of the presents changes, it is useful even a summary
historical analysis of the evolution of the economic-technological systems, from the assertion of the
industrial production manner and until nowadays.
The first scientific-technical revolution, called also “industrial revolution”, the essence of
which has been represented by the mechanization, has been characterized by the passing from the
manual, the handicraft work, to the mechanized, manufactured activity.
The second scientific-technical revolution had as essence the automation of the production.
The new technologies assimilated integrated solutions, regulating entire technological processes,
imposing the activities of conceptions and of programming as an essential element of the work and
of the process of creating the economic value. The computer and the informational technologies
turned into real symbols of “the second industrial revolution”.
These revolutions in the science and technology domains brought many changes as regards
the manner of organizing and functioning of the society:
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 The new technologies are more and more productive, allowing thus the companies to
sell better products, at low prices. This leads to the increase of the industrial goods accessibility for
a wide range of people.
 The most attractive investments are those from the high-tech domains. Thus, the
companies become more and more interested by innovation.
 Moreover, many companies straighten the research towards finding solutions for
removing the pollution or for reducing the staple consumption. This means an improvement of the
process of production, with positive effects not only for the environment, but also for the
consumers.
 The development of IT&C determine the increase of the communication between the
people, the development of new types of businesses (ex. e-commerce), the development of on-line
informational centers, etc.
 The society gradually becomes much more alert at the existent problems. The
accessibility of the information makes the information and the expression easier for the people. The
importance of a person as a unique entity becomes greater in the new society, based on knowledge.
 Thanks to the development of the science, more and more people are engaged in the
development of new activities. The number of frontier research domains increased very much. For
becoming a good specialist, a person needs more and more years of study.
In the end, the determination of the knowledge and of the information as development
resources make us familiar with the phenomena situated at the origins of the new economy. These
reveal the fact that the generalization of the values of the science and of the technique hasn’t an
alternative at the scale of the human society evolution. Variedly names, as we already mentioned,
the new economic and social reality has as specific various features: the technologies centered upon
microelectronics and informatics, the biologic technologies, the genetic engineering, the green
revolution, the nuclear technique, the spatial navigation etc.
The passing from the industrial Era to the information Era changed the organizations and the
society, the added value relies on information and knowledge, appeared a new type of worker, the
worker with the information.
In time, the managers of the companies paid a greater attention to the administration of the
money, of the materials, of the equipments and of the people. Today, they have been obliged to
accept the capital importance of a fifth resource: the information (9). The companies’ need to be
informed in a more and more competitive society makes that the analysis of the market and of the
consumer’s desires become primordial. The powerful companies try to know all that can be known
about the consumers: what they want, what they don’t want, how they consume, when, what makes
them faithful to the product, when they prefer to change the brand. The need to know, determined
by the need to take correct decisions in a real time, determined an explosion of using the
informatics’ systems at the level of the companies. In function of the directors’ information needs,
the companies elaborated SIMs that is Marketing Informational Systems, by which they can always
be acquainted with what happens on the market. Also, an increasing number of companies resort to
management systems of participative type, where the decisions are taken by several persons, thus
reducing the risk of a failure. It is obvious that all these persons must have access to information
and actually communicate for their step to be successful.
Consequently, within the economy of the knowledge, the successful firm or company – for
remaining and flourishing in businesses – is obliged to reconsider the role given to the knowledge
and to the applied management (10). It will further operate with certain active/attainable materials,
with a certain infrastructure, but the market value of the company is determined more and more
significantly by its intangible actives, by the knowledge stock accumulated, by the intellectual
capacity of its wage earners, by the capacity of getting knowledge, by the capacity of producing
and selling knowledge (11).
The propriety and the traditional capitalism, Toffler says, turns nowadays into “something
new and bizarre”; more and more, alongside with the physic aspects which define the propriety and
give it value, the intangible aspects which we attach to the propriety multiply quickly and
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permanently (12). For successfully working in this new type of economy, the company and the
wage earners which compose it must learn permanently (13), explicitly refer to various theoretical
developments and accept the change as a natural behavior in the management applied daily.
3. THE MAIN PRINCIPLES OF THE NEW ECONOMY BASED ON KNOWLEDGE
In order to understand the concept of the new economy based on knowledge, we must start
from the main principles that have been traced in various studies realized in a group or individually,
on their own initiative or from practical reasons of the international organisms which reflect alike
the existent situation and the demands, the immediate aspirations, but also those on long term, in
which the counterpoise of the negative effects accumulated in the process of the existence up to
now always existed.
These principles, according to the New School from Cambridge, can be classified as follows
(14):
1. The principle of the human existence in a closed circle (until the conquest of the extra-
terrestrial space). The nature itself exists within some closed cycles or circuits which we must know
better for learning another manner of living. From here results the consequence that we cannot
appeal to resources from other planet, we cannot move to another place and we cannot get rid of the
“derived products” of our existence, that is of the negative effects that we induce on the
environment and which turn then against us as pervert effects;
2. The principle of man’s reintegration in nature. Acting on the nature, when he produces
the goods he needs, the human being has reached the state in which he must reintegrate in the
nature he derived from and he always wanted to subjugate, forgetting he must be in harmony with
it. Because the nature is offering more and more evident signs that the present models of the human
existence cannot be sustained, we must mark their understanding and we must actively align our
existence to the nature’s exigencies for giving a chance to the perpetuation of our existence;
3. Primum non nocere (firstly, do not harm the environment). All the countries are
confronted with the problem of polluting the environment, but at different levels. At least until
now, the most developed have been those which polluted the most, and the pollution, by the natural
and economic circuits, generalized. The under developed countries, although they have a smaller
contribution to the pollution, suffer more because they don’t have the necessary resources to the
actions of preventing and de-polluting. Romania is among the countries with serious problems in
this respect. But the pollution diminishes a lot the reproducible natural resources and it is a great
danger for health which increases the expenses in this respect. According to some calculations, over
60% of the population from our planet is affected by the insufficiency of the medical cares;
4. Retention and growth of biomass, biodiversity and bio-productivity. The bio-state and the
bio-productivity represent indicators of the human resources quality. Starting with protecting the
soil fertility and finishing with the preservation and the development of the ecologic systems, there
is a large spectrum of problems that need to be quickly solved, mostly in the countries under
development, but not only there;
5. The permanent insurance of the resources. This principle imposes not only the rational
preservation and utilization of the non-regenerative resources, but also the realization of
equilibrium between the rhythm of the exploitation of the other resources and the rhythm of their
regeneration. The best solution here seems to be the conceiving of the economic activities and the
existence of nature itself in a closed circuit of a circular active flux type. This supposes that all that
is taken from nature and at the actual state of knowledge is economic useful to be utilized, and the
useful substance from the waste and from the used goods to be recycled. We must also have in
view the removal of the dissipation, the fact that “in all the sectors of the economy, a considerable
reduction of the consumption of natural resources per product unity is, incontestably, possible and
that without involving a decrease of the life level (15). A lot of more efficient technologies of using
the staple are already available but they must be applied and generalized, and others could be
developed by intensifying the research;
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6. The principle of the economic, social and ecological efficiency. Conceived in a broad
sense, the economic efficiency neglected the costs supported by the nature. Considering also the
expenses for renewing the nature, for protecting and developing the environment is very necessary
in order to redefine the concept of economic efficiency. We can call it economic, social and
ecological efficiency because to the economic interests are added those of the whole society, and
the society cannot develop ignoring the natural environment. Interpreted on a large term, the actual
production seems to be very big compared with the one obtained 100 years ago, let’s say, but its
contribution to raising the quality of life was sensibly smaller than this increase, because the
difference represents expenses and productions destined to the reproduction of some natural
conditions freely offered by nature.
7. The societal existence is interactive with the environment. The theories of the growth and,
moreover, the developed activities consider the natural environment as the space where the man
manifests economically in order to get hold of it, but about the man, “only good”; he is the
supreme, intangible value. How should we then act on the man and on the humankind in terms of
the actual reality hasn’t become yet a very evident preoccupation, but it has become clear that in the
economic activity, the fluxes must be bilateral, and that sloops towards the nature cannot be waste
or toxic products. This biangular relationship must be favorable for the environment, too. Within it,
the man has to answer the environment exigencies for ensuring his perpetual existence.
8. The passing from the discretionary demographic growth to another one, based on the
conscious responsibility of the man-woman couple and on the adequate implication of the society.
A world in which 25% of population has severe problems with the alimentation and over 60% with
health ensuring, where the pollution affects the agro-alimentary potential of the planet and the
genetic dowry of the new generations, and the resources seem to be more and more unequally
distributed and worst administrated, reveals the necessity of tackling the demographic growth on
more realistic basis, because the scientific progress allows not only the control over the births, but
also over the normal development of the young generations.
9. The principle of the social equity. It implies a continuation of the following of the
development objective in a modern sense, respectively of reducing the disparities regarding the
incomes. Moreover, we have in view the avoidance of discriminations and the assurance of the
equality of the chances of assertion for all the members of the society. The durable development
imposes a larger vision on the social equity by considering the rapports with the environment. The
social equity needs also an equal access to the environment actives, not only from a synchronic
perspective, but also from a diachronic perspective.
10. Government accountability for the way in which, by the promoted policies, administrate
and enhance the resources in order to ensure the new generations’ future, too. The principle is
applicable in the whole world and it is applied, but for Romania it is highly necessary, if we take
into account the robbery made after 1990 and that continues to a greater extent. It is also necessary
the judicial settlement of this responsibility, because its absence offers freedom to the disaster. This
principle is related to the war, the economy, the weaknesses manifested for those who plunder and
for the deplorable state of the society.
4. THE CHARACTERISTICS OF THE NEW ECONOMY
Each society had its economy and that was a new economy compared with the economy
belonging to the old society. Anyway, what prefigures at present is totally different from what we
experienced so far. It’s a truism, but we must say it: the past is history, and the new society outlines
more and more clearly its background coordinates. The new society is, generically, from all points
of view, a “post” society.
Which are the main features of the new society (16):
1. The prevalence of the theoretical knowledge as a consequence of the quasi-general
computerizing of the social space
152
2. Under an institutional report, the organizations specialized in researching and forming

the human capital will ensure the legitimacy at an expert level for all the decisional instances
3. The economic basis of the whole production will be constituted by the production of
specialized knowledge
4. The human resources will practically dominate, unlimitedly, for a pragmatic
development of the centers of stimulation and motivation of the individual and collective
intelligence
5. The politic will preserve the vocation and the prerogatives in conceiving and projecting
the economic and social action, but it will concentrate especially on the strategy of research and of
forming the human capital
6. The dynamic equilibrium of the new society will be ensured by maintaining the
structural symmetry between the private and the public system
7. The social stratification will have as natural source the types of professional
components, generated by the diversification of the models of qualification and by the standards of
each qualification
8. The exponential growth of the social space diversity will bring to foreground the
problem of the social cohesion of the global social space
9. The resistance to bureaucracy and its incapacity of ensuring a corresponding level of the
efficiency will orientate the historic movement towards ad-hocratism and towards the adverse
culture
10. The organizational culture, specific to the industrialism, based on codes and
institutionalizing of work and duties, will gradually surrender to the attitudes and the behaviors
marked by materialist hedonism. In the new existential context, will prevail the “inter-relational
life”, the need to communicate, the need to plan the knowledge and to transform the social reality
into a conscience network (17).
The new economy based on knowledge, specific to the post-capitalist society, is defined by
the following features (18): the supremacy of non-corporal values, disintegration of the markets, the
modification of the work character, the innovation is the key of the success, the return to the
“reduced scale”, the disturbance of the organization, the integration of economic systems,
computerizing of the business infrastructure, the acceleration of the rhythm of transactions and of
the economic operations.
5. CONCLUSIONS
According to Peter Drucker, The New Information Revolution, revolution that has already
affected each person’s life, is about to change dramatically the organization and the management of
the institutions of the following two/three decades; in the newly created context, the knowledge
became accessible to all the wage earners, which turns this resource into the basis of the success for
future businesses (18). In the emotional economy, the position and the importance of the wage
earners are completely redefined; obvious, the future wage earners remain to a great extent a
reflection of what happens in the “demographic area” of the society (19). As the robots and the
computers become familiar presences in the daily life of the companies/institutions, three major
trends start manifesting (20):
- The decline of the young population from the total population
- The decline of the production/industry in total GDP
- Major structural changes in the labor force.
We don’t know precisely how the future society will look like and we can only make
suppositions to this hypothesis; but it is absolutely sure that it will be totally different by the present
society. “To try predicting the future using of the informational market, Dertouzos says, is like
Alexander Graham Bell would have dreamed of that his invention would lead to….”automatic
telephone centrals, hotlines, faxes and mobiles for cars (21). Today, we find ourselves in a situation
somehow similar to the one in which was Bell a century ago; because we cannot anticipate in which
153
direction the computer and the IT will lead the society. In other words, if we refer to economy,
management, or to other practical activity, today we can exclusively formulate speculations
regarding what will bring the future in the international relationships and the behavior of the future
organizations.
The knowledge benefits from the information flux, from the production and its endless
circulation and the knowledge thirst of the contemporary civilizations. We live in a period in which
the intangible resources (the knowledge) are more and more important. The mere knowledge is not
sufficient if it is not spread, if it doesn’t become a “good” for everybody. For a society to progress,
all the knowledge must be socially verified. For this, the (tele)communications represent the means
by which the knowledge is realized and fructified, in every domain.
NOTES:
(1) It is noted that this statement is sometimes challenged. For example, Gordon (2001) claims that the New
Economy is not a new industrial revolution (so no new paradigm).
(2) Fukuyama, F., - State Building Governance and World Order in teh 21st Century, 2004, Ed. Antet, 2004, p.127
(3) Cooper, C., (editor) - The Blackwell Encyclopedia of Management, 2nd edition, vol. VII, Management
Information Systems, edited by G. B. Davis, Blackwell Publishing, USA, 2005
(4) Anderson, S., ş.a. - Business: The Ultimate Resource, Bloomsbury Publishing Plc, London, 2002
(5) Neef, D., (coord.), - The Economic Impact of Knowledge, Butterworth-Heinemann, Boston, 1998
(6) Houghton, J., Sheehan, P., - A Primer on Knowledge Economy
(7) IT&C - Information and Communication Technology
(8) Drucker, P., - Managing in the Next Society, St. Martin Press, 2002;
(9) Koetler, P., - Managementul Marketingului, Ed. Teora, Capitolul 5, p. 174
(10) Maciariello, J., - The Daily Drucker, Elsevier, Butterworth Heinemann, UK, 2005
(11) Burciu, A.,ş.a., - Introducere în management, Editura Economică, Bucureşti, 2008, p.116
(12) Toffler, A., Toffler, H., -– Revolutionary Wealth, 2006; Ed. ANTET, 2006
(13) Burciu, A.,ş.a., - op. cit., p. 116
(14) Our Common Future, Oxford University Press, 1987
(15) Gabor, D., Colombo, V., King, A., Galli, R., - Să ieşim din epoca risipei, Ed. Politică, Bucureşti, 1983
(16) Niculescu, N., - Economia bazată pe cunoaştere – Noua economie, revista Economie teoretică şi aplicată nr.
1/2006, p.49
(17) Bell, D, - The Coming of Post-Industrial Society. Adventure in Social Forecasting, Basic Books Inc., New York,
1976, p. 197-199
(18) Toffler, A. – Război şi anti-război, Ed. Antet, Bucureşti, 1995, pp. 72-81
(19) Drucker, P., - Management challenges for the 21th Century, Harper-Collins, 1999
(20) Coffman, C., Molina, G., - – Follow this Path, Gallup Organization, Warner Books, USA, 2002
(21) Drucker, P., - Managing in the Next Society, St. Martin Press, 2002; traducere Managementul viitorului, Ed.
ASAB, 2004
(22) Dertouzos, M., - What Will Be: How the New World of Information Will Change Our Lives; Ed. Tehnică,
Bucureşti, 2000, p. 33
BIBLIOGRAPHY:
1. ANDERSON, S., ş.a. - Business: The Ultimate Resource, Bloomsbury Publishing Plc,
London, 2002
2. BELL, D, - The Coming of Post-Industrial Society. Adventure in Social Forecasting, Basic
Books Inc., New York, 1976
3. BURCIU, A., - Introducere în management, Editura Economică, Bucureşti, 2008
4. COFFMAN, C., MOLINA, G., – Follow this Path, Gallup Organization, Warner Books,
USA, 2002
5. COOPER, C., (editor) – The Blackwell Encyclopedia of Management, 2nd edition, vol. VII,
Management Information Systems, edited by G. B. Davis, Blackwell Publishing, USA, 2005
6. DERTOUZOS, M., – What Will Be: How the New World of Information Will Change Our
Lives; traducere în limba română Ce va fi: Cum vom trăi în Lumea Nouă a Informaţiei,
Editura Tehnică, Bucureşti, 2000
7. DRUCKER, P., – Management challenges for the 21th Century, Harper-Collins, 1999
154
8. DRUCKER, P., – Managing the Non-Profit Organization, Harper – Collins, New York,
1990; The Pension Fund Revolution, Harper & Row Publishers, 1976; The New Society,
Harper & Row Publishers, 1950
9. DRUCKER, P.– Managing in the Next Society, St. Martin Press, 2002; traducere
Managementul viitorului, Editura ASAB, 2004
10. FUKUYAMA, F., - State Building Governance and World Order in teh 21st Century, 2004,
traducere în limba română Construcţia statelor – Ordinea mondială în secolul XXI, Editura
Antet, 2004
11. GABOR, D., COLOMBO, V., KING, A., GALLI, R., - Să ieşim din epoca risipei, Editura
Politică, Bucureşti, 1983
12. HOUGHTON, J., SHEEHAN, P., - A Primer on Knowledge Economy, CSES Working
Paper No.18, Melbourne, 9-11 February 2000
13. KOETLER, P., – Managementul Marketingului – Ed. Teora, Bucureşti, 2008
14. MACIARIELLO, J., – The Daily Drucker, Elsevier, Butterworth Heinemann, UK, 2005
15. NEEF, D., (coord.), - The Economic Impact of Knowledge, Butterworth-Heinemann,
Boston, 1998
16. NICULESCU, N., - Economia bazată pe cunoaştere – Noua economie, revista Economie
teoretica si aplicata nr. 1/2006
17. TOFFLER, A. - Război şi anti-război, Ed. Antet, Bucureşti, 1995
18. TOFFLER, A., Toffler, H., – Revolutionary Wealth, 2006; traducere Avuţia în mişcare,
Editura ANTET, 2006
19. *** Our Common Future, Oxford University Press, 1987
155
SECTION 3
ACCOUNTING - FINANCES
156
EVALUATION AND RECOGNITION OF INTANGIBLE FIXED ASSETS IN

ACCORDANCE WITH NATIONAL AND INTERNATIONAL FINANCIAL REPORTING
STANDARDS IAS / IFRS
Professor PhD. Dorel MATES

dorel.mates@yahoo.com
Professor PhD.Elena HLACIUC
elenah@seap.usv.ro
University Assistant PhD. Student Marian SOCOLIUC
“Stefan cel Mare” University, Suceava, Romania
marians@seap.usv.ro
Abstract
In a post-industrial economy based on knowledge, the value of business does not given only by physical
production capacities, but also by other intangible components such as: trademarks, know-how, patents, technical
drawings, etc. Many companies may be very valuable because of the control held on these intangible assets and not
because of some tangible assets. It is especially the case of companies in areas that matter greatly the mark on which
the property is sold and not necessarily the sold property.
This truth of knowledge economy led to developments also in the accounting area regarding accounting for
intangible assets. Intangible assets are classified as fixed assets (with long life). Accounting of intangible items, namely
the recognition and evaluation, it is far from uniform, but takes different forms depending on the Accounting frame to
which the entity reports and that presents the annual financial statements.
Further, this article deals with intangible assets from two perspectives: a line with International Accounting
Reference (International Financial Reporting Standards-IFRS), and the second line with the reporting framework in
Romania (Order of Minister of Public Finance no. 1752 / 2005, published in Official Gazette no. 1080 bis) complies
with European Directives (Directive IV of the European Economic Community – CEE and Directive VII of CEE).
Keywords: evaluation, recognition, IAS/IFRS, intangible asset, European directive
JEL Classification: M 43
INTRODUCTION
The aim of this work was the very difficulties of recognition and evaluation of intangible
assets in the financial statements of a company.
The motivation of research consisted in elucidating these issues very difficult for those that
prepared the balance sheet in accordance with IAS / IFRS, due to the fact that these assets have
started to become an increasingly important element in companies heritage.
Intangible assets are handled by the International Accounting Standard (IAS) 38 - Intangible
assets.
The objective of this standard is to define the criteria for recognition and evaluation of
intangible fixed assets dealt with in other standards. [3]
International Accounting Standard 38 applies to all intangible assets, except: [5]
- Financial assets, as defined by the International Accounting Standard 32 - Financial
Instruments: Presentation and by the International Accounting Standard 39 Financial Instruments:
Recognition and Measurement;
- Exploration assets and expenditures for capitalization and extraction of resources
(minerals, oil, natural gas and other similar non-regenerating resources) - International Financial
Reporting Standards 6 - Exploration and evaluation of mineral resources;
- Intangible assets owned by an entity to be sold in the normal pattern of activity, when the
entity will apply the International Accounting Standard 2 - Inventories, or International Accounting
Standard 11 - Construction contracts;
- Intangible subject to a leasing contract that make the applicability of International
Accounting Standard 17 - Leasing contracts;
157
- Goodwill acquired in a business combination as it is treated by the International Financial

Reporting Standards 3 - Combining enterprise; [1] – [2]
- Intangible assets held to be transferred, as handled by International Financial Reporting
Standards - Fixed assets held for sale and discontinued activities;
- Other intangible assets which fall within the scope of the other standard than those shown
above.
THE DEFINITION OF INTANGIBLE ASSETS
An intangible asset is an identifiable non-monetary fixed assets, lacking physical substance.

The definition of intangible asset is based on two essential elements: the identifiable character and
defining elements of an active (resource control, the ability to generate future economic benefits
and credible assessment of the cost of the asset). [4]
THE IDENTIFIABLE CHARACTER
An intangible asset should be identifiable to be separate from goodwill. International

Accounting Standard 38 sets out the conditions under which intangible assets is identifiable: [7]
- The asset is separable, ie it can be individual and separated by the entity and sold,
transferred, patented, rented or exchanged, either individually or together with a contract, an asset
or related debt;
- Resulting from contractual rights or other rights guaranteed by law.
RESOURCE CONTROL
A resource is controlled by the entity, if it has the ability to obtain future economic benefits
from resource, and also whether he has "the power" to restrict access of other entities to such
benefits.
Its ability of entity to control the future economic benefits of a tangible fixed asset should
not be regarded as a capacity under the legal rights, such as right of ownership for example.
However, in most cases are the legal rights that give control over the resource. There is, however,
other ways by which one entity can control the economic benefits derived from a resource. [14]
RESOURCE CAPACITY TO ACHIEVE FUTURE ECONOMIC BENEFITS
An entity obtains economic benefits from a tangible asset by achievement of income, or by

reducing costs resulting from the use of intangible assets.
Examples of intangible assets
Among the most common examples of intangible assets are: patents, software, copyrights,
filming movies, Trademarks and Trade, formulas, technology processes, customers, relations with
customers and suppliers, franchising, import quotas, market share and marketing rights, the rights
of mortgage services.
These elements, in order to be recognized as intangible assets must meet the criteria laid
down in the definition of fixed intangible assets: identifiable character, control resources and
credible estimate of the cost.
Are not intangible assets under IAS 38: expenses of formation, restructuring and
restructuring costs, goodwill generated internally in the enterprise.
158
DEMARCATIONS REGARDING INTANGIBLE ASSETS
Sometimes the intangible assets should be kept on a physical support (material). To

determine whether such an asset should be treated as a tangible fixed asset in accordance with IAS
16 – Tangible assets or as an active intangible restrained in accordance with IAS 38 - Intangible
assets, the entity should appeal to professional reasoning to determine that element is more
significant. For example, operating system of a computer makes the body with the computer and
then the software is treated as a tangible asset.
In other cases where the software is not an integral part of the hardware in question, then
must be classified as intangible assets.
On the other hand there are also situations, such as costs of development (development of
prototypes), where all these activities, although are completed in an asset with physical substance,
the material element is insignificant in relation to the immaterial component (ie with all the
knowledge embedded in realisation of this prototype).
NATIONAL APPROACH ACCORDING WITH DIRECTIVE IV OF EUROPEAN

ECONOMIC COMMUNITY
Accounting treatment of intangible items is regulated by the Order of Minister of Public

Finance no. 1752 / 2005 for the aprovement of accounting regulations with European directives, as
amended and supplemented by OMEF no.2374 / 2007. During the work any reference to the Order
of Minister of Public Finance no. 1752 / 2005 will be made by the phrase "national
regulations”.[13]
National accounting rules define intangible assets as identifiable assets, non-monetary,
without material support and held for use in the production process or supply of goods or services,
to be rented to third parties or for administrative purposes.
RECOGNITION AND EVALUATION OF INTANGIBLE ASSETS, GENERAL

PRINCIPLES
A. INTERNATIONAL APPROACH
International Accounting Standard 38 requires two preconditions to quantify one intangible

assets:
- The likelihood that the entity obtains future economic benefits from the use of intangible
assets;
- The possibility to evaluate a credible cost intangible asset.
An intangible assets is charged:
- As a result of a separate procurement;
- As a result of production in the entity (internally generated);
- As a result of government subsidies;
- As a result of the exchange of intangible assets;
- As a result of combining enterprise.
B. NATIONAL APPROACH
National ragulations states that an "intangible assets should be recognized in the balance if
stock is expected to generate economic benefits for the entity and the cost of assets can be credibly
assessed."[9]
Form the category of intangible are part concessions also. They will be recognized as fixed
assets only if the concession contract provides for a term and a value determined for the concession.
159
If the contract provides the payment of rent, the entity will recognize in accounting the charge rent
and not intangible assets.[10]
Unlike IAS 38, national regulations allow restraint (enabling) the costs of incorporation.
These are costs incurred by the entity during the formation or modification of the constituitve act,
being represented by taxes and registration expenses, costs for issuing shares, expenses prospecting
the market and advertising expenses related to expanding its business and other expenses of a
similar nature .[12]
INITIAL ASSESSMENT OF INTANGIBLE ASSETS
According to international reference (IFRS) intangible assets are measured initially at cost.
Cost is determined differently, depending on the way of entry within the entity: separate purchase,
internally generated, as a result of exchange of tangible assets, obtained through government
subsidy or the combination of enterprises. [6]
Below is shown schematically the composition of the cost of intangible assets depending the
entry into the enterprise.
INTANGIBLE ASSETS
Separate Internally Exchange of Government Acquisition as
acquisition generated assets subsidy part of a
combination of
enterprise
Acquisition cost Production cost = Just value 1.Just value Just value at the
= acquisition direct production 2.Nominal value date of
price + any other cost (IAS 20) + any acquisition
cost direct attributable direct
attributable costs
Under national regulations, an intangible assets at beginning is counted as:

• acquisition cost, for assets purchased for consideration
• manufacturing cost, for products produced in the entity
• amount of intake, for goods that contributed to the capital
• at fair value, for assets obtained free
SEPARATE PURCHASE OF A INTANGIBLE ASSET
A. INTERNATIONAL APPROACH
Purchase price is cash or cash equivalents paid or payable for the purchase of intangible
assets, including taxes and excise duties and not returnable, after deducting trading price reductions.
Directly attributable costs include: [11]
- Employee benefits costs directly related by bringing restraint in its working condition;
- Directly attributable professional fees;
- The costs of testing operation of intangible restraint.
Non-cost in acquisition costs:
- The costs of launching and promoting the product on the market;
- Costs for the transfer of a business in a different location than the original;
- Administrative costs and other general manageemnt expenses;
- Initial operating losses.
160
Example:
Company "X" acquires software for managing the production process by the amount of
10,000 Euros. Becouse the company "X" is a faithful client of the company producing the software
has received a price reduction of 5%. Fees paid to lawyers for processing the transaction is 1,000
Euro, and administration expenses related to this purchase is 100 Euros.
Acquisition cost = Acquisition price + Direct attributable costs
Determination of acquisition costs:

- acquisition price = 10.000 EURO
- commercial reduction (10.000 x 5 % ) = (500) EURO
- costs with lawyers fees = 1.000 EURO
Acquisition cost = 10.500 EURO
Administrative costs are not directly attributable costs and will not be included in the acquisiton
cost of intangible restraint.
B. NATIONAL APPROACH
Property, entered the entity for consideration shall be accounted at acquisition cost.
Acquisition cost includes the purchase price adjusted for commercial discounts provided by the
supplier (if any), import duties and other taxes (except those which the entity may recover from the
tax authorities), the transport expences, installation and other expenses which can be directly
attributable to the acquisition of intangible assets in question.
Another possibility for entry into a unit of intangible assets is bringing their contribution to
the capital. In this case given intangible assets are valued by theyr contribution.
National regulations allow activation of constitution expenses. The entity can record in its active all
the expenses paid or incurred in connection with the formation of society. If the entity decides to
asses the constitution expenses, they will be recorded at initially cost.
EXAMPLE:
A group of people are willing to form a company with limited liability (LLC) which will
have as object of trade dairy products. For the constitution were made the following costs:
- Study on the potential market for consumption in the region amounting to Euro 5000;
- Reservation of company name in the amount of EUR 100;
- Attorney fees for the preparation of the constitutive act in the amount of Euro 800;
- Fee auditor to assess the reliability of business amounting to Euro 1000;
- Notary fees and registration fees amounting to Euro 500;
- Purchase a laptop in order to contribute to the capital amounting to Euro 2000.
The company decided to asses costs up. Expenditure for the establishment recorded in the
assets of the company are in the amount of Euro 7400. The laptop will be registered as a tangible
asset.
According to national regulations will be recognized in the balance sheet as intangible assets
and advances granted to purchase the assets of intangible nature.
CONCLUSIONS
As can be seen in the definition of intangible asset given by national regulations is

introduced the character of identifiable assets, but without making further details on the
characteristics of identification.
161
Compared to the definition given by international reference IAS 38, national norm includes
in definition of intangible asset and the purpose for which are held by the entity.
Examples of assets that are included in the intangible assets: costs of establishing; costs of
development; concessions, patents, licenses, trademarks, rights and similar assets, except those
created internal by the entity ; goodwill ; intangible assets running ;other fixed assets ; advances
given for the purchase of intangible assets.
BIBLIOGRAPHY
1. Andrei Paolo, Azzali Stefano e al, Il Bilancio consolidato, Il Sole 24 Ore, Milano, 2006
2. Azzali S., II bilancio consolidato secondo i principi contabili internazionali. Problemi
applicativi, soluzioni operative e potenzialità informative, Editore Economia e Management,
Milano, 2002
3. Azzali S., L’informativa di bilancio secondo i principi contabili nazionali e internazionali, G.
Giappichelli Editore, Torino, 2005
4. Bostan Ionel, „Conceptual Approaches Regarding the Financial Statements”, International
Conference on "Trends of economic development in the context of EU integration", The
Scientific Bulletin of Bukovyna State Finance Academy: Economic Sciences, The Scientific
Department of Bukovyna State Finance Academy (BSFA), Shtern str., Chernivtsi, 58000,
Ukraine, November 7, 2008, in Social Science Research Network (SSRN),
5. Bostan Ionel, Hlaciuc Elena, Andronic Bogdan, Borş Lucian, The Financial-Economic
Communication At International Level, International scientific symposium ”Durable
agriculture in the context of environmental changes”, 16 - 18 October, Iasi, 2008
6. Danton O., Didelot L., Maîtriser les IFRS, Ed. Group Revue Fiduciare, Paris, 2005
7. Esnault B., Hoarau C., Comptabilité financière, Editura Quadrige/Puf, Paris, 2005
8. Feleaga Nicolae, Malciu Liliana, Politici si optiuni contabile, Editura Economica, Bucuresti,
2007
9. Hlaciuc Elena, Dorel Mates e al., Normalizarea informatiei contabile in Romania, Editura
Cartier, Chisinau, 2008
10. Hlaciuc Elena, Mihalciuc Camelia Cătălina, Organizarea contabilităţii financiare a entităţilor
economice. Abordări teoretice şi applicative conforme cu prevederile OMFP 2374/2007 şi
Standardele Internaţionale de Contabilitate, Editura Didactică şi Pedagogică, Bucureşti, 2008.
11. Hlaciuc Elena , Camelia Mihalciuc, Normalizarea sistemului contabil pe plan naţional ş
iinternaţional, The third International Scientific Conference Eco – Trend 2006, Economics
and Globalization, „Constantin Brâncuşi” University of Târgu Jiu, Universitaria Publishing
House, Craiova, 2007
12. Mates Dorel, Grosu Veronica –Impactul Standardelor Intenaţionale de Raportare finanaciară
asupra evoluţiei Sistemului Contabil din Romania-Rivista Economie Teoretică şi Aplicată/
Teoretical and Applied Economics, vol. 3, Bucuresti , 2008
13. Mates Dorel, Veronica Grosu - Comparative Study Romania-Italia concerning the
Implementation of IAS/IFRS, International Scientific Conference-„European Integration –New
Callenges for the Romania Economy”, 4th Edition Oradea, May 30-31, Oradea, 2008
14. Nedelea Alexandru, Veronica Grosu, The financial economical information- source of
communicational development level, Revue Economic Orientations in European Integration
Process, Editura Publishing House, Chernivtsi, 2008
162
MODELS FOR THE ASSESSMENT OF THE ENTREPRISE BANKRUPTY RISK IN

CRISIS SITUATIONS
Professor PhD. Silvia Melania PETRESCU

psilvia@uaic.ro
Lecturer PhD. Camelia Cătălina MIHALCIUC
cameliam@seap.usv.ro
Abstract:
The complex nature of the aspects involved by bankruptcy risk also explains the diversity of the diagnosis and
analysis models, of which we mention: the liquidity- chargeability analysis, the functional analysis, the rate analysis,
the financial flow analysis, etc, therefore, bankruptcy risk analysis can be developed in a static manner, using the
analysis of the balance sheet financial balances, or in a dynamic manner, using the analysis of the flows depicted in the
financing chart.
Based on specialty literature, this paper will outline the national and international contributions in the field of
discriminatory analysis and bankruptcy prediction, also known as the so-called score functions.
Several researchers and financial organisations have been concerned with developing a bankruptcy risk
prediction method, starting from a small group of rates, closely linked to the health or vulnerability of the enterprise.
The procedure used is the statistic technique of discriminatory analysis of the financial features (calculated using rates)
of the normal functioning enterprises and of those experiencing difficulties in their economic and financial
management. Most bankruptcy risk analysis methods are based on the score function which helps determine if an
enterprise will go bankrupt or will have irrelevant economic results during a period immediately following the analysis
(two years max).
Thus, this paper introduces the main scoring methods for estimating bankruptcy risk, also underlining the
main analysis schools, the Anglo-Saxon and the continental school respectively, and also outlining the national
development in the field, the contributions of the Romanian school of economic-financial analysis.
Keywords: bankruptcy risk, discriminatory analysis and bankruptcy prediction, score functions, solvability,
models for the assessment of the enterprise bankruptcy
INTRODUCTION
Bankruptcy risk is related to the difficult state of the enterprise, considered as a permanent
financial crisis situation. From a juridical viewpoint, an enterprise is in difficulty when it is in an
arrested payment situation, no longer being able to meet the due debts and, in this case, the law
stipulates the reorganisation or dissolution of the enterprise.
Bankruptcy risk can be estimated in the static and dynamic analysis of the financial balance
that outlines the former performance of the enterprise, but a global evaluation of its future becomes
all the more interesting for the management of the enterprise and especially for its business partners
(banks, clients, capital investors, etc). As a consequence of the rapid degradation in time of the
results of the enterprise, there is a more obvious need to develop certain bankruptcy risk prediction
models.
The impossibility of an enterprise to honour its due debts, leads to the insolvency risk and
consequently to bankruptcy risk. The presence of certain permanent difficulties in honouring its
debts can lead to a reduction of the activity, dismissal of employees, organisational restructuring
and, eventually, bankruptcy.
Bankruptcy risk is related to the difficult state of the enterprise, considered as a permanent
financial crisis situation. From a juridical viewpoint, an enterprise is in difficulty when it is in an
arrested payment situation, no longer being able to meet the due debts and, in this case, the law
stipulates the reorganisation or dissolution of the enterprise.
The analysis of the causes that have determined the bankruptcy of certain enterprises has
revealed their diversity and has, at the same time, fuelled the idea that bankruptcy is not a sudden
163
phenomenon caused by conjuncture, but is determined by the progressive degradation of the

financial situation and of the health of the enterprise. But there are examples of bankruptcy caused
by external shocks, for example the petrol crisis in the 70’s and after that the raw materials and
energy crisis or the loss of exclusive markets because of the severed economic and diplomatic
relations between countries and also the current economic crisis caused by the difficulties of
banking system. So far it has been demonstrated that most cases of bankruptcy are caused by errors
in the internal management of the material and financial resources of the enterprise
Bankruptcy risk is closely connected to the solvency state and especially to the payment
ability state which reflects the possibility that the enterprise may not pay its due debts in time.
A rise in the number of bankruptcy cases in competing economies has rushed public
authorities and financial analysts to find prediction methods for bankruptcy risk in order to assist in
the recovery of enterprises in difficulty.
In the economic life of an enterprise there may be moments of regress and even failure,
moments that can lead to financial supervision, reorganisation, restructuring and, eventually, to
dissolution.
CAUSES OF BANKRUPTY RISK
The analysis of bankruptcy cases tends to emphasize the role of two large categories of
generating factors such as factors related to the weakness and internal errors and economic
environment factors, both categories having a convergent effect in the degradation process.
Therefore, an enterprise whose organisational and management system has severe weaknesses will
also have difficulties in adapting to the unfavourable evolutions of the environment.
The causes of bankruptcy are numerous and are directed at a reduction of the activity, a
reduction of the margins and profitableness rates, treasury problems, management problems, as well
as accidental causes related to the bankruptcy of certain clients, a reduction of the outlets, chain
lock-ups, etc.
The specialty literature mentions several methods and instruments that allow the
identification of causes and the approach of the different shapes taken by bankruptcy risk.
Bankruptcy risk is determined by several causes:
a) External causes: loss or bankruptcy of an important client; bankruptcy of a key supplier;
bankruptcy of the bank where the enterprise has its main account; aggressive policy of the
competition that leads to the removal of the enterprise from the market; failure to keep up with the
technological change, leading to less competitive products and market removal; not taking into
account certain provisions of environmental protection issued in time, etc.
b) Internal causes: inappropriate management in the investment policy, leading to production
capacities whose product undergoes several updates as a result of a change in consumer
preferences; operating low productivity machinery and equipment that overcharges the production
quality management; repeated losses in the operating activity; inappropriate indebtedness policy
during unstable economic periods; the deterioration of the rotation of circulating assets; erroneous
policy in the field of commercial credit.
The study of bankruptcy causes has lead to the conclusion that it is not a brutal phenomenon
due to conjectural fluctuations but a result of a progressive degradation of the financial situation of
the enterprise as insolvency risk can be predicted a few years before stopping payments.
MODELS OF ESTIMATING BANKRUPTY RISK
Several studies have been conducted, especially in the United States and France, in order to
analyse and classify enterprises according to their degree of difficulty, based on statistical surveys,
with samples of enterprises in difficulty, thus establishing highly predictive indices.
164
The studies developed in France and the US have shown that in order to predict the
bankruptcy of an enterprise, accounting methods can be used (quantitative and analytical methods –
used in comparative analyses to estimate the future evolution of the company) and banking methods
(that suggest an early detection of vulnerability and bankruptcy risk by means of synthetic risk
notes resulted from statistical methods of discriminatory analysis, allowing the calculation of a
score function).
The calculation of the score function requires the prior awareness of certain rates that help
determine the bankruptcy risk of an enterprise and the early protection by correcting measures. A
note (Z), called score, is given for the enterprise, representing a linear combination of rates and,
varying with the value of the score, enterprises are classified as vulnerable, bankrupt and healthy.
Most score functions used to determine the probable bankruptcy state of the enterprise, have
used as statistical technique the discriminatory analysis, the latter being highly recommended ,
especially when we want to extract from the multitude of calculated financial indices, the ones that
most clearly explain the bankruptcy risk of an enterprise.
Several researchers and financial organisations have been keen on developing a method of
predicting bankruptcy risk, starting from a small group of rates, linked to the health or vulnerability
of the enterprise. The procedure used is the statistic technique of discriminatory analysis of the
financial features (calculated using rates) of the normal functioning enterprises and of those
experiencing difficulties in their economic and financial management. Most bankruptcy risk
analysis methods are based on the score function which helps determine if an enterprise will go
bankrupt or will have irrelevant economic results during a period immediately following the
analysis (two years max).
The main scoring methods for estimating bankruptcy risk was established, as well as
analysis schools of the Anglo-Saxon and the continental school respectively, and also outlining the
national development in the field, the contributions of the Romanian school of economic-financial
analysis (Table no. 1.).
Tabel no. 1. International and national models of estimating bankrupty risk

No. crt. Anglo – saxon schools Continental school Romanian school
1. Model Credit – men or Model Yves Collongues (1976); Model Mânecuţă and Nicolae
Security – analysis; (1996);
2. Model unidimensional W.H. Model Conan Holder (1979); Model Cămăşoiu - Negoiescu
Beaver;
3. Model E. Altman; Model’s Balances of the Central Model B – Băileşteanu (1998);
Bank of France;
4. Model Edmister (1972); Model of French trade credit ( Model I – Ivonciu (1998);
CCF);
5. Model Diamond (1976); Model accountants agree (CA Score Model I. Anghel (2000);
1987);
6. Model probabilistic of Deakin Model Scor Function AFDCC 2 Model of Romanian trade Bank
(1977); (1999).
7. Model Sprinkate (1978);
8. Model Koh and Killough
(1980);
9. Model Ohlson (1982);
10. Model Zavgren (1983);
11. Modelul Fulmer ( 1984);
12. Model Koh ( 1992);
13. Model Shirata ( 1999).
165
We’ll continue with a detailed account of the most used and well-known prediction models for
bankruptcy risk.
MODELS OF ANGLO-SAXON SCHOOL
The first research on bankruptcy risk analysis has been developed in the USA in the 30’.
The method was called „credit - men” and it aimed at making assessments on the financial situation
of an enterprise by means of a synthetic note, thus establishing the position of an enterprise as
compared to that of a typical enterprise in the same industry. The method has long been abandoned,
as it used arbitrary chosen ratios and introduced a financial structure as an ideal structure,
something which is not possible even today, despite all the progress of the financial theory. The
purpose of this model was to study risk in credit granting, including an extension of risk analysis by
including certain variables linked o the human factor and the global economic environment.
The subsequent prediction models are based on the discriminatory analysis which was used
for studying the evolution of several enterprises in the field, divided into two categories: with a
good and with a difficult financial situation, on a long period and using different rates. The rates
considered as significant have been attached to ratios that reflected their influence on the financial
situation of the enterprise and, by combining them, came out the score, the Z function, as a liner
function of several variables, thus:
Z = a1 x R1 + a2 x R2 +….+ Rn +b (1)
where:
a1, a2…. an – medium weighing ratios (positive or negative in order to assess the favourable or
unfavourable impact on the financial situation);
R1, R2…. Rn – rates (or financial structure, dynamism, management profitableness), taken into
account;
b - constant (just in case).
The score thus established divides the enterprises in the two categories (healthy and
vulnerable), sometimes even into intermediate categories.
The Altman Model (USA, 1968)
The development and conclusions of the model are based on the examination of 66
enterprises for a period of 20 years (1946-1965), of which 35 enterprises have gone bankrupt during
the specified interval, with data referring to a year before the bankruptcy.
These enterprises are compared to an equal number of healthy enterprises, randomly chosen
and considering the existing heterogeneity in terms of size and industry corresponding to enterprises
in difficulty. The examination in evolution has been conducted for 22 financial indices (financial
rates), calculated based on the accounting data. Of these indices, only 5 have been considered as
significant while the aggregated index took the following form:
where:
R1= FRN/ Total asset;
(2)
R2= Reserves/ Total asset;
(3)
R3= Gross profit/ Toatal asset;
(4)
R4= Stock exchange capitalization ( equity capital)/ Total debts;
(5)
R5= .Turnover(CA)/ Tatal asset.
(6)
166
As rates that measure the weight of the total asset from equity capital and medium and long
term debts, or the asset profitableness, or the financial autonomy and the rotation of the asset,
whose positive significance means as high a value as possible, it comes out that the Z score must
also have as high a value as possible.
The analysis of the financial situation based on this model is conducted as follows:
- when Z ≤ 1,8, imminent bankruptcy situation;
- when 1,8 < Z ≤ 3, the financial situation is difficult, with diminished performance and
the lower the points, the closer is the enterprise to bankruptcy. The improvement of the
situation is possible by applying the right strategy;
- when Z > 3, good financial situation, solvent enterprise.
The Altman model can be applied to enterprises quoted on the stock exchange in countries
where the stock exchange has a balanced functioning, i.e. the exchange rate is mainly based on the
relation demand/supply.
MODELES OF CONTINENTAL SCHOOL
The Conan and Holder model (France, 1979)

This study has been conducted by C.E.R.E.G. ( Centre de Recherche de l’Universitẻ de Paris
– Dauphine) in view of analysing the degradation of the financial situation of small and medium
sized enterprises and the model has the advantage of simple calculations, a reason why it is still
being used today.
The formula and the conclusions of the model are based on the analysis of 31 rates, for 190
small and medium sized enterprises of different industries: industry, commerce, services, transport.
Of the 190 selected enterprises for the period 1970-1975, 95 enterprises were bankrupt and another
95 were healthy but whose size and activity was similar to those of bankrupt enterprises. Models
specific to the sectors of activity have been developed, thus 5 rates have been retained and the
function had the following form:
Z =0,24 x R1 + 0,22 x R2 + 0,16 x R3 - 0,87 x R4 - 0,10 x R5

(7)
R1= EBE/ Total debts;

(8)
R2= Permanent capital/ Total asset;
(9)
R3= Circulating assets (stocks)/ Total asset;
(10)
R4= Financial expenses/(credit cost)/ Turnover(CA);
(11)
R5= Personal expenses/ Value added (VA);
(12)
The model shows that the first three rates have a positive impact, the higher their value, on
the financial situation, while the last two represent, by growth, a degradation of the financial
situation, R4, the weight of the financial expenses in the turnover, with a significant negative value,
illustrated by the high negative value of the ratio.
The enterprise is considered at risk, varying with the score value, as follows (Table no 2):
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Table no. 2 Types of enterprises depending on the score value

Score value Situation of the enterprise Bankruptcy risk
Z > 0,16 Very good Lower than 10%
0,10 < Z <0,16 Good From 10% - 30%
0,04 < Z <0,10 Alert From 30% – 65%
-0,15 < Z <0,04 Danger From 65% – 90%
Z < - 0,05 Failure Higher than 90%
The contribution of this function can be found in the decision making rule as the probability
of error in classifying an enterprise is higher if the value taken into consideration in the calculation
of the function for this enterprise is closer to the decision threshold.
The Conan-Holder model usually generates important results in predicting the short-term
evolution of trading companies. Such a model is accurate only where the bankruptcy rule operates,
when the hidden subsidies are cancelled, commercial credit is well managed and where statistics are
adequate.
The CBBF Model (The Balance Sheet Central Office of the Bank of France, 1984)
The model has been developed by observing a number of 26 rates, on a sample of 3000
industrial enterprises, with less than 500 employees, classified as normal and scanty, for an interval
of 3 years, prior to bankruptcy (1975-1980).
For an increased accuracy of the model, three categories of enterprises have been established using
this model: bankrupt enterprises; normal enterprises, vulnerable enterprises.
The model predicts bankruptcy risk for a time span of 3 years with 8 rates (variables) whose
combination in the score function takes the following form:
(13)
100 x Z = - 1,255 x R1 + 2,003 x R2 - 0,824 x R3 + 5,221 x R4 - 0,689 x R5 -
1,164 x R6 + 0,706 x R7 + 1,408 x R8 – 85,544
where:
R1= Financial expenses/ EBE;
(14)
R2= Permanent capital/ Invested capital;
(15)
R3= CAF/ Total debts;
(16)
R4= EBE/CA;
(17)
R5= (Suppliers*360)/Supply;
(18)
R6= (VA1-VA0)/VA0;
(19)
R7= ((Spn-Acl+Cl)*360)/ PEc;
(20)
R8= Corporal investment/ VA(added value).
(21)
where:
Spn – unfinished production stocks;
Acl – advance payment clients;
Cl – clients;
PEc – corrected exercise production: [PV ± SPS + ½ (Pl + SE)];
(22)
PV – sold production;
SPS – the inventory balance;
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PI – immobilised production;
SE – operating subsidies.
These rates concern: the covering of the invested capital; the reimbursement capacity; the
gross operating margin; the suppliers credit interval ( in days); the variation rate of the added value;
clients payment interval ( in days); the physical investment rate.
The weight of the average rate for the enterprises with the ration determined in the model,
for the sample taken into consideration, determines a value of the function Z = 0.
There is an uncertainty shadow around this average value of the score, as it is difficult to
predict whether the enterprise is normal or scanty and the bankruptcy risk possibility amounts to
50%. The situation of the enterprises in relation to the score value and bankruptcy possibilities are
presented in Table no. 3.
Table no 3. The situation of the enterprises in relation to the score value and bankruptcy
possibilities
Score value Bankruptcy risk
Z <-1,875 100,0
-0,875 ≤ Z < -0,875 95,6 unfavourable area
-0,875 ≤ Z < -0,250 73,8
-0,250 ≤ Z <0,125 46,9 uncertainty area
0,125 ≤ Z <0,625 33,4
0,625 ≤ Z <1,250 17,7 favourable area
Z ≥ 1,250 9,5
The method of the proper scores has the advantage of objectively testing the most efficient
rate combinations in order to predict enterprise bankruptcy risk. The research that has lead to
discriminatory functions determined the progress in analysing the behaviour of risky enterprises and
the scores have proved to be extremely helpful in detecting risk, providing they are not used in a
very mechanical way.
Important contributions of the scoring methods can be noticed for the financial analysis:
- they introduce a synthetic approach of the situation, both in a predicting perspective
(referring to the prediction or detection of difficulties), and in a retrospective perspective;
- they allow an efficient estimation of bankruptcy risk by the external partners and especially
by financing institutions;
- they allow the testing of the most efficient rates and rate combinations for predicting the
difficulties of the enterprises;
- they contribute to solving the difficulties created by the multitude of financial balance
indices;
- they provide a synthesis of the financial information relative for the enterprise, but they
cannot direct at the origin of the difficulties experienced by the enterprise.
There have been attempts to develop discriminatory analysis models in our country,
although they have been slightly shifted from the international development.
MODELS CONCERNING ROUMANIAN CONTRIBUTION SCHOOL
The MÂNECUŢĂ and NICOLAE model (1996) (specialists in the National Prognosis
Committee)
This model, suggested for the metallurgic industry is based on a solving matrix, necessary
for developing a score function by means of the empirical Pearson ratio for choosing the
discriminatory financial rates.
The structure of the variables in the model is as follows: the financial expenses rate; the rate
of covering the invested capital; the rate of debt reimbursement capacity; the rate of the gross
operating margin; the average duration of the supplying credit; the global indebtedness rate; the
169
commercial claim rate; the physical investment rate; the average duration of the client credit; the
influence of the need for working capital; the stock rate.
This model has used the matrix calculation, considering the number of enterprises in the
sample (59) and the number of variables (14), as the matrix solved has 59 rows and 14 columns.
Thus, the Z function takes the following form:
Z = - 0,02395 R1 – 0,54604 R2 + 0,01263 R3 + 0,33901 R4 + 0,04745 R5 +
0, 01752 R6 + 0,02194 R7 + 0,71249 R8 – 0,15459 R9 – 0,09855 r10 +
(23)
0,02751 R11 – 0,48437 R12 – 0,08536 R 13 + 0,03609 R14
The decision rule of the score function established by the authors is:
- Z > 1,56 results in enterprises without any financial difficulties;
- Z< - 1,56 results in scanty enterprises.
The I. IVONCIU model (1998)
A similar development to the one presented above has been developed by Ivonciu (1998),
and the author used a set of 6 financial rates. The Ivonciu model considers the following financial
rates (Table no 5):
Table no. 5 The financial rates of Ivonciu model

Indicator Symbol Value Value
Min Max
1. Asset rotation speed R1 1,00 4,00
2. Income profitableness R2 0,07 0,25
3. Claims rotation R3 6,00 36,00
4. Debt reimbursement capacity R4 0,10 1,50
5. Quick liquidity R5 0,50 1,25
6. Financial steadiness margin R6 0,00 0,25
The function introduced is:

I = 0,333 r1 + 5,555 R2 + 0,0333 R3 + 0,714229 R4 + 1,333 R5 + 4,0 R6 – 1,66032
(24)
The values of the I function are:
- a maximum value equal to 6;
- a minimum value equal to -1,66032.
Thus:
- I< 0,0 imminent bankruptcy;
- 0,0 < I < 1,5 high bankruptcy risk;
- 1,5 < I < 3,0 uncertain state;
- 3,0 < I < 4,5 average bankruptcy risk;
- 4,5 < I < 6,0 low bankruptcy risk;
- I > 6,0 highly unlikely bankruptcy risk.
I. Anghel (2001) has developed a model based on discriminatory analysis, starting from a
sample of 276 enterprises, grouped into non-bankrupt (60%) and bankrupt (40%), and belonging to
a number of 12 industries of the national economy. The analysis covered the period 1994-1998 and
has initially used a number of 20 economic-financial indices.
After the selection stage, four financial rates have been established for the development of
the score function:
- the income profitableness rate (X1);
- the cash-flow debt covering rate (X2);
- the asset indebtedness rate (X3);
- the period of paying off the obligations (X4).
170
All the above rates have been aggregated in the following score function:
A = 5,676 + 6,3718 X1 + 5,3932 X2 – 5,1427 X3 – 0,0105 X4

(25)
Varying with the value established for this function, enterprises are included in one of the
following three situations:
- when A < 0, bankruptcy/failure situation;
- when 0 ≤ A ≤ 2,05, uncertainty situation demanding prudence;
- when A > 2,05, non/bankruptcy situation, i.e. a good financial situation.
The analysis of the previously presented models has revealed a certain facility in detecting
bankruptcy in time, with the mention that these models also have certain limitations:
- the models consider a small number of rates, considered to be the most significant, but the
financial health is influenced by a multitude of factors;
- the value of the ratios has been established in relation to the discriminatory power, to the
separation into good and scanty enterprises through the analysis of the evolution of the rates
during certain periods of time, while the conjectural influences and the environment
conditions change at sometimes short intervals of time.
CONCLUSIONS
The development of certain score functions for predicting the bankruptcy of Romanian
enterprises is an extremely difficult attempt; first of all because the bankruptcy process has entirely
different coordinates in Romania as compared to most countries where such models have been
develop. Thus, in Romania there is a high number of bankrupt enterprises, but very few with
bankruptcy declared by law. The premises for the further development of such models are set by the
settlement of the Romanian economy on a competitive environment and getting the status of
economy on the functional market.
Therefore, the development of a correct diagnosis has required the score-function analysis
with other models as well, where there is a critical approach on aspects related to the management
of the enterprise, the organisation of the accounting and control systems, the means of adjustment to
the latest technological advances and the evolution of the market requirements, and at the same
presenting the risk factors and the bankruptcy symptoms.
Romanian enterprise practice, considering the fact that the stock exchange is not balanced
yet, with a serious lack of available assets on the market and the results of the enterprise have been
strongly influenced sometimes by a low supply, other times by low purchasing power, by losing
certain markets (the former Soviet market), by a faulty work ethic and, even if there is a bankruptcy
law, it is not applied accordingly. Moreover, there are no well-organised statistics concerning the
activities on industries or branches, a comparison between competing enterprises being very
unlikely to develop.
Nevertheless, banks have established certain score grids for the financial situation of the
enterprises in view of granting or ceasing the credits, suppliers analyse the financial situation of the
clients with instalments and investors are interested in the the financial situation of the enterprises
they want to invest in.
REFERENCES
1. Anghel, I. (2002), Falimentul, Radiografie şi Predicţii, Ed. Economică, Bucureşti.

2. Avare, Ph., ş.a. (2002) Gestiune şi analiză financiară, traducere, Colecţia Romexco, Ed.
Economică, Bucureşti.
3. Bărbulescu, C., (2002) Diagnosticarea întreprinderilor în dificultate economică, Strategii şi
politici de redresare şi dinamizare a activităţii, Ed. Economică. Bucureşti.
171
4. Berceanu, D, Ciurezu, T., (2004) Diagnosticul riscului de faliment al întreprinderii, Sesiune

Internaţională de comunicări ştiinţifice, cu tema ,, Economia contemporană, preyent şi
perspective, Universitatea din Piteşti, Ed. Agir, Piteşti.
5. Bostan, I., (2008) Assessing the risk for the agriculture exploitations entities and
monitoring the liquidity and solvency in accounting, Bulletin UASVM, Horticulture
65(2)/2008, Cluj Napoca
6. Brezeanu, P., coordonator, (2003) Diagnostic financiar, Instrumente de analiză financiară,
Ed. Economică, Bucureşti.
7. Buşe, L., (2005) Analiză economico – financiară, Ed. Economică, Bucureşti, 2005.
8. Cibotariu, I.Ş., (2008) Finanţele întreprinderii, Editura Didactică şi Pedagogică, Bucureşti
9. Cibotariu, I.Ş., Roman, C., (2008) Banking and Their Management, În volumul „Economic
Orientations in European Integration Process”, coordinated by Aurel Burciu, Valery
Yevdokzmenko, Publishing House Zoloti Lytavry, Chernivtsi
10. Dragotă, V., (2003) Management financiar, vol. I, Analiză financiară şi gestiune financiară
operaţională, Ed. Economică, Bucureşti.
11. Hlaciuc, E., Socoliuc, M., Mateş, D., (2008), Bankrupty risk analyzis through financial
management, Buletin Ştiinţific, Anul XIII nr.2 (26)/2008, Academia Forţelor Terestre
„Nicolae Bălcescu”, Sibiu.
12. Mihalciuc, C., (2008), Diagnostic economico-financiar pe baza sistemului conturilor
anuale, Teză de doctorat, Universitatea Al. I. Cuza, Iaşi.
13. Mihalciuc, C., (2005) Modalităţi de manifestare a riscului în activitatea economică, The 2
nd International Scientific Conference „ Economy and Globalisation, Volume II, Finance,
Accounting, auditing and Banking Management,Sesiunea de comunicări ştiinţifice cu
participare internaţională, Târgu Jiu, Editura Universitaria Craiova.
14. Petrescu, S., (2006) Analiză şi diagnostic financiar- contabil, Ghid teoretico- aplicativ, Ed.
CECCAR, Bucureşti.
15. Spătaru, L., (2004) Analiza economico – financiară, Instrument al managementului
întreprinderilor, Ed. Economică, Bucureşti.
172
ACCOUNTING ALTERNATIVE TREATMENTS REGARDING FIXED ASSETS - A

NATIONAL AND INTERNATIONAL APPROACH
Professor PhD. Ion PERES
ion.peres@feaa.uvt.ro
Professor PhD. Dumitru COTLET
dumitru.cotlet@feaa.uvt.ro
University Assistant PhD. Student Veronica GROSU
University Stefan cel Mare of Suceava, Romania
doruveronica@yahoo.it
Abstract
By introducing the IFRS, as main accountancy source for the quoted enterprises, on the markets established by
EU, for making strong its position within the interior of a such large market, IASB could not present itself so
uninterested in front of a potential extension of own accountancy documents, to a great number of small and middle
enterprises, functional on the European market. Everything is directed towards a growth of competitive capacity of
enterprises, thanks to comparability, an existing characteristic within the internal accountancy Standard, generally
applied (even in the simplified form for the small dimensions enterprises), and either on sector’s level or upon credits
access level.
Tangible assets are handled by the International Accounting Standard 16 – Tangible assets. The main issues
addressed by IAS 16 Tangible assets refers to: recognition time of assets, determination of their accounting value,
depreciation expenses to be recognized in connection with these values, the accounting treatment, requirements for
submission of information.
This research papers objective consists on verifying the impact generated over the management of enterprise
activity, by applying the international standards of accountancy IAS/IFRS, in editing and publishing the accounting
period balance and of that reinforced balance, for the quoted companies. The aspects that we will underline with great
importance will represent the modifications brought to the economic-financial informational system and of
modifications appeared with a view to analyze the activity and performance of enterprises.
Keywords: alternative accounting treatments, tangible assets, IAS/IFRS, evaluation, tangible asset
Jel classification: M 43
INTRODUCTION
In accordance to economical theory, the requirement of accountancy information determines

the informational asymmetry and the economic conflicts existing between the management and the
investors (Haley&Palepu, 2001). The balance and the inter-yearly relations are among the most
important means, being at management’s disposal with a view to communicate to investors. On the
developed financial markets, with a view to strength the credibility of financial information
provided it resorts to intermediaries, such as Law-maker, the Setters Standards, auditors, financial
analysts, rating companies. It is not enough that the provided information to be credible, it is
necessary that it has to be relevant or has to prove its utility for choosing the portfolio structure of
the investor.[5]
The research made proves that publishing the balance will provide new relevant
information for the investors. The informational capacity of financial situations varies, but
depending on the entity’s characteristics and of the origin country (Collins & Kothori, 1989; Alford
Cordt, 1993; Pall & coaut., 2000; Paolo Andrei, 2006).[16]
Beginning with 80s, a feeling of non-satisfactions, as concerns the capacity of traditional
accountancy criteria of providing relevant information, was issued. The fact does not surprise,
because the accountancy systems evaluate in parallel to the economic system. Different studies
have proved a decline of profit’s capacity and of other entries of the balance, on explaining the
economic performances of the entity, the analysis of Chang (1999), Lev and Zarowin, (1999),
Brown and the coauthors, 1999, all making consideration to high state reality, thus proving the
173
relation between returns elements of shareholders and the profit, as that between the prices of
shares, profit and book values.
The results partially different were achieved by Francisc Schipper (1999), which informed
by documents the loss of profit’s relevance on explaining the shareholders returns on one hand and
which sustained that the explaining power of book values in confronting with market value didn’t
fail during the studying time (1952-1994) on the other hand; but it seems to be grown
RECOGNITION AND EVALUATION TANGIBLE ASSET ACCORDING IAS-16
International Accounting Standard 16 applies to all intangible assets, except:

- Tangible assets classified as held for sale in accordance with International Financial
Reporting Standards 5 Fixed assets held for sale and discontinued activities;
- Biological assets related to agricultural activity covered by the applicability of
International Accounting Standard 41 Agriculture;
- Mining concessions and mineral reserves such as oil, natural gas and non-renewable
mineral resources;
- Recognition and evaluation of exploration and evaluation assets for which is applying the
International Financial Reporting Standards 6 - Exploration and evaluation of mineral resources.
The cost of entry and posterior assessment
Old treatment: according to the implementation of the Law of accounting, evaluation of
tangible assets is made at the entrance to the cost of acquisition or production. [18]
Alternative accounting treatments in the presentation of financial statements
Acquisition cost = Purchase price + Irrecoverable taxes + Transportation expenses + Other
accessories expenses for operation of the asset.
New treatment: according to new regulations (IAS 16 “Revenue” and IAS 23 "Cost of
indebtedness” and MFP Order no. 172/2005 and Directive IV), we have:
A) basic treatment provides using acquisition cost or production cost.
Acquisition cost = Purchase price + Irrecoverable taxes + Transportation and supply expenses +
Other accessories expenses for operation of the asset.
For the initial cost of tangible assets includes also the estimated costs with demolition and removal
of assets, respective costs of site restoration at the end of life.
These costs are reflected though constitution of a provision, which will be recorded in the profit and
loss account over the life of the fixed assets, including depreciation in the annual expense.
The established provision should be used only for the purpose for which it was originally
recognized. General and administrative expenses are not elements of cost of fixed assets, if are
directly incurred for the purchase or installation. Start-up costs (start) and pre-exploitation costs are
not included in the cost of fixed assets, except the cases where are necessary to the running of them.
IAS 23 "Cost of indebtedness” provides two possibilities regarding the financial costs of tangible
assets:
- the costs inter in the accounting value of assets, according to the method of
capitalization (alternative treatment);
- the costs are considered expenses of the period and affects completely the result of the
year in which they were made, according to the method by result (basic treatment).
Production cost = acquisition cost of raw materials and consumables + other direct
production costs + share of indirect production costs allocated rationally as related to their
manufacture.
Are not included in production costs the administration expenses and sub-activity costs (due to
temporary reductions in the volume of activity, some social conflicts) and the costs of scrap and
losses that can appear during the own production process of the asset.[2]
Alternative treatment: tangible assets are valued, at home, at their purchase cost and are
re-evaluated based on their fair value (usually at the market value) at the balance sheet date. Re-
evaluation on the ensemble of the assets from the same category and is simultaneously. Re-
174
evaluation difference should be written in won capital at "revaluation reserves". When recoverable
value of the property is less than net accounting value, calculated depreciation represents an
expense of the year course, unless the situation when the asset has been previously re-evaluated, in
which case depreciation is supported from the difference from re-evaluation. [1]
Companies can buy tangible assets using leasing contracts. In this case, the entry value of the asset
is influenced by the type of contract (operational or financial), the residual value and customs duties
(if the lessor is not resident). In the case of operational leasing, register of the asset entry shall be
made at the date of transfer of property covered by the contract, and in the case of financial leasing
the moment of the assets recognition in the accounting of the lessee is that of the beginning of use.
[7]
Alternative accounting treatments in the presentation of financial statements and MFP
Order no. 1752/2005, lays down also two treatments: basic and alternative treatment. Thus, it
provides that a fixed asset must be initially evaluated at its cost (acquisition cost for those courts
for consideration, the cost of production for those produced in the entity, the value of the
contribution made to the contribution to the capital, at fair value to those obtained free), at the
balance sheet date is presented in the balance, less the cumulative value adjustments (basic
treatment). Tangible assets can be re-evaluated at the end of the financial year, the true value at
the balance sheet date (alternative treatment). [3]
We believe that the alternative treatment of the new regulations, the value of tangible
assets reflect more true the financial position, especially if the case of some hyper inflationary
savings. Professional reasoning, interest and management of the enterprise determine the choice of
presentation variant of the balance sheet. [4]
PROPERTY ACQUIRED BY EXCHANGE WITH OTHER ASSETS
Old treatment: national regulations do not specify this aspect.

New treatment: the International Accounting Standards determine that fixed assets entered
by exchange with other fixed assets are valued at:
- fair value ifthe assets exchanged are different, in this situation the cost of entry is the fair
value of assets received in exchange, equal to the fair value of assets assigned, corrected with the
amount of any amounts transferred in cash or cash equivalent.
- the net accounting value of the transferred assets when it comes tosimilar assets used in
the same sector of activity, according to this variation, the value of the asset received is given by net
book value of assets assigned (input value less accumulated depreciation and impairment of value)
and the value of the asset received is less than the net book value of assets assigned should be
registered a depreciation of the new asset value (if the two assets are similar).
DEPRECIATION (REDEMPTIONS)
Old treatment: Regulation of implementing the accounting law establishes that must be the
subject of amortization both tangible assets as the type of fixed assets and certain intangible assets
(expenses, costs of research and development, patents, licenses, trademarks, software programs).
Depreciation is determined by applying the depreciation rates on the value of input of fixed assets.
Depreciation allowances are established according to the normal operating duration for fixed assets.
Expenditure for establishment and expenditure for research – development, is amortized within max
5 years, the information programs within max 3 years, and patents, trademarks, licenses are
amortized according to the duration of their use by the enterprise. [6] – [13]
Depreciation methods are determined by the law of depreciation, using one of the following
methods: straight-line method, digressive method or accelerated method.
New Treatment: Order 94/2001 and IAS 16 "Tangible assets" provide that in the case of
assets with limited normal operating duration the depreciation is calculated based on the cost of
175
acquisition or production cost which was deducted from the estimated residual value. It will
increase consistently during the operation period by calculating the appropriate redemptions.
MFP Order no. 1752/2005 provides that depreciation is calculated on the basis of the depreciation
plan, from the date of service until the recover of the full value of their input, according to terms of
use and economic conditions for their use. Duration of economic use means
- The period during which an asset is set to be available for use by an entity;
- Number of units produced or of similar units which are expected to be obtained by using
the asset in question.
ASSETS DEPRECIATION
Old treatment: the issue of depreciation of assets is treated like the French solution. Thus,
lowering the value of an asset results from the causes whose effect is not judged definitively, leads
to the establishment of a provision for impairment.
ALTERNATIVE ACCOUNTING TREATMENTS IN THE PRESENTATION OF

FINANCIAL STATEMENTS
If the actual value of an asset becomes lower than its net accounting value and depreciation
is considered final, the good is the subject of an exceptional depreciation for difference between the
net accounting value and its present value. [9]
New treatment: according to IAS 36 "Impairment of Assets", an enterprise should assess at
the end of each financial year if an asset must be depreciated based on internal and external
indicators. The enterprise must provide that its assets are not registered at a greater value than their
recoverable amount. An asset is considered recorded at a greater value than the recoverable value, if
its accounting value is exceeding the recoverable value from the use or sale of the assets. If the
accounting value is greater than the amount recoverable, the asset must be depreciated and the
enterprise must recognize a loss by depreciation. International accounting rules require that with an
asset revaluation should be re-evaluated the entire class of assets which it belongs. [8]
From 1 January 2006, according to MFP Order No. 1752/2005, the assets will be adjusted to the
balance sheet date. Value adjustments may be permanent, in which case the changes will be made
through depreciation, or provisional, in which case the provisions are used. [14] – [22]
EVALUATION AT THE INVENTORY AND AT CLOSING THE YEAR
Old treatment: The implementation regulation of the accounting law provides that tangible
assets are valued at the inventory at inventory value, determined by the usefulness of the asset and
market price, and on exit from the heritage at their input value.
New treatment: the two orders of MFP determined that at the inventory of fixed assets is
using the inventory value called the current value, which is the net accounting value, affected by the
utility property for the company, the market price for similar assets, the assets situation (physical
and moral wear).
On balance sheet date the assessment of tangible assets can be done by two treatments: one basic
and other alternative. Under basic treatment, the balance-sheet value of tangible assets is
represented by the cost, adjusted with the cumulative depreciation value and any accumulated
losses from impairment.[15]
The alternative treatment provides that, after initial recognition, a tangible asset presents
in the balance sheet at reassessed value, based on the fair value at the time of revaluation, less
cumulated depreciation and loss from impairment. If the fixed assets have no active market, then is
taken into consideration the fair value of similar assets on the basis of assessments conducted by
authorized assessors.
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In the case of evaluation at the conclusion of the financial year, for assets are applied the
prudence principles, and by comparing the two values can appear the following situations:
a) Pluses of value, when the value of inventory is greater than the accounting one and taking
into account the precautionary principle these pluses are not counted;
b) Minuses of value, resulted in situations where the actual value is lower than the input, due
to depreciation, according to the principle of prudence, irreversible depreciations are recorded as
depreciation, and reversible ones with the provisions.
For the liability elements of debt nature, the differences found in between accounting value
and input value of the liability elements of debt nature is recorded in accounting, on the appropriate
elements of debt. [17]
Exiting from the company’s management the fixed assets is usually made at the entrance value,
taking in view the concrete situation of each asset under evaluation.
We believe that, in terms of inflation, using the new accounting rules that require the use of
the concept of fair value, is necessary to deal again all the elements of balance sheet, ie the use of
alternative treatment.
Example
Company "Y" acquires a land for the purpose of marketing activities, the purchase recorded
at the price of 34,000 um, with a series of spending: taxes 400 um, transaction fees for brokering
1200 um, costs related to demolition of a disabled building 2200 um, and an amount of 800 lei from
the capitalisation of some materials resulted from dismantling. Would result a land cost of 37,000
um.
Cost de acquisition = Acquisition price + Direct attributable costs
Determining the acquisition cost:

- acquisition cost = 34.000 u.m.
- taxes = 400 u.m.
- honoraries for brokering = 1200 u.m.
- costs related to demolition of a disabled building = 2200 u.m.
- sums from capitalisation of materials resulted from dismantling = (800) u.m.
Acquisition cost = 37.000 u.m.
Acquisition of land with building at a distinction price is part of the procurement group. In
this case, taking into account the nature of different asset components according to the duration of
use, is necessary to separate the single price of them for determination of assets’ cost.
But should not be omitted the estimated costs for dismantling and moving the assets,
respective, the costs of restoration of the site, to the extent that the cost is recognized as a provision
under IAS 37 “Provisions, assets and contingent liabilities”[19].
The cost should not be always rated as the payment to a supplier. May be also the value we
assign initially the specifications of another standard. For example, in the case of a company that
has fixed assets acquired through the contribution in kind to the share capital, will not apply the
appropriate treatment IAS 16 to these assets, but will use the provisions of IFRS 2 "Share Based
Payments".
Analyzing the recognition criteria of tangible assets, may reveal some particular situations.
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ACCOUNTING OF DEPRECIATION
METHODS OF DEPRECIATION
Old treatment: Depreciation is determined by applying the depreciation rates on the value
of the fixed asset entry. Depreciation of fixed assets is based on a depreciation plan, from the date
of their service and until the complete recover of their input value, according to the terms and
conditions of use.
New treatment:
Under IAS 16 "Tangible assets", depreciation amounts are distributed to each year during the use of
the asset after different methods.
Depreciation represents a systematic allocation of the depreciation value of an asset on his
entire useful life duration.
Utile life duration of an asset is determined through the analysis of the following factors:
- the estimated use level by the business (based on production capacity or production
estimates);
- estimated natural attrition;
- moral attrition occurred / will occur;
-legal limits on the possible use of assets.
Depreciation value is determined by subtracting from the accounting value of the asset the
net residual value. Residual value is the net value which a company estimates that it will obtain for
an asset, at the end of the useful life, after deduction in advance of foreseeable transaction costs. If
the residual value is significant, it must be estimated at the date of acquisition (when is applying the
base treatment), or at each review (when is applying the alternative treatment).
Whatever the method chosen, it is necessary to be applied consistently, regardless of the level of
profitability of the company or tax consequences, to allow comparability of the results of an
enterprise from an exercise to the next. IAS 16 "Tangible assets" presents depreciation methods
that can be used: the linear method, the digressive method and total figures method.
Linear method allocates constantly an asset cost on the entire useful life. Using this method
includes the following:
Alternative accounting treatments in the presentation of financial statements
- Subtracting the residual value from the initial value of reassessed value;
- Estimate by the enterprise the undertake life.
Digressive method establishes a depreciation value greater in the first years of use, which
decreases as the asset is approaching the end of useful life. This method may have several variants:
- Applies a constant rate of depreciation at a variable base (eg, accounting value or net
accounting value of remaining cushion);
- Applies a variable depreciation percentage at a constant base (accounting value);
- Is calculated in proportion to the produced quantity.
Method of total figures achieves allocation of initial cost based on the level of use of the
assets. Accounting value of the asset weighted with an index calculated by adding together the
years of operation and estimated annual production.
Whatever the used depreciation methodology we should respond to several requirements:
a) the depreciations to give the possibility to renew the assets in rate fixed by business,
meaning permanent correlation of depreciations with the replacement value of the equipment;
b) the depreciations to be included in cost of products, services and works carried in a
sufficient measure, so to do not determine the creation of fictitious profits, but neither their artificial
decrease;
c) the chose amortization regime to give the possibility of uniform influence of products,
services and works cost.
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MFP Order no. 1752/2005 and MFP Order no. 94/2001, provides for the use of the following
methods of depreciation: linear, accelerated and depressive. Depreciation will be calculated during
the economic use of assets.
Comparing the two methods of depreciation, linear respectively digressive, we can conclude
that using the second method, the beneficiary will pay a property tax less than the first two years, as
depreciation costs will be higher (496 and 372 that exceed sum of 310, the amortization value in the
case of linear method).[20]
We believe that in high inflation conditions, the absorption loses the role that has in terms
of fixed capital breeding, whereas in the case of lowering the purchase of currency and the rapid
growth of price, calculation of redemption having as basis the historical cost will not also allow
efficient performance of the function of maintaining physical capital, resulting a loss from two
reasons: to obtain a final result more bigger than the real one because of the inclusion in costs of
some expenses with undervalued amortisations, leading to the reporting of fictitious profits and
payment of over-evaluated taxes and dividends; regarding the cost of a tangible asset element of the
International Accounting Standard 16 requires two criteria for its recognition as active and namely:
it is possible to generate by the entity of future economic benefits related to the assets, and
cost of assets can be credibly assessed. [21]
CONCLUSIONS
Within their competition, elements of different nature, which cut across both the
accountancy rules of our country, and also the international standards of IAS/IFRS standards, will
determine changes of the economic-financial informational system, changes that will be produced
within the storing, discovering, elaborating and releasing the information. Particularly, as concerns
the necessary information for accomplishing certain criteria of evaluation, foreseen by IAS/IFRS,
such as impairmetent test, data with predicted character as regards the planning system or external
information have to be stored.[11] –[12]
According International Fianancial Report Standard IAS-16, the future economic benefits
are represented by the potential to contribute, directly or indirectly, to the feed the treasury or
equivalent of the treasury to the entity, potentially which can be one productive, being part of the
operating activities of the entity. [23]
Under IAS 16, a tangible assets element which is recognized as assets be measured initially
at its cost, the cost that varies depending on the entry way of the equipment in the enterprise:
through acquisition; by production, if construction, own; exchange of tangible assets; as a result of
government subsidies; as a result of combining companies.
According to national regulations, an asset recognized as an active must be evaluated
initially at its cost determined according to evaluating rules specific for these regulations,
depending on how entry entity, Also, in the tangible assets are highlighted distinct the tangible
assets under production/running.
BIBLIOGRAPHY
1. Andrei P., Azzali S. e al, Il Bilancio consolidato, Il Sole 24 Ore, Milano, 2006
2. Angheni S., Volonciu M., Stoica C., Drept comercial, Editura All Beck, Cluj, 2005
3. Azzali S., II bilancio consolidato secondo i principi contabili internazionali. Problemi
applicativi, soluzioni operative e potenzialità informative, Editore Economia e Management,
Milano, 2002
4. Azzali S., L’informativa di bilancio secondo i principi contabili nazionali e internazionali,
G. Giappichelli Editore, Torino, 2005
5. Morariu A, Bostan I., Condrea P., European perspectives on public function, Buletinul
ştiinţific al USAMV „Ion Ionescu de la Brad” Iaşi, Anul L, vol. 1 (50), Seria H, ISSN 1454-
7370, Iaşi, 2007
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6. Balducci D., Il bilancio d’esercizio, Edizioni FAG, Milano, 2007

7. Borgia M., L’evoluzione e l’applicazione dei principi contabili internazionali nelle aziende
di credito, G. Giappichelli Editore, Torino, 2006
8. Bostan I., Investigatii finanaciare. Control extern. Inspectie fiscala. Expertiza contabila,
Editura Tipo Moldova, Iasi, 2007
9. Bostan I., Hlaciuc E., Andronic B., Borş L., The Financial-Economic Communication At
International Level, Simpozionul ştiinţific internaţional ”Durable agriculture in the context
of environmental changes”, 16 - 18 octombrie, Iasi, 2008
10. Bostan I., Grosu V., Scutariu L. – The fair value – a new evaluation method in accounting of
company, Bulletin UASVM Horticulture, 66 (2), 2009
11. Danton O., Didelot L., Maîtriser les IFRS, Ed. Group Revue Fiduciaire, Paris, 2005
12. Esnault B., Hoarau C., Comptabilité financière, Editura Quadrige/Puf, Paris, 2005
13. VanGreuning H., Standardele Internaţionale de raportare financiară. Ghid practic, Editura
Irecson, Bucurest, 2007
14. Hlaciuc E., Contabilitatea financiară armonizată cu Directivele contabile europene şi
standardele internţionale de contabilitate (OMFP 306/2002), Editura Didactică şi
Pedagogică, Bucureşti, 2002
15. Hlaciuc E., Dorel M. e al., Normalizarea informatiei contabile in Romania, Editura Cartier,
Chisisnau, 2008
16. Mateş D., Hlaciuc E., Grosu V., Socoliuc M., Iancu E., Balance Sheet-Expression Of
Financial Condition And Communication At International Level, International Conference
On Business: Accounting – Finance – Athens , Greece, Iulie, www.atiner.gr, 2008
17. Mates D., Grosu V., Impactul Standardelor Intenaţionale de Raportare finanaciară asupra
evoluţiei Sistemului Contabil din Romania-Revista Economie Teoretică şi Aplicată/
Teoretical and Applied Economics, vol. 3, Bucuresti, 2008
18. Mates D., Grosu V., Socoliuc M., Iancu E., Risk insurance evalution accorting to IFRS4.
The solvency of the insurance company, methods of calculation of the solvency rate
available in the accountancy, Revista – Contabilitate şi Informatică de Gestiune, Nr. 23,
2008
19. Mates D., Veronica G., Comparative Study Romania-Italia concerning the Implementation
of IAS/IFRS, International Scientific Conference-„European Integration –New Callenges for
the Romania Economy”, 4th Edition Oradea, May 30-31, Oradea, 2008
20. Santesso E., Sostero U., Principi contabili per il bilancio d’esercizio, Il Sole 24 Ore,
Milano, 2001
21. Nedelea A., Grosu V., The financial economical information- source of communicational
development level, Rivista Economic Orientations in European Integration Process, Editura
Publishing House, Chernivtsi, 2008
22. *** Codul fiscal al Romaniei, 2008
23. *** Ordinul Ministerului Finantelor Publice nr. 1752/2005, Monitorul Oficial al Romaniei
nr. 1.080. bis
24. *** Standarde Internationale de Raportare Financiara (IFRS) 2007
180
ASSESSMENT OF INFLUENCE INFLATION STOCKS
Associate Professor Ph.D. Mihaela TULVINSCHI

mihaelat@seap.usv.ro
Lecturer Ph.D. Student Mariana VLAD
marianav@seap.usv.ro
The “Ştefan cel Mare” University of Suceava, Romania
Abstract
Inflation, one of the most complex and controversial issues of economy, was in some countries and periods
what put in danger the development and progress of the economy. Not negligible at all when it comes to its influence
upon the financial position and the economic entities high standards, inflation is a problem for accounting. A research
regarding inflation influences on accounting involves an analysis of the negative and positive effects of inflation on the
economic items evaluation. In this context, it must be highlighted the limits of using the historical costs and the
advantages of using the fair values for evaluation as basis for evaluation. Regarding the property elements, stocks are
those that fallow fix assets in term of degree of liquidity. In practice, we often encounter situations when, from a period
to another, sensitive growth of stocks prices are registered with considerable influence in terms of resumption of
production and future production costs. In the paper it is outlined the inflation’s impact upon the stock evaluation in
two different moments: when stocks exit administration and when the financial year closes. The comparative study
regarding application the accounting methods adapted to stock inflation highlights both the advantages and
disadvantages of each method. The assessment model of inflation influence on stocks presented in the paper it is being
analyzed in conjunction with the stocks speed rotation.
Key words: inflation, evaluation, stocks, prices, stocks speed rotation.
INTRODUCTION
Inflation is a growing, sustainable and generalised process regarding economy prices in

conditions of declining the purchasing strength of monetary unit. The paper purpose is to establish
the inflation influence on stock assessment and the comparative analysis of stocks inflation
adjustments methods.
The reason for choosing stocks as analysis object that derives from the need to modernise
stocks accounting. We must have in mind the fact that the feat improvement of a company involves
operational and as accurate as it can be measurement of the efforts and effects, the efficient use of
the company’s available resources and also the identification of the ways to reduce consumption,
under which stocks occupies a significant position.
Quantifying the influence of inflation on stock assessment involves, first of all, knowledge
of the inflationary phenomenon, of the factors that affect it directly, the forms of acting and its
effects, and secondly, the possession of evaluation tools used to evaluate the issues presented above.
MAIN FEATURES OF INFLATION
Inflation is an economical - financial process which has as effect the national monetary
purchasing power erosion in time. It is a consequence of the persistent price growth in economy and
of the decreasing power of monetary purchasing. Inflation is a remarkable tranquilizer which turns
every thing in pink. If appearance are being taken into account, the beneficiary’s margin increases,
the capital rotation increases due to the growth of the turnover and the balance sheet grows at a
lower rate than inflation, and the capital efficiency (which is equal to the multiplied margin by
capital rotation) increases as well. But this tranquilizer is dangerous because it affects the self
enterprise ability.
The market functioning mechanism and the inflationist causes are the main criteria used to
classify inflation (Ţugui, 2000). The functioning mechanism of the market can cause on open
inflation and a restricted one. An open inflation allows the economic system to function as a
181
mechanism where prices are steady. This type of inflation is directly connected to the goods,
services and human resources scarcity in economy, so that speculations can occur. Quell inflation is
the result of government intervention in the growth of prices and wages. By this intervention, the
request of goods and services is forced reduced.
Depending on inflationist causes there can exist cost inflation and demand inflation. Cost
inflation is characterized by the fact that its release has as a prime cause the costs growth in
condition of week competition. The growth of costs appears because of wages demands or because
of certain situations of the raw materials price, the energy price etc. So, the price – wages spiral
appears and the tendency to transfer the cost growth influence to the final consumer or business
partner in downstream. The inflation by demand it is motivated by the existence of an excessive
demand at the output of the national economy in condition of full employment of the human
resources, which will cause higher prices. This finds its monetary coverage in the existence of a
high amount of money in the economy which will lead to a increased demand of goods and
services.
Inflation is expressed by the rate of inflation starting from the consumption price index.
Analyzing the inflation evolution between 2002 and 2008, published in the National Bank of
Romania report a significant decrease of the inflation rate is being outlined, from 25,03% in January
2002 to 6,7% in December 2008. During the analysed period, the strongest decrease of the inflation
rate was registered in 2002 from 25,03% in January to 16,05% in December. The inflation rate
decreasing continued also in the following years, reaching in 2003 to13,36%, at the end of 2004
8,27% and the end of 2005 5,88%. In 2006 inflation rate fell significantly reaching in December
2006 2,95%. The lowest inflation rate registered in Romania during the analysed period was 1,95%
in May 2007. After this significant decreasing of inflation, an increasing evolution of the inflation
rate was registered in the second half of 2007, reaching in December 2007 a rate of 7,52%. During
2008, after a slight increase of the inflation rate until it reached 9,54% in June, a decrease of the rate
until 6,7% is being noticed in December 2008. The evolution of inflation rate in 2008 and its
perspective for the following two years are presented in Table 1.
Table 1: The evolution of inflation rate in 2008 and inflation perspective for 2009 and 2010
Quarter Inflation Annual Upper limit Lower limit Upper limit Lower limit
rate per inflation of the of the of the of the
(T)
quarter target variation variation uncertainty uncertainty
range range range range
annual
variation
2008 T1 8,38% 8,38% 8,38%
2008 T2 8,61% 8,61% 8,61%
2008 T3 7,30% 7,30% 7,30%
2008 T4 6,70% 3,80% 4,80% 2,80% 7,18% 6,22%
2009 T1 6,03% 7,15% 4,90%
2009 T2 5,46% 6,96% 3,97%
2009 T3 5,09% 6,86% 3,33%
2009 T4 4,50% 3,50% 4,50% 2,50% 6,47% 2,53%
2010 T1 3,92% 6,06% 1,78%
2010 T2 3,23% 5,51% 0,95%
2010 T3 2,83% 5,23% 0,42%
The source: http://www.bnr.ro/Ro/pubs/
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For 2009 it is forecasted a decreasing of inflation on the basis of the decline of the oil price
and effects of the world economic crises. But the Romanian currency depreciation and the
increasing food prices might put in difficulty the maintenance of the inflation within 2,5% and 4,5%
range forecasted by the National Bank of Romania.
Demarcation of the main characteristics of inflation helps us understand inflation as an
economic phenomenon. Inflation is a growth of the price level having the following characteristics
(Frisch, 1997): it is anticipated with the lack of precision; by the increase of costs leads to new price
increases; does not increase the employment rate on the actual production; acts as a monetary
phenomenon; it is measured by net prices.
At the macroeconomic level, inflation manifested an a long time horizon, discourage
productive investments and orientates monetary resources towards current speculative stocks,
outlines exchanges rates oscillations and has negative effects on the national economy.
At microeconomic level, economic entity correlates a high level of inflation with uncertainty
and with risk in economy. Efficiency and profitability calculations are being put in difficulty,
companies meeting difficulties in forecasting expenditures and incomes. The forecast of the profit
at microeconomic level involver products and service price determination and the fabrication costs
evaluation. In term of inflation, production costs values and selling prices values have a particularly
importance for the whole activity of the company. New inflationist prices increases sensitively the
managerial activity regarding taking decisions upon what to produce, how much to produce, how to
produce and for whom to produce. In the dynamic appreciation of economic efficiency indicators
for an economic entity, a major problem is the income and cost actualization as an inflation effect,
problem that consists in bringing au scattered values from the past or the future depending on the
price growth at the value of a single moment.
INFLATION - A PROBLEM FOR ACCOUNTING
Inflation is one of the most controversial and complex phenomenon in economics. Not
negligible at all regarding its influence on the financial position and economic entities high
standards, inflation represents a problem for accounting. If there is to be credible, accounting
information must respond to criteria of relevance, namely: faithful reflection of reality, objective,
the possibility to obtain information in due time, being able to be published with regularity, the
possibility to be easily controlled, being exposed to comparison in time and space, being
measurable in monetary units, being useful in establishing forecast and being close to the concept of
cash flow.
In most European countries, "the financial reports written in conformity with generally
accepted accounting practices are based on the assumption that the purchasing strength of the
currency used remains basically stable" (Rodriguez, 1999). For years, in order to solve the problems
regarding the distortion caused by changes in the purchasing strength of currency and the changes
of assets and liabilities values that occur after the date of acquisition or their occurrence, have been
analysed the following two accounting alternatives: accounting in a constant purchasing strength
and accounting in a current value.
Accounting in constant purchasing strength is based on the use of historical cost as a basis
for evaluation. In terms of inflation in order to get an accurate picture of the balance sheet and the
profit and loss account it is necessary to retreat balance sheets depending on the general fluctuation
level of prices. The use of the historical cost is based on three qualities: reliability, the capacity to
be defined and the possibility to be checked out. The reliability of the historical cost is general by
its capacity to generate accurate information on time. From the moment that it was established, the
historical cost remains fixed as long as goods remain in the unit. The use of the historical cost as a
basis for evaluation allows the gain of some objective and verifiable information.
On the basis of different opinions presented in literature (Matiş, 2003; Tugui, 2000) the
disadvantages of the historical cost used as a method of evaluation can be summarised like this:
183
-
the impossibility to express value correctly in conditions of long term assets and in
condition of hyperinflation;
- the underestimation of the various items in the balance sheet in term of inflation;
- the underestimation of the unit's financial position at the end of the financial year;
- distribution of fictitious dividends and retreatment economic units;
- reduction of investments and avoidance of sales on credit;
- distortion of the overall examination of the development of business unit and
comparable financial results due to the lack of uniformity in assessing the value of
property items;
- the impossibility to provide real information both to usual users and management team,
finally the decision making process being affected on the long term.
The disadvantages presented determine a decrease of the credible information provided by
accounting in historical costs and options in favour of inflation accounting which might provide
tool for evaluation and decrease of the currency depreciation impact on property elements.
By law, a set of rules was developed that governs the inflation consequence on the property
element evaluation. In this regard, Directive 4 of European code sets rules for preparation and
submission of review documents in conditions of inflation. The Committee for International
Accounting, analyzing the inflation influences adopted the Accounting International Standard
29”The Financial Report in Hyperinflationary Economies” and AIS 21”The Currency Fluctuations
Effects”.
Accounting in current value involves the use of the fair value. In the last years, International
Financial Reporting Standards introduced in practice the fair value evaluation, starting with the
financial tools, investments in real estate and then agricultural products. The fair value is ”the sum
for which an asset can be traded or a debt settled between stakeholders, in good will, in a
transaction carried out on purpose."(Popa and others, 2007)
By adopting the basic assessment of fair value is corrected permanent costs of buying assets
at their market value, achieving to a re-evaluation of the items recognized in the balance sheet.
Using fair value affects the performance and improves comparability of accounting information.
Unlike the historical cost which is orientated towards the past, the fair value is oriented toward the
future, allowing financial analysts to make a better estimate of future cash-flow streams.
Using the fair value based assessment can not be generalized for all the assets. Valuation at
fair value "would be warranted only for items that are for sale, while those to be preserved should
be valued at historical cost (Ionascu, 2003). The main disadvantage of the fair value is the risk of
manipulation of results. In the absence of market values for some active managers of economic
entities could use the internal models of assessment that would influence the outcome of the
economic - financial.
In Romania, after the adoption of the accounting regulations harmonized with European
Directives and with International Financial Reporting Standards, we witness a mixed evaluation
model, characterized by the use of fair value and historical cost. At the level of individual, for the
sake of tax it is being used the historical cost as basis for the evaluation. These companies may
prepare two sets of financial statements: financial statements on the historical cost financial
statements and the fair value model. In the group companies categories, consolidated financial
reports use with predilection the fair value as evaluation basis, taking in consideration that this
financial reports are addressed exclusively to shareholders and managers.
The increase of the inflationist phenomenon in more and more countries led to the
development and use of some methods, techniques and procedures to adapt accounting to inflation.
The impact of inflation on assets is different for every property element. In conformity to IAS
29”Financial Reporting in Hyperinflationary Economies” property elements have been divided in
two categories: non – monetary elements and monetary elements. Non-monetary items include
those economic structures that are not expressed at their nominal value at the date of closure of the
financial year. In this category we state inventory, fixed assets and capital. Monetary items include
those items which are denominated assets at their face value at the date of closure of the financial
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year. In this group are part claims, debts and liquidity. Monetary items are not restated because they
are already expressed in relation to the monetary unit current at the balance sheet date. Some non-
monetary items are recorded at current values at the balance sheet date, such as the achievable value
and net market value, so they are not restated. All other non-monetary assets and liabilities are
restated.
Worldwide we separate delimit three areas in which the practical methods adapted to
inflation. These areas are: Continental Europe, Anglo-Saxon countries and Latin America.
In Continental Europe, particularly in France, there is a harmonization of legislation on the
accounting impact of inflation with the European directives. Most laws that were developed relate
mainly to fiscal measures and less about improving the financial – accounting image.
In countries which practice the Anglo-Saxon accounting system (United Kingdom, USA,
Canada, Australia and New Zealand) the law was orientated towards the adaptation of an
accounting expressed in units of general purchasing strength at the closing date of the financial year
(Tugui, 2000). In Great Britain was introduced a assessment system of current costs. In the U.S.A.
was chosen firstly the presentation of financial accounting information in units of general
purchasing strength. Subsequently was introduced the replacement costs evaluation.
In Latin America, following an increase of inflation after 1970, accounting for inflation has
grown very much. In Argentina, Chile and Mexico the focus is on financial accounting information
expressed in purchasing strength. In Peru and Uruguay the option was made for revaluation of
assets and facilities tax on tax. In Brazil, economic units re-establishes monthly their stock
registration value on the basis of a general index or a specific one of price growth.
Rules, directives and national and international standards and practice of accounting reveal a
large number of accounting models adapted to inflation. Depending on the methods used literature
(Malciu, 2000; Boussard, 1989) grouped these patterns into three categories namely: methods based
on the conversion methods based on assessment and combined or mixed methods.
COMPARATIVE STUDY ON THE APPLICATION METHODS ADAPTED FOR

INFLATION IN THE CASE OF STOCKS
In terms of applying International Financial Reporting Standards, the stocks must be valued
at the lower value of cost and net value achievable. It is necessary to emphasize that the achievable
net value must not be confused with the fair value. Achievable net value relates to the net amount
that an entity expects to realize from the sale of stock during the normal conduct of business, while
the fair value reflects the amount for which the stock could be exchanged in the market between
buyers and sellers interested and informed. Achievable net value is a specific entity value, while the
fair value is market value - externally. Achievable net value stock may not be equal to the fair value
less the costs to sell.
In conformity with the precautionary principle, the increase of the constant value at the end
of the financial year is not being taken into account and the decrease is being taken into account.
Therefore, if the feasible net cost is high, stocks will be reflected in the balance sheet at their cost.
In the case of stocks with a low speed of rotation and which are recorded at their cost of entry, the
issue with their retreatment methods adapted to inflation.
Methods based on conversion involve, in the case of stocks, a retreatment of value based on
variations of the general level of prices. Thus, the restated value of an item will store the value
obtained by multiplying the final balance of the element with the average index of prices. The main
advantages of this method of stock assessment are: objectively quantifying the influence of
inflation; the possibility of making comparisons between the accounting information of different
periods; changing the unit of assessment, without changing the evaluation and cost. The main
disadvantages of this method refers to the increasing cost of information and the fact that inflation
does not act uniformly in all economic entities which manage different types of stocks.
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Methods based on assessment consist in the periodic reassessment of the elements that are
stored in order to minimise negative effects of inflation. These methods are based on three
concepts: economic use value, market value and replacement costs.
Methods of assessment based on the use value involves that for each stored element the
future value of the cash flow to be adapted is determined. This method involves a big volume of
calculations and this is why it is rarely used.
Method of assessment based on market value is also little used because it implies that the
same good material can be in different places and in different economic circumstances. Initial
balances of the accounts are restated in stock market values, and stocks of inputs during the period
should be constantly updated to market value according to the most recent price.
Method based on replacement cost is the most frequently used to adapt the accounting to
inflation. Also, this method has a wide spread influence of inflation accounting in the assessment of
stocks at the closing of the financial year. Replacement cost is determined from the actual cost of
acquisition of an asset a like that which was new or reassessed with a good with potential for
serving an equivalent. Practicing the method based on replacement cost ensures a better
appreciation of the quality of management stocks, the results could be determinant in current
values. The only disadvantage of this method is that due to technical progress for the cost of an
identical replacement is difficult to determine.
Combined methods adapted to inflation are based on the conversion methods, as well as
assessment methods. The main objective of the combined methods is to evaluate the material assets
at replacement costs. By applying these methods we obtain a better basis for comparison and a
richer informational content of the summary document.
Analyzing the advantages and disadvantages of the three methods adapted to inflation, we
can conclude that, the method based on the evaluation is the most appropriate in the case of stocks.
A MODEL OF ASSESMENT OF STOCKS INFLUENCES INFLATION
To demonstrate the need for a model of inflation influence on stock assessment we must
establish firstly, which are these influences divided in stock categories. If we analyse the stocks
from procurement, the main inflation influences are:
- the reducing of the quantites of raw materials or goods supplied as a result of depreciation
of the purchasing of monetary unit;
- the formation of raw materials and consumable materials stocks unjustified;
- the immobilization of funds in goods stocks hardly salable.
In the case of stocks obtained from own production, we identify a number of influences out
of which we mention:
- the overlapping sheets in the cost of values calculation expressed in different purchasing
power;
- the introduction to the actual cost of the products of values expressed in purchasing
power scratchy according to the duration of the manufacturing process.
The assessing of the influence of inflation on stock can be made knowing the number of
rotations for stocks. The index of consumer prices or pricing increase is related to the specific
number of rotations and it obtaines the index of a rotation. With this index the stock adjustment are
determined.
To illustrate the influence of inflation on stock assessment, the following example is being
considered:
A company has an initial stock of raw materials stock of 72 000 lei. The rotational speed (V)
of raw materials stock is 15 days and the index of annual price increase (Igp) is 106%. At the end of
the financial year, the final balance (Sf) of the stock of raw materials is 90 000 lei. Adjusting the
stock to the inflation can be done through the following steps:
a) determining the number of rotations per month (No. rotations):
No. rotations = 30 days / V (1)
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No. rotations = 30 days / 15 days = 2 rotations / month

b) determining the average rate of inflation (Ri) on a rotating basis:
Annual Ri = (Igp – 1) x 100 (2)
Annual Ri = (1,06 – 1) x 100 = 6% per year
Ri monthly = Annual Ri / 12 (3)
Ri monthly = 6% / 12 = 0,5% per month
Ri per a rotation = Ri monthly / No. rotations (4)
Ri per a rotation = 0,5 / 2 = 0,25% per rotation
c) determining the current value of the stock (Va):
Va = Sf + (Sf x Ri per a rotation) (5)
Va = 90 000 + (90 000 x 0,25%) = 90 225 lei
d) the adjustment to inflation (Ai):
Ai = Va – Sf (6)
Ai = 90 225 lei – 90 000 lei = 225 lei
The model of assessment of the influences of inflation on stocks presented in the above
example must be examined in conjunction with the rotation speed of stocks. One can appreciate that
in the case of stocks, the main problem is the possibility of renewal, in spite of increasing prices, as
economic entity to bear a substantial loss. The accelerated the speed movement of stocks can be
achieved in each phase of the operation. In the supply phase are necessary decisions and actions to
ensure the elimination of the period of inactivity due to lack of supplies. In the production stage, the
volume of inventories depends mostly on cost and manufacturing cycle. Any way to reduce them is
a way to accelerate the stock speed of rotation. Reducing the period of settlement and the time of
sorting and packing are the main ways to increase the speed movement of stocks during trading.
A significant influence of inflation influence on stocks occurs when assessing output from
stocks fungible assets. International Accounting Standard IAS 2 "Stocks" allows the use of two
evaluation methods: the weighted average cost method (CMP) and first in - first out method (FIFO).
FIFO method allows assessment of consumption at a lower purchasing power in the past periods,
and the final stock is valued at the latest. For these reasons, the FIFO method is recommended to be
used in conditions of inflation because it allows a minimal influence in terms of value of stocks on
the final inflation.
To preserve the same amount of physical stock, in case of price increases, firms must spend
an additional amount of funding them. The use of additional funds should not be considered an
investment but a benefit cost essential to avoid substantial losses.
CONCLUSIONS
The organization of accounting and stock management is increasingly based on knowledge

of effective means and resources, on pursuit of operational movements of values, on scrutiny of the
elements of structure and dynamics and especially on decipher trends in the evolution of
phenomena that occurs the economic entity and its external environment. One of these phenomena
is inflation. In the paper it is emphasized the idea that inflation is a problem for accounting because
economic entities correlates of high inflation with uncertainty and risk in the economy, and the
calculations of efficiency and profitability are difficult. The presentation of the main specific
feature in constant purchasing power and current value accounting state the advantages and
disadvantages of two different bases of evaluation: cost history, and fair value. Analyzing in
comparison these two bases of assessment, we believe that fair value is more realistic, is oriented
towards the future and allow financial analysts to make a better estimation of future cash-flow
streams. However, the use of fair value can not be generalized for all the assets. Stocks should be
measured at fair value between the lowest achievable cost and net value. It is necessary to
emphasize that the achievable net value should not be confused with fair value.
The comparison study of methods adapted to inflation leads us to conclude that, regarding
stocks the method based on assessment would find it’s greatest opportunities for application, as
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long as it ensures the productive capacity, helping to ensure business activities and growth
nationally.
Analyzing the inflation influence on stock we concluded that, on leaving the assets it should
be used first in - first out (FIFO) method of stock assessment because it allows final stock
evaluation at the most recent values. The main way to reduce the negative effects of inflation on
stocks is to increase their rotation speed. This can be done through the technical, organizational and
financial practices applied at each stage of the operation.
BIBLIOGRAPHY
1. BOUSSARD, D., Comptabilité et inflation. Methodes et aplications, Masson, Paris, 1989

2. FRISCH, H., Theories of inflation, Ed. Sedona, Timişoara, 1997
3. IONAŞCU, I., Dinamica doctrinelor contabilităţii contemporane, Ed. Economică, Bucureşti,
2003
4. MALCIU, L., Contabilitate aprofundată, Ed. Economică, Bucureşti, 2000
5. MATIŞ, D., Contabilitatea operaţiunilor speciale, Ed. Intelcredo, Deva, 2003
6. PEROCHON, C., Comptabilité générale, Foucher, Paris, 2004
7. POPA, A.F., PITULICE, I. C., JIANU, I., NECHITA, M., Studii practice privind aplicarea
Standardelor Internaţionale de Raportare Financiară, Ed. Contaplus, Bucureşti, 2007
8. RODRIGUEZ, L. A., La influencia de la inflacion en la contabilidad, Madrid, 1999,
http://www.geocities.com/Eureka/Plaza/6171/links/inflac.html
9. TULVINSCHI, M., Gestiunea,contabilitatea şi controlul stocurilor, Ed. Sedcom Libris, Iaşi,
2004
10. xxx Standarde Internaţionale de Raportare Financiară incluzând Standardele Internaţionale de
Contabilitate şi Interpretările lor la 1 ianuarie 2007, Ed CECCAR, Bucureşti, 2007
11. http://www.bnr.ro
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PARTICULAR ASPECTS OF THE PROCESS OF FINANCIAL COMMUNICATION

FROM THE PERSPECTIVE OF EXIGENCIES REGARDING THE QUALITY
ASSURANCE OF ACCOUNTING PRODUCTS
Associate Professor PhD. Valeriu BRABETE

vali_brabete@yahoo.com
Associate Professor PhD. Cristian DRĂGAN
cdragano@yahoo.com
University of Craiova, Romania
Abstract:
The social role of accounting has increased significantly in the recent decades and this due to the information
they provide more and more influence the user behavior in the process of founding the decisions. The Romanian
accounting has known significant mutations in recent years. Although there are more to be done, should be emphasized
the accounting development in our country as a tool for informing and assisting the economic decisions. Therefore the
concept of quality of accounting products followed the same trend, but currently, given the status that Romania is an
European Union Member, there may be done more than ever a separation of issues related to this concept starting from
the specific peculiarities of national accounting rules and the international referential in the field. Analyzing the
different conceptual frameworks and accounting text normalization, we see a pluralism of procedures that see the
definition of quality notion of the accounting information; differences were noticed in particular as regards the
selection and hierarchy of the qualitative characteristics. We support this finding by presenting a succinct way in which
is defined the reviewed concept analyzed in the accounting normalization, setting as benchmarks the conceptual Anglo-
Saxon frameworks, the French accounting and as well the national accounting system.
Keywords: accounting information, quality characteristics, quality of the accounting information, accounting
system.
1. INTRODUCTION
The social role of accounting has increased significantly in the recent decades and this due
to the information they provide more and more influence the user behavior in the process of
founding the decisions. It is clear that each user wants to have information that will reduce the
uncertainties and to provide the opportunities to make the best decisions, designating, in fact, the
need to produce by the accounting some quality information.
Since the range of user accounts is relatively diverse, and their informational needs are at
least as diverse, sometimes even contradictory, the interpretation of quality of information provided
by the financial statements is a process characterized by subjectivism. This is also the reason for
which the definition of the quality concept of the accounting information starts in the specialty
literature, from the definition and the particularities of the communication process itself and aims to
establish some quality criteria on which the information must comply.
Analyzing the different conceptual frameworks and accounting text normalization, we see a
pluralism of procedures relating to definition of quality of accounting information; differences were
noticed in particular as regards the selection and hierarchy of the qualitative characteristics. We will
support this finding by a succinct presentation of the way in which the analyzed concept is defined
in the accounting normalization, setting benchmarks as conceptual frameworks Anglo-Saxon on the
one hand, and French books, on the other. However, we consider it necessary to expand research in
relation to issues addressed in the context of significant changes arising by the reform of the
national accounting system.
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2. DELIMITATIONS AND INTERFERENCES REGARDING THE QUALITY OF

THE PROCESS OF FINANCIAL COMMUNICATION IN THE NATIONAL AND
INTERNATIONAL CONTEXT
The accounting systems, which rely on the existence of some conceptual frameworks, make
the quality of accounting information to define a fundamental element, its characteristics being
presented explicitly by means of documents that are officially as follows:
 The American normalization organism, known under the name Financial Accounting
Standards Board, published in 1980 through the norm SFAC 2 (1) entitled Qualitative
Characteristics of Accounting Information, relevant elements regarding this issue;
 The International Accounting Standards Board (IASB) (2) included in 1989, in its
conceptual framework, the qualitative of characteristics of the financial statements and
restrictions which must be met to obtain a qualitative information;
 ASB (3) published in 1991, the qualities of the financial information through the
document Statement of Principles; The Qualitative Characteristics of Financial
Information.
Regarding the definition of the quality concept and of the characteristics that regard the
accounting information, given by the American Forum normalization, we note the following main
ideas:
 Are identified four qualitative characteristics and namely: intelligibility, relevance,
reliability and comparability, which are subject to two major restrictions:
- reasonableness, respectively the superiority of the obtained benefits of using the
information regarding the costs incurred by its obtaining;
- the threshold of significance or relative importance.
 The criteria according to which are judged the relevance and reliability, considered as
being he primary characteristics, are expressed by:
- predictive value, retrospective value and opportunity - for relevance;
- possibility of checking, neutrality and fidelity - for reliability.
In addition to those outlined above, we consider to be important also the presentation from
the point of view of the American norms regarding the hierarchy of the qualitative characteristics of
accounting information. This way, is considered that, from the beneficiaries point of view of the
accounting information, the usefulness for the decision-making is the first quality being ensured by
the relevance and reliability, qualities considered as primary, and sometimes contradictory. Both
relevance and reliability are supported by hierarchically inferior quality such as predictive value,
retrospective value and desirability, respectively the possibility of checking, neutrality and
reliability. Although the importance of comparability and significant secondary qualities are
considered secondary qualities in relation to the relevance and reliability, the conceptual American
framework believes they can still improve the process of adopting the decisions.
Regarding the conceptual framework proposed by the IASB, we notice the promotion of the
same four qualitative characteristics, as well as imposing the same restrictions as in the general case
FASB, which refers to the superiority of the benefits obtained from the use of information versus
the cost of obtaining it. In general this restriction is attached to three other restrictions to be
observed that the financial information is relevant and reliable:
 timeliness;
 balance between the qualitative characteristics;
 true and fair view/fair presentation.
At the same time, we notice also the explicit presentation of the criteria that contribute to
achieving the main characteristics, which the IASB proposes:
 significant size (relative importance) for relevance;
 true and fair view, the primacy of the economic content of form, neutrality, prudence
and completeness, for reliability;
 continuity of methods for assessment of comparability.
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Starting from this group, the literature made a hierarchy of qualitative characteristics of
information that attracts attention by several similarities to that undertaken by FASB.
Analyzing the ASB point of view regarding the quality of the qualitative characteristics of
the financial-accounting information, we notice some differences towards the opinion FASB and
IASB, raised by the following main elements:
 the primary quality that must have the financial information is appreciated to have a
relative importance;
 are considered to be the main qualities the relevance (relevance) and reliability, while
intelligibility and comparability are included in the secondary qualities;
 regarding the criteria depending on which are rated the four characteristics, ASB
considers that:
- the relevance is achieved when the information has a value of prediction and
confirmation, and when there are selected the information that influence the decisions;
- reliability is obtained if the information does not contain errors or elements which
would lead to erroneous interpretations and is appreciated depending on the neutrality,
prudence, reliability and integrality;
- comparability is given by the methods permanency and by the information
communicability;
- intelligibility is based on the possibility of classification and aggregation of
information and as well on the knowledge by the users of language and economic
accounting;
 the achieving quality is subject, according to the English, by three restrictions: the
balance between quality, timeliness, cost-benefit report.
And in what regards the hierarchy of characteristics outlined above there can be found some
differences compared to hierarchies proposed by the U.S. and internationally.
Comparing the three ways listed above, we notice, on one hand, the exerted influence by the
American conceptual framework upon IASB, which identifies four qualitative characteristics
(understandability, relevance, reliability and comparability) and FASB, which in its turn, imposes
the intelligibility before any other qualities, as well as the differentiation proposed by ASB, which
consists in the amplification of the relative importance as a fundamental feature and also in the
clustering of the four characteristics in the main and secondary.
In an opposite vision of the Anglo-Saxon countries, in the French accountability, the quality
concept of the accounting information is not explicitly defined by the presentation of some
characteristic features, but by interposing principles.
It should be noted the fact that in France, the definition of qualitative characteristics of
accounting information was not taken into account by the National Accounting Council, and
therefore in the Accountant General Plan are only listed some qualities of the information produced
by the accounting.
According to Accountant General Plan "the accounting information must give to the users
an adequate, fair, clear and complete description of the operations, events and situations" not being
proposed any hierarchy or articulation of the quality criteria. Another specific element for the
French accounting is that the Accountant General Plan does not designate users of financial
information, the accounting information having as an objective the reflection of a true verifiers is
obtained whether are observed the two general principles: the regularity and honesty. There are also
remembered, the exhaustivity and coherence of information, which should not lead to a
condensation or external aggregation of these and to ensure the comparability of data during the
successive periods.
Following the objectives assigned to the French accounting and the accounting principles
which are associated, we can say that the accounting information is a compromise that should allow
the presentation of a true image of the financial position, of some proper accounts and outspoken,
and at the same time, to comply with a series of principles, including the evaluation (monetary
nominalism and prudence) have a determined influence on the concept of true and fair view.
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Comparison, for example, of the conceptual framework of FASB and of the accounting
principles accepted by France, as a result of adopting the European Directives 4 and 7, it highlights
major differences, from where we retain as being related to the approached theme the fact that on
one hand FASB defines a user reference, while the French accounting makes no statement on the
users and their needs, and on the other hand, in France the accounting objectives do not make a
reference only to its intrinsic qualities (honesty, fairness, accurate picture), while the FASB
explicitly reported the quality of information to the users' needs and expectations.
However, we think that cannot be ignored the process of modernization of the European
accounting directives, resulted on the one hand, in the adopting of the European Commission
Regulation no. 1606/2002, and on the other hand, the Directive 2003/51/EEC of 18 June 2003 of
the European Parliament and Council of the European Union on the modernization and updating of
accounting rules, which supplement the European Commission regulation.
The regulation no 1606/2002 aimed, mainly, to achieve two important goals:
1. adoption and application of IFRS in the European Community to ensure the
harmonization of the process of communicating information through the consolidated
accounts, submitted by the listed companies, beginning with 1 January 2005, to
guarantee a high level of transparency and comparability of this process and an efficient
functioning of the communitarian capital market;
2. the option offered to the Member States to extend this process of harmonization and to
the consolidated accounts of unlisted companies and also to the individual accounts;
Why it was necessary to modernize the European directives? First, because under the aspect
of this framework they have not been updated by their adoption, while the accounting concepts and
accepted practices have evolved considerably, and on the other hand, was found in some areas, a
certain incompatibility of foresights of IFRS directives. Basically by this update was followed on
the listed companies, the elimination of the existent discordances between the Directive and IFRS,
and in the unlisted companies, for which the application of these rules is optional, the possibility to
have access to the accounting options offered by IFRS accounting in maintaining the directives as a
basic accounting legislation.
Specifically, the amendments made by the Directive 2003/51/EEC refers in particular to: (4)
 adapting the format for the balance presentation and of the profit accounting and loss to
the IFRS foresights;
 possibility of revaluation of all property, including the intangible assets;
 possibility of valuing assets at the fair value and not only of the financial instruments;
 adapting of IFRS rules to the constitution rules of provisions for liabilities and charges;
 the opportunity to submit to additional financial statements;
 the obligation to strengthen the branches that have very different activities;
 to eliminate the requirement to hold an equity capital of a company to enhance it, in its
quality of subsidiary, etc.
Even if this process of reconsidering the European Accounting Directives does not explicitly
make news on the definition of the concept and characteristics of qualitative information relating to
accounting, we believe that the new guidance to IFRS will bring some changes with regard to this
issue. We believe that in these conditions, the influences specific to the IFRS concepts will feel to
some extent, directly or indirectly, also to the continental type systems, such as the French.
For example, adapting the format of presentation of the balance and the profit and loss
account to the IFRS foresights is a first step in this direction. In the attempt to address the problem
of accounting information quality in our country we will do a distinction between the phases of
accounting reform in Romania.
In the first stage, which corresponds to the period 1991-1999, one can say that the problem
of defining the quality of accounting information and delimitation of quality characteristics has
been the subject of intense concern from the normalizers because:
 accounting was conceived as an instrument of control;
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
the state plays a dual role, the normalized system of accounting and information
privileged user accounts, leading to asymmetry in demand and supply information to the
specialist in relation to other users;
 reliability was imposed as the main characteristic of information, precisely due to the
instrumentalist character of accounting;
 the true and fair view was obtained in terms of compliance “with good faith of rules on
the patrimony evaluation and other rules and accounting principles”.
Continuing the accounting was passed, since 1999, to the next stage marked in adopting the
Order of the Minister of Public Finance Order no 403/1999, which subsequently was replaced by
OMFP no 94/2001 approving the accounting Regulations harmonized with the Directive IV of the
European Economic Community and the International Accounting Standards.
Although there can be identified many critical issues, should be noted that in defining the
concept of quality of accounting information at this stage has been notable progress, which mainly
refers to:
 opening accounts to external users;
 recognition of the role of accounting as a tool for information and decision support;
 addressing the economic process for obtaining accounting information and legal weight
reduction;
 increase the value degree of accounting information in economic and financial analysis;
 introduction of quality criteria in the development and dissemination of accounting
information.
The Romanian normalizers took over the "General framework for preparation and
presentation of financial statements”, prepared by the IASB, it may be said that assessing the
quality of accounting information was based on four qualitative characteristics of financial
statements incorporated by the IASB: intelligibility, relevance (relevance), credibility (reliability)
and comparability, given explicitly in the OMFP no 94/2001.
At their turn, the relevance, reliability and comparability are interpreted in the light of
secondary criteria, which relate to:
 the threshold of significance, predictive value and the retrospective one, for relevance;
 fair representation, the prevalence of legal economy, neutrality and completeness, for
credibility;
 continuity and Communicative methods for comparability.
The reform of the Romanian accounting system has continued through a third phase started
in 2006 by adopting new regulations in accordance with the European directives. (5) Although in
many ways the current regulation is considered a "step back", we notice that the annual financial
statements constitute the central objective in these regulations, the main purpose of accounting in
accordance with the European directives, being the measurement, evaluation, knowledge
management and control of assets, liabilities and equity and ensuring a faithful picture of the
financial position, profit or loss each year, through the summary document, to provide information
useful to those who take economic decisions.
It also requires the emphasis that the accounting information for the destination extends
from the decision makers at all interested in making economic decisions, in which a significant
place is taken by the users such as the donors, customers, suppliers, banks, social partners, and
others. In the same vein, be retained and that the faithful image that provides annual financial
statements refer specifically to the assets, liabilities, financial position and profit or loss, if any,
which is a new way of understanding this concept.
Although the new accounting regulations in Romania, to which I referred, do not explicitly
address to the issue which is the subject of this study, should not be lost of sight that the fact, the
qualitative characteristics of financial statements are the basic attributes that make sense usefulness
of accounting information.
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Basically, the accounting regulations in accordance with the European directives not only
state that "accounting policies should be developed to ensure the supply through the annual
accounts of certain information that must be:
a. relevant to the needs of users in decision making;
b. credible in the sense that: accurately represent the assets, liabilities, financial position
and profit or loss of the entity, are neutral, are cautious, are complete in all the material
respects. "
On the other hand, should not be omitted the fact that the Romanian accounting law foresees
the application of an accounting regulation in accordance with the European directives, and the
International Financial Reporting Standards (IFRS) and the EU Member States have proceeded with
the implementation of IFRS in According to the Regulation (EC) no 1606/2002.
Therefore, in Romania, starting with the requirements of the Regulation (EC) no 1606/2002
and the national regulations (6), are required to apply IFRS starting with 1 January 2007, the
entities whose immobile securities, at the balance date, are admitted to trade on a regulated market,
to prepare the consolidated financial statements.
For a distinct category, represented by the entities of public interest, foreseen with the opportunity
in what regards the application of IFRS in preparing the financial individual situations or
consolidated for the own informing needs, being placed here, according to the rules in force: (7)
a. credit institutions;
b. insurance, reinsurance and insurance-reinsurance societies;
c. societies of financial investment services, asset management companies and collective
investment, authorized / approved by the NSC;
d. commercial companies whose immobile values are admitted to trading on a regulated
market;
e. companies and national companies;
f. juridical persons belonging to a group of societies and enter into the consolidation
perimeter by a parent society applying IFRS;
g. juridical persons, other than those mentioned above, which receive loans un granted or
with the state guarantee.
In this context is clear the fact that for certain entities in Romania the concept of quality of
accounting information will get the specific values of private international accounting standards to
which we referred above.
Theoretically, to be useful, information must meet all of the presented characteristics, the
difficulties appear to be determined when the proportions in which these should be applied to a
given situation, even more when certain criteria are complementary and independent, while others
are divergent.
3. CONCLUSIONS
From the practice point of view, no information can meet all the qualities listed most often it
focuses on a feature in the detriment of another, what determines the emergence of some conflicting
estates at the accounting information level, such as:
 the relevance and credibility, considering that increasing the credibility is realized,
usually at the expense of relevance;
 increasing the speed in what regards the obtaining of financial information is produced
in the detriment of accuracy and integrality (exhaustiveness);
 increase consistency affects flexibility, resulting in reduction etc.
Although there were expressed points of view through which is considered that the
reduction of possible conflict situation could be achieved by carrying out by the normalization
scheme of hierarchy of qualitative characteristics of financial accounting information, we feel that
such an approach does not completely eliminate the risk of antinomic situations. In this respect, we
believe that the continuous reconsideration of the informational needs of users, as a requirement to
194
adapt to changes in the economic environment, political, legal and social, can lead to a greater
extent, a contribution to balancing the various quality characteristics in terms to obtain information
of good quality.
Moreover, the specialty literature (8) brings into discussion the results of some performed
studies by the researchers that aim to check how the quality criteria proposed by the conceptual
frameworks are well understood in practice and if they guarantee the adoption of good decisions.
The formulated conclusions following the completion of such studies, supporting our concept that is
not sufficient simply to a hierarchy of qualitative characteristics of financial accounting information
to meet the needs of all categories of users, and relate mainly to the following key issues :
 the qualitative characteristics are subjective in spite of the offer that offer the
normalizers;
 there is a certain dependency between relevance and understandability, the latter one
being ensured by the knowledge own by the users;
 the favorable information regarding on the business are always perceived to be
intelligible and influence the decisions.
Although the accounting products beneficiaries consider that the accounting professionals
have the responsibility to increase, by the mode of presentation, the degree of understanding of
information by certain categories of users, which would imply a simplification of procedures, we
believe that this idea is contrary to the current trends where the accounting practices tend to become
increasingly sophisticated. This is the reason for which we believe that accounting information must
be intelligible to those who have sufficient knowledge of economic activities. Therefore, we think
that the responsibility for the communication and use of information must be shared between the
accounting professionals on the one hand, to be responsible for the provision of quality, and users
on the other hand, need to assume knowledge required how to exploit the received information. In
the conditions where is accepted the idea of pluralism to the information users from the accounting
domain is difficult for the intelligibility, as a qualitative feature of this type of information, to
address to all those who request it, without discrimination.
(1) Statement of Financial Accounting Concepts (Enunţuri ale conceptelor de contabilitate

financiară) constituie un set de texte care prezintă conceptele fundamentale pe care se
bazează normele de întocmire şi de prezentare a conturilor.
(2) International Accounting Standards Board este organismul internaţional care are ca
obiectiv elaborarea şi publicarea normelor contabile internaţionale.
(3) Accounting Standards Board (Consiliul normalizării contabile) este organismul britanic
de normalizare în domeniu.
(4) L. Malciu, N. Feleagă – Reformă după reformă: contabilitatea din România în faţa unei
noi provocări, vol. 1, Editura Economică, Bucureşti, 2005, p. 38.
(5) OMFP nr. 1752/2005 pentru aprobarea reglementărilor contabile conforme cu directivele
europene , Monitorul Oficial nr. 1080 bis/30.11.2005.
(6) OMFP nr. 1121/2006 privind aplicarea Standardelor Internaţionale de Raportare
Financiară, Monitorul Oficial nr. 602 din 12 iulie 2006.
(7) OMFP nr. 907/2005 privind aprobarea categoriilor de persoane juridice care aplică care
aplică reglementări contabile conforme cu IFRS, respectiv reglementări contabile
conforme cu directivele europene, Monitorul Oficial nr. 597/11 iulie 2005 (modificat prin
OMFP nr. 1121/2006).
(8) M. Minu – Contabilitatea ca instrument de putere, Editura Economică, Bucureşti, 2002, p.
123.
195
REFERENCES:
1. Brabete V. - Managementul contabil în economia de tranziție, Editura Universitaria,

Craiova, 2007.
2. [Colasse B. - Comptabilite generale, 5 edition, Economica, Paris 1996.
3. Feleagă N., Ionaşcu I. - Tratat de contabilitate financiară, vol.1, Editura Economică,
Bucureşti, 1998.
4. Feleagă N. - Sisteme contabile comparate, vol.1, Editura Economică, Bucureşti, 1999.
5. Lande E. şi colab. - Contabilitatea financiară aprofundată, Editura Economică,
Bucureşti, 2002.
6. Malciu L., Feleagă N. - Reformă după reformă: contabilitatea din România în faţa
unei noi provocări, vol.1, Editura Economică, Bucureşti, 2005.
7. Malciu L. - Cererea şi oferta de informaţii contabile, Editura Economică, Bucureşti,
1998.
8. Minu M. - Contabilitatea ca instrument de putere, Editura Economică, Bucureşti,
2002.
9. *** - OMFP nr. 1752/2005 pentru aprobarea reglementărilor contabile conforme cu
directivele europene, Monitorul Oficial nr. 1080 bis/30.11.2005.
10. *** - OMFP nr. 1121/2006 privind aplicarea Standardelor Internaţionale de Raportare
Financiară, Monitorul Oficial nr. 602 din 12 iulie 2006.
196
QUO VADIS INTERNAL AUDIT EDUCATION?
PhD. Candidate Cristina BOŢA-AVRAM

Babeş-Bolyai University, Faculty of Economic Sciences and Business Administration, Cluj-Napoca, Romania,
botaavram@gmail.com
PhD. Professor Atanasiu POP
Babeş-Bolyai University, Faculty of Economic Sciences and Business Administration, Cluj-Napoca, Romania,
apop@econ.ubbcluj.ro
Abstract
The importance of internal audit education is more than obviously, being in the same time, emphasized by the
settlements of Code of Ethics issued by The Institute of Internal Auditors (IIA). The Code of Ethics states the principles
and expectations governing behavior of individuals and organizations in the conduct of internal auditing, describing
the minimum requirements for conducting internal audit activities, and one of these requirements being the professional
competence. According to this requirement internal auditors apply the knowledge, skills, and experience needed in the
performance of internal audit services. In the same time, it is absolutely necessary that internal auditors must have a
permanent preoccupation for the increasing quality of their internal audit education and so the performance of internal
audit services offered. Starting from these premises, our research objectives were focused on the analyzing the context
of the evolution of internal audit education from international to national perspectives. Using the method of literature
review we made an analysis of internal audit education in the international context, followed by a critical analysis of
the internal audit education in the Romanian context. Our results show there are some problematic areas that are
looking for quickly solutions in order to assure a good quality of internal audit education, and so a good quality of
internal audit services, in that way being accomplished the necessary context so internal audit to be able to add value
to the organization.
Keywords: internal audit education, code of ethics, certified internal auditor, certification of internal auditors,
quality of internal audit services
JEL Code: M42
1. INTRODUCTION
Internal audit profession knew a very spectacular developing from the beginning till present,
its evolution being marked by some milestones that had big influences transforming this profession
into one legitimate profession. In that direction, the adoption of Internal Audit Standards, followed
by its Statement of responsibilities and its Code of Ethics and finally the certification program for
internal auditors brings legitimacy to the profession that many years of practice could not. It gives
to its participants in a recognized profession, higher levels of professional training, recognition by
one's peers, better acceptance in the job market, and personal satisfaction in passing a demanding
examination (Sawyer, L.B., 1991).
It is very clearly that internal auditors must imply only in those activities for which they
posses the necessary knowledge, skills and professional competences. Also, it is absolutely
necessary that the auditors must have a permanent preoccupation for the enhancing of the efficiency
and quality of offered services. In the situation internal auditors are not in the know of the new
progresses and developments regarding the internal audit standards and practices of internal
auditing, than we can say that they are conducting the internal audit activities into an immoral
manner, that aren’t chiming in with the ethical requirements of the profession (Dittenhoffer, M.A.
& Klemm, R.J., 1983).
Next, we will emphasize the most important arguments that could sustain the necessary
growth of the interest for the enhancing of the quality of education in internal auditing:
 Internal auditor detains an unique position inside the organizational structure of an entity,
knowing all the processes and activities of the organization, having in this way the
advantage of being able to identify all potential causes for the negative aspects within the
organization;
197
 In order to be able to fulfill all the growing responsibilities of internal auditors, the
universities must assure for its students the opportunity of obtaining necessary knowledge
regarding the internal audit activity, in the case they intent to become a future internal
auditor;
 The experience of internal auditors also must include their capacity of identifying the
indicators of fraud events, that makes necessary the inclusion into the internal audit
curricula from universities, the examination of audit tests and other instruments useful for
the internal auditors in the prevention and detection of fraud;
 The developing of some specific internal audit courses in the curricula of learning
institutions could have a great contribution at the promoting of a completed framework that
must be shared with the students in order to obtain the best understanding of the ethical
values that coordinate the internal audit activity.
2. METHODOLOGY OF SCIENTIFIC RESEARCH
The research methodology of this paper is based on fundamental type of research, trying to
make a review of all main approaches, ideas and opinions of high rated specialists regarding the
internal audit education trying to identify the next perspectives of this problematic. We focused on
the analyzing of the opinions and information provided by specialty literature using the method of
description. We used inductive method, but also deductive method of research. Our final purpose at
the end of research was to be able to draw some significant conclusions regarding the evolution and
the perspectives of internal audit education through an approach from international to national.
Using the method of literature review we’ll try to identify the major coordinates that
characterize the evolution of education and certification system of internal auditors. The next step in
the construction of the methodology of research was determined by the identification of the
potential answers at the questions:
1. Which were the reasons that determined a poor growing of the interest for the education
system of internal auditing in the first stages of internal audit’s evolution?
2. What could be done in order to increase the quality of this system?
3. Which are the perspectives of the educational system for internal auditing from
international context, but also from national context?
4. Which is the actual phase of developing regarding this problematic in Romanian context
and what could be done to improve the quality of educational system of Romanian internal
auditors?
We consider that finding the answers at the previous questions could help us to identify the
ways that internal auditors could improve their educational background and the perspectives that are
going to influence the future of the educational system, an increasing quality of this system being
absolutely necessary so that internal auditors to be really able to add value to their organization. In
the process of finding solutions at the problems discussed we investigated high rated articles and
papers, reports and recommendations, combining the documentation process with the observation
process materialized in its two forms: participative and non-participative.
3. INTERNAL AUDIT EDUCATION AND CERTIFICATION AT

INTERNATIONAL LEVEL: EVOLUTION AND PERSPECTIVES
Internal audit profession in the earliest time of its evolution was not enjoyed of very much
attention from specialists regarding the problematic of education. But lately the educative aspects of
internal auditing started to be more and more important starting from the premise that quality of
internal audit education has a significant influence over the value added provided by internal
auditors in their activity.
The basis of The Institute of Internal Auditors were underlain in 1941, and starting with
1954 there could be identified 21 learning institutions that offered internal audit courses (Phillips,
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T.J. & Lewis, B.T., 1991). In the same year, an American Accounting Association (AAA)
committee report addressed alternative formats for an internal auditing curriculum (AAA, 1955).
Next decades after this period, we assisted at a decline of the interest for education necessary for
internal audit activity, this decline being materialized in the fact that in 1972, only 2 colleges had
included in their curricula internal audit specialty (Neumann, F.L., 1972). The study realized by
Sumners G.E. and Roy R.A. (1986) reflected that, along 1985 year, 44 learning institutions had
included in their curricula one or more courses of internal auditing.
But which were the reasons that determined a poor growing of the interest for the education
system of internal auditing in the first stages of internal audit’s evolution? Phillips T.J. and Lewis
B.T. (1991) identified some reasons that could be considered as potential causes for the poor
interest for internal audit education from ’80-’90 period of twentieth century:
 Lack of applied experience among college faculty, very few professor had internal audit
work experience;
 Shortage of textbooks and other teaching materials;
 Rapid growth in more traditional accounting literature;
 Academic emphasis on public accounting, this situation being created by at least some
reasons like: public accounting enjoys a certain status and always it has always been
considered an excellent training for numerous positions for economic area, and finally
public accountants generally have been around longer than internal auditors;
 Misconception that a general auditing course addresses internal audit requirements and the
result was that academic medium sustained teaching of financial audit courses, in spite of
the fact from management’s point of view, the internal auditor’s position is totally different
from external auditor’s position or public accountant’s position.
Internal audit education has to be totally different from the other accounting disciplines even
though, from some specific viewpoints there are some similitude between internal and external
audit, however each of these areas need specific audit programs operating with different
instruments (Sawyer, L.B., 1981).
Sumners (1985) identify several benefits and advantages that could be provided for students
and companies through promoting and regularizing internal audit education at the university level:
 Development of a primary source of entry-level internal auditors to supplant the secondary
markets on which the profession currently relies for its personnel;
 Improvement in the consistency of training at the entry-level position;
 An overall decrease in training cost and an increase in training efficiency ;
 An increase in awareness and visibility of internal auditing by students, academicians, and
the general public.
A very interesting conclusion was drawn as a result of the study made by Kusel and Oxner
(1987). According to the results of this study demand for new accounting graduates in the internal
auditing area represent approximately 30% of the demand of the public accounting job market. This
significant need for graduates in the internal audit field requires companies to rely on new hires
outside accounting. These individuals are costly to train. At best, companies may be able to employ
accounting graduates with an understanding of external auditing. But we don’t have to forget that
the internal auditor's objectives are considerably different from those of an external auditor, and
many firms are forced to hire people lacking the training or disposition to be internal auditors
(Phillips, T.J. & Lewis, B.T., 1991).
Major disadvantages of such a practice are that there is some inconsistency in the education
program of the internal auditors from entry level, on one side; on the other side, this practice
supposes assuring of some training courses (with big costs) for the professional preparing of the
internal audit staff.
The Institute of Internal Auditors (IIA) pays a special attention for the promoting of internal
audit education. In this direction, in January 1985, it gave all the necessary support for the
implementation of a pilot program and the “Louisiana State University Internal Auditing Pilot
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School” (LSUIAPS) was begun. The major scope of such a program was to serve as a model for the
other universities interested in offering a specialty in internal auditing (Phillips, T.J. & Lewis, B.T.,
1991). One of the essential objectives of this program was to prepare students for the Certified
Internal Auditor (CIA) examination, which students are required to take at the end of the program,
the graduates being monitored for their exam performance.
The activity of The Institute of Internal Auditors regarding the promoting of internal
auditing education wasn’t limited only at this program. Another objectives of this institution was
the providing of research founds to certain learning institution for developing of their own teaching
program of internal auditing courses, starting from the premises these programs could be different
from LSUIAPS, because internal audit education can be realized in different and many options
(Phillips, T.J. & Lewis, B.T., 1991). IIA offered, in the same time, the possibility teaching of some
internal audit courses to be realized by some members of IIA recognized as being very specialist
and having a widely experience in internal audit activity. Another way of improving of internal
audit education was represented by the chance for those students interested in this type of activity to
take part in a real team of internal audit within a company, this option assuring the possibility to
directly interact cu internal audit practitioners, getting in this way a certain and valuable experience
(Greenawalt, M., 1991).
Another significant aspects regarding the professional competence of internal auditing are
determined by the certification system of internal auditors, along the quickly evolution of this
activity, being generated this specific need of finding the best and most relevant way of certification
for internal auditors, that could allow them to obtain a specific status in their clients’ vision, but
also to earn the confidence of the audittees regarding their professional competences. It is obviously
that evolution of internal auditing knew many forms of certification for internal auditors, but the
most appreciated one, at international level, assuring in the same time for their possessors
maximum of credibility all over the world is the one called Certified Internal Auditor (CIA). This
program of certification is organized by IIA at international level, and every country member of this
institute through their chapters.
Internal audit profession earned its legitimacy through this certification program such a
thing couldn’t be assured by the long period of practices. In this way, the participants at this
program have the opportunity to belong to a profession with international recognizance, obtaining
more success on job market but also a bigger professional satisfaction through passing some exams
that are not easy at all.
According to the dates mentioned on IIA website (www.theiia.org) a Certified Internal
Auditor is that person who meets the necessary requirements established by IIA. These conditions
are referring at necessary education, necessary professional experience (24 of relevant experience in
internal audit or the equivalent; equivalent experience could be experience in quality assurance,
assessment of internal control system or external audit); and finally successful passing of all exams
from CIA program. Obtaining of CIA certification represents a real proof in the light of the fact the
owner of this type of qualification meets all necessary professional criteria established by IIA. The
first CIA exams took place in 1974.
Agraval S. and Siegel P. (1989) realized a study among 2.012 internal auditors from United
States of America that posses Certified Internal Auditor qualification, the main objective of this
study being the evaluation of the benefits obtained as a result of owning such a diploma. One result
of this study shows auditors that also possessed other degrees like a master degree or Certified
Public Accountant (CPA) certification didn’t observe a significant growing of their professional
value on job market, while the persons that did not possess other diplomas were optimistic
regarding the potential benefits that could be obtained as a result of CIA qualification. One possible
explanation could be the persons that had as a main certification only CIA could better observe the
value added obtained as a result of this professional certification.
Nowadays, IIA has been developed a new program called Internal Auditing Education
Partnership Program (IAEP) in order to answer to the increasing interest of universities in internal
audit education. The coordination of such a program IAEP is assured by the IIA's Academic
200
Relations Committee – ARC, which is an international volunteer committee comprised of educators

and practitioners whose purpose is to fulfill The IIA's strategic goals and objectives relating to
internal audit education.
The starting point of this program was materialized in the fact that high learning institutions
which are interested in promoting internal audit education have to detain necessary ability and
resources in order to be able to face the coming challenges. IAEP’s objective is to have a strong
collaboration with those institutions and universities interested in including of internal auditing
courses in their curricula. On IIA’s site, at Professional Guidance section there are presented reports
that offer information regarding the successful results obtained till present by the universities and
other institutions that had been introduced in their curricula internal audit courses, the main
objective of these reports being to encourage other universities in the promoting of internal audit
education and its significant results.
The benefits of the Internal Auditing Education Partnership program provided to colleges
and universities, students, educators and employers consist in:
 A unique partnership opportunity for educational institutions and practitioners;
 Internal audit curriculum developed around the Professional Practices Framework;
 Internship opportunities with leading-edge companies in a range of industries;
 Graduates with unparalleled internal audit education, ready for recruitment;
 Networking events to build relationships and share lessons learned;
 Educational programs to enhance the learning process;
 Professional guidance to support program administration.
The IAEP program offers colleges and universities three levels of participation with an
Entry level, a Partner level and an advanced level known as a Center for Internal Auditing
Excellence. Being a member of the IAEP program requires a commitment from the school, the local
chapter/affiliate and the IIA Academic Relations. The application for the program requires a five-
year plan that discusses all aspects of the school’s program as it relates to the core requirements
which are listed below. IAEP coordinators are required to submit an annual report that documents
their progress and successes. Schools are required to recertify their program every five years.
4. ROMANIAN CONTEXT OF INTERNAL AUDIT EDUCATION AND

CERTIFICATION
If we focus our attention on internal audit education from Romanian national context, we
have to start from the premise introduction of internal audit in Romania is recently (1999), being a
result of general efforts of modernizing financial management, in both public and private sector.
The trend of internal audit evolution in Romanian context was inversed from the international
space. So, if in the international plan the internal audit function was developed starting from the
bigger private companies and the multinational companies, extending after to the public sector
companies, in the Romania was other way. The internal audit was important at the beginning for the
public companies, and prove in this way is the regulations and the laws adopted which regulates the
internal audit. After that it has been started the growing of investing in the Romanian economy, the
multinational companies increasing in the Romanian economy implies influences of the
international practices through which there is the recognizing of the necessity and the efficiency of
the internal audit. So, even if the internal audit is at a low level, the internal audit from the
Romanian companies is more and more developed, the utility of the internal audit function being
bigger and bigger.
We propose to find answers at next question: What was the evolution of internal audit
education in Romanian national context and which are the most relevant certification options for
Romanian internal auditors?
If we think about the period elapsed from the moment of internal audit introduction in
Romania (1999) till present (2009), we cannot say that internal audit education is spectacular or
very well developed. The first years of implementing period were necessary for Romanian
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specialists to understand the way of approaching internal auditing from international context in
order to knew better which the best practices of internal auditing in developed countries are, but
also to astonish key points that influenced internal audit evolution at international level. The
internal audit’s definition settled by Romanian regulators that was accepted at international level by
internal audit specialists was realized barely in 2002. Nowadays, Romania realized the performance
to implement a legislative framework according to international requirements and accepted by
European Commission being harmonized with other similar systems from the other countries
member from European context and not only.
A first important step in the educational process of internal audit in Romania could be
identified in the period of 2003-2004 when we have assisted at introduction in curricula of some
important universities from Romania of internal audit and internal control courses (Ghiţă, E., 2007).
It is obviously that is necessary a certain period of time for that disciplines to obtain the
performance to impose in academic culture but also in the cultural medium of organizations,
especially for the private ones. When we affirm such a thing we are thinking about the situation of
public entities where the need form internal audit is imposed by legislation while for private entities
this need is an objective-functional one being compulsory only for those private entities that fulfill
certain criteria settled by legal requirements (Law no.31/1990 referring at private entities
republished)
In our opinion, next future is going to give us a significant increasing of progresses
regarding the educational process of internal auditing, one argument in this direction being
represented by the consolidation and growing phase in internal audit evolution process in Romanian
context that we are going to experience.
A significant and delicate problem, in the same time, is represented by the certification
system for Romanian internal auditors. Almost all the specialists are agreed with the necessity of
certification of internal auditors. The big question is: Which form of certification for internal
auditors should be adopted and how could that be realized?
The potential answers at this question have been generated real polemics in specialty
literature, different opinions regarding the certification system of Romanian internal auditors being
divided in two main directions:
 One option for the certification system of internal auditors from Romania, especially for the
auditors from public sector is that should be realized through an activity of master type,
specific to institution of high learning from Romania. The first step of such an activity
supposes the establishing of the universities that could organize such activities with a good
reputation, being recognized as having a good practice in this area. The curricula of those
universities should be realized in cooperation with the representatives of Public Finances
Minister with a structure on three semesters and having the agreement of Education and
Research Minister. There are more specialists which are agreed with this idea like: Ghiţă
Marcel (2006), Ghiţă E. (2007);
 At the opposite pole it could be identified the option sustained by the representatives of IIA
Romania chapter, the Association of Internal Auditors from Romania (AAIR), which considers the
best solution would be the certification Certified Internal Auditor (CIA) with national recognizance.
In that direction, AAIR have been started to action since 2006, organizing preparing courses for the
passing of exam and obtaining of Certified Internal Auditors qualification. The main benefits of this
qualification presented by AAIR are the international recognizance that proves the professional
competence at the highest level, those four exams included in this process of qualification verifying
the candidates’ abilities and knowledge of internal auditing practices.
Of course, every representative of previous opinions tries to argue its viewpoint as best as
possible. In this way, the promoters of master activity sustain the idea certification as Certified
Internal Auditor is only for elite (Ghiţă, M,. 2006), while certification through master activity
would be more accessible for Romanian internal auditors. But the representatives of AAIR consider
this affirmation without strong arguments because the only one difficulty in obtaining the CIA
202
certification is sustaining of all exams in other languages than mother language, but the eliminating
of such a difficulty is one of the objectives that AAIR will try to accomplish as soon as possible.
Another argument of AAIR is that obtaining of such a master degree supposes bigger costs
and a diploma with only national recognizance appreciating that still these types of degrees are
obtaining by elites. Even more, the representatives of AAIR initiate the idea of common
cooperation for the progress of educational and certification system of Romanian internal auditors
through European funds in order to realized the translation of CIA exams in Romanian language,
eliminating in this way a major disadvantage for those ones that do not know very well an
international language.
These divergences went far away and in December 2007, the president of AAIR addressed a
letter to the Public Finances Minister (Economy and Public Finances Minister at that time), trying
to argue the official position of AAIR, giving a lot of arguments, proposing in the same time
relevant changes and completions of Law no.672/2002 regarding public internal audit. The received
answer was these proposals made by AAIR will be presented and discussed with internal audit
specialist form public system, in order to find the best solution. Which solution is really the best?
Probably the future will give us the answer at this difficult question.
In our opinion, even if the certification through a master activity will be adopted for internal
auditors from public sector, in the case of private entities we sustained the efficiency of professional
competence provided by Certified Internal Auditor qualification to a certain internal auditor from
private sector. In fact, we consider the best qualification for internal auditors from private sector
could be:
 Certification as financial auditor, member of Chamber of Financial Auditors from
Romania, a compulsory requirement in the case of managers of internal audit department in the
case of economic entities according to legal settlements;
 Certification as Certified Internal Auditor because is a qualification with a national
recognizance assuring for the owner of such a qualification the proof of a higher professional
competence.
The empirical study realized by Boţa-Avram C. (2009) among the 105 members of AAIR
had many research objectives, one of these consisted in finding the most relevant certification
modality in the vision of respondents – Romanian internal auditors. The results of this study were
analyzed through a comparative analysis between two categories: internal auditors from private
entities and internal auditors from public entities. Next, we present the results obtained (table no.1
and table no.2):
Table no.1 Relevant modalities of professional qualification for

internal auditors from private entities
Relevant modalities of professional qualification for
(5) (4) (3) (2) (1) Total
internal auditors from private entities
Certification as Certified Internal Auditor with the
support of Association of Romanian Internal Auditors 66% 24% 10% 0% 0% 100%
(AAIR)
Certification at national level through a master degree
2% 15% 22% 22% 39% 100%
specific to high learning institutions
Certification as financial auditor - member of
10% 15% 32% 15% 29% 100%
Chamber of Financial Auditors from Romania
(5)- Very important, (4) - important, (3) - neutral, (2) - less important, (1) - not at all important
Source: Boţa-Avram C. (2009)
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Table no.2 Relevant modalities of professional qualification for

internal auditors from public entities
Relevant modalities of professional qualification
(5) (4) (3) (2) (1) Total
for internal auditors from public entities
Certification as Certified Internal Auditor with the
support of Association of Romanian Internal 44% 19% 23% 11% 3% 100%
Auditors (AAIR)
Certification at national level through a master
25% 16% 13% 16% 31% 100%
degree specific to high learning institutions
Certification as financial auditor - member of
9% 6% 19% 17% 48% 100%
Chamber of Financial Auditors from Romania
(5)- Very important, (4) - important, (3) - neutral, (2) - less important, (1) - not at all important
Source: Boţa-Avram C. (2009)
Analyzing the structure of responses from the previous tables we can easily notice that
certification appreciated as being the most important is Certified Internal Auditor through AAIR
(for 66% internal auditors from private entities and for 44% internal auditors from public sector).
The relevancy of certification through a master activity is appreciated as being very important by a
very small number of internal auditors from private sector (only 2%), and 25% of internal auditors
from public sector are giving a significant importance (25%).
Very interesting is the structure of the answers obtained for the certification as member of
Chamber of Financial Auditors from Romania, only 32% of internal auditors from private entities
and 19% of internal auditors from public sector appreciate this type of certification as being neutral
important. We consider these results as being at least surprising, especially in the context that legal
settlements (Emergency Government Order no. 75/ 1 June 1999 regarding the financial audit
activity, article no.23) require that managers of internal audit departments for private entities must
have the quality of financial auditor. One possible explanation for the results could be the structure
of respondents from their function’s point of view (only 13% of internal auditors of public entities
and 27% of internal auditors from private entities) are managers of internal audit departments.
There are significant differences between internal auditors of private entities and internal auditors of
public entities regarding this certification, but these could be justified through the obligation of
certifying as financial auditor and member of Chamber of Financial Auditors from Romania is
required only for the managers of internal audit department from private sector.
5. CONCLUSIONS
As a result of our activity research for realizing this paper, next we will draw the most
important conclusions that could better answer at the question: Quo Vadis internal audit
education?
 Internal audit education has been largely ignored in the business curricula throughout the
period that the internal auditing profession has been experiencing significant growth.
 Promoting internal audit education is one way institutions can provide a broader education
to accounting students and serve companies that are seeking qualified internal auditors.
 The need for very good specialists in internal auditing become more and more important,
especially in the difficult economic context that we have to face with.
 Internal audit education can be as simple as providing a single course in internal auditing,
or it may take the form of a specialty in the field of economic universities. Whatever the
approach that will be adopted, we recommend promoting internal audit education to help
fill the gap in the accounting curricula, because internal auditing helps students to develop
stronger analytical, problem-solving, and judgment skills.
 Especially for Romanian national context, but not only, we consider that according to the
complexity of internal auditing work it is absolutely necessary the certification of internal
auditors. In this way there are going to discourage those passing passengers within internal
204
audit activity, that are only looking for a job, no matter what they have to do, finally
remaining anchored in internal audit profession only those really dedicated to internal audit
profession.
6. REFERENCES
1. Agraval, S. & Siegel, P., (1989), Significance of CIA certification, Managerial Auditing
Journal, Vol. 4 No.3, pp.17-22
2. American Accounting Association (1955), A project report of the 1954 Task Committee on
Internal Auditing Education, Accounting Review, pp. 58-69.
3. Boţa-Avram, C. (2009), Auditul intern al societăţilor comerciale, Risoprint Publisher, Cluj-
Napoca
4. Dittenhoffer, M.A. & Klemm, R.J. (1983), Ethics and the Internal Auditor, IIA Monograph
Series, The Institute of Internal Auditors, Altamonte Springs, Florida
5. Ghiţă E. (2007), Audit public intern, Sitech Publisher, Craiova
6. Ghiţă M. (2004), Auditul intern, Economic Publisher, Bucharest
7. Greenawalt, M. (1991), Internships: injecting real-world experience into the internal audit
curriculum, Managerial Auditing Journal, Vol. 6 No. 2, pp. 27-31
8. Kusel, J., & Oxner, T. H. (1987), The internal auditor job market 1988, Little Rock -
University of Arkansas at Little Rock
9. Neumann, F. L. (1972), Auditing education - A decade of transition: And now?, Journal of
Accountancy, March, p. 87-90
10. Phillips, T.J. & Lewis, B.T., (1991), Internal audit education: The accounting curriculum's
greatest deficiency, Journal of Education for Business, Jan/Feb, Vol. 66, Issue 3
11. Sawyer, L.B. (1981), The practice of modern internal auditing, The Institute of Internal
Auditors Inc.
12. Sawyer, L.B. (1991), Internal auditing: practice and professionalism, Internal Auditor.
June, accessible on-line la http://findarticles.com/p/articles/mi_m4153/is_n3_v48/
ai_10819136
13. Sumners, G. E. (1985), IIA's coordinated, systematic approach to education, Internal
Auditor, December, pp.18-23
14. Vinten, G. (1988), Educating auditors: the future of the profession, Managerial Auditing
Journal, Vol. 3, MCB University Press
15. Vinten G. (2004), The future of UK internal audit education: Secularisation and
submergence?, Managerial Auditing Journal, Vol.19 No.5, pp.580-596
205
THE DISCRETIONARY FISCAL POLICY IN THE EUROPEAN ECONOMIC AND

MONETARY UNION
Lecturer PhD Candidate Cristian PANA

Ecological Univeristy Bucharest, Romania
cristi.pana@gmail.com
Abstract
This paper reviews the macroeconomic use of national fiscal policy within the European Economic and
Monetary Union and the effect the discretionary fiscal policy has on the economic activity. It also considers the
difference between policy intentions, as formulated or perceived in real time, and actual outturns, and possible reasons
for the gap between the two. The analysis of the stance of national fiscal policies finds evidence that the quality of fiscal
policies has improved in two ways: they are more clearly countercyclical – or less procyclical – and they are more
readily used to restore competitiveness than to attempt to boost demand when competitiveness is eroded. In Sections IV
and V there are presented two successful cases of discretionary fiscal stabilisation, respectively the lessons to be
drawn.
Key words: Fiscal policy, fiscal stabilization, Stability and Growth Pact, monetary union, euro, EMU.
JEL classification: E61, E62, E63
1. INTRODUCTION
The Euro area will likely remain for a long time a one-of-its kind arrangement with a
centralized monetary policy and decentralized fiscal policies. This is, after all, the same
arrangement as in most federal states, with two key differences. First, in Europe, the “federal”
budget is very small and largely automatic. Second, in contrast with many federations where
decentralized budgets are subject to strict imbalance limits while the centre carries out fiscal policy,
Europe’s centralized budget must be balanced while sub-central budgets are in charge of fiscal
policies.
That fiscal policy can be used as a macroeconomic policy tool does not mean that
governments do so in an appropriate way. A long tradition has identified a number of lags –
recognition, decision, implementation – which could result in badly timed effects. An equally long
tradition has pointed out that governments may be more motivated by political gains rather than by
economic management concerns. If fiscal policy actions are not driven by a macroeconomic
stabilization motive, it may not be systematically countercyclical. The question, then, is whether
euro area membership affect policymakers’ incentives and, if so, how. A first place to look at is the
Stability and Growth Pact (SGP). On one hand, it can help governments to resist pressure from
interest groups and therefore improve the quality of fiscal policy. On the other hand, it reduces the
room for manoeuvre and lead to pro-cyclical policies.
Another consideration is the fact that the exchange rate is no longer available to boost
external competitiveness, with two opposite potential effects on the conduct of fiscal policy. First,
governments may be tempted to use fiscal policy instead of monetary policy to counteract a
temporary competitiveness loss when a euro appreciation reduces domestic demand. A different
case concerns a loss of external competitiveness due to domestic inflation or to a relative
productivity decline. In a monetary union, external competitiveness can only be restored the hard
way, through sustained cost and price moderation or enhanced productivity gains. Fiscal policy is
no longer a substitute to monetary policy (1). Its only possible macroeconomic contribution is to
encourage cost and price moderation, possibly by restricting demand in goods and labour markets.
This would make fiscal policy countercyclical during upswings and a-cyclical during downswings
as long as the exchange rate is overvalued.
All in all, the impact of the adoption of the euro on the macroeconomic use of fiscal policy
is ambiguous. We expect more countercyclical action as fiscal policy substitutes for the lost
monetary policy instrument, less use of this instrument in downswings as a result of the SGP,
206
especially in countries where the budget deficit is not far enough from its 3% ceiling and an
asymmetric use for countries with an external competitiveness shortfall.
2. THE EFFECT OF DISCRETIONARY FISCAL POLICY ON ECONOMIC

ACTIVITY
The question of the usefulness of fiscal policy as a macroeconomic tool is highly

controversial. At the theoretical level, the debate pits (neo)classical against (neo)Keynesian
macroeconomists. The former asserts that, one way or another, consumers and firms view public
debts as their own liability; accordingly, they reduce their expenditures whenever the debt increases
or diminishes less than previously expected. The latter relies on price stickiness, borrowing
constraints and/or other market imperfections to find that fiscal policy can affect output. In view of
such conflicting theoretical results, the verdict should come from empirical studies.
Empirically, too, the issue is controversial. Some authors find that fiscal policy affects the
output, even though the multipliers are small and have possibly declined in recent years. Others find
that consumption moves in an offsetting direction, although the offset effect is partial, which leaves
a small output effect. The reason why different authors reach different results is that, even if all of
them use variables estimates to pinpoint the relationship between output and fiscal policy, and the
cyclically adjusted balance as a measure of the fiscal policy stance (2), they differ in the way they
identify the variables. Those who find a positive effect of fiscal shocks on consumption, and
therefore output, typically use quarterly variables and make the assumption that there is no
contemporaneous effect from cyclical conditions to policy discretionary actions.
Despite the conventional macroeconomic thinking that fiscal policy can and should
contribute to smoothing temporary swings in aggregate economic activity, pro-cyclicality of fiscal
policy remains a widespread phenomenon around the world. Studies find that in developing and
middle income countries fiscal policy has frequently moved with the cycle. For developed
economies the findings are more nuanced and depend on the time period and countries considered.
When fiscal policy has been pro-cyclical in industrial countries, it has mostly been so in good
economic times (Manasse, 2006 and Alesina and Tabellini, 2005). The deficit bias in good times
has largely been attributed to political economic motives as policy makers may attach more weight
to objectives other than the stabilisation of output. In particular, when competing for public
resources ministers neglect the repercussions of their decisions on overall public finances. This
'common pool problem' gets worse in good economic times as more overall resources are available.
The pro-cyclicality of fiscal policy has also emerged as a characteristic of the euro area
(Langedijk, 2004). Since the early 1990s, when EU Member States agreed to establish an economic
and monetary union and started preparing for the single European currency - which was effectively
introduced in 1999 - repeated episodes of pro-cyclical fiscal policy have been observed. On the face
of it, these episodes seem to have vindicated critics who have argued that the SGP would seriously
hamper the stabilisation function of fiscal policy. Such judgement was passed well before the SGP
came into force - for instance by Buiter et al. (1993) - and was reiterated more forcefully - for
instance by Canzoneri and Diba (2001) and Calmfors (2003) – a few years after its inception.
However, available econometric evidence on how the EU fiscal framework may have
affected fiscal stabilisation in the countries adopting the single European currency is not necessarily
discouraging. The introduction of the euro does not seem to have weakened the ability of fiscal
policy to stabilise cyclical swings in general. Gali and Perotti (2003) were among the first to
conclude that the SGP has not impaired the stabilisation role of fiscal policy. They actually find that
a clear pro-cyclical pattern in the pre-Maastricht period has given way to a more counter- or a-
cyclical trend after 1991. Similarly, Fatas and Mihov (2003) document that the SGP constraints
seem to have mitigated the various influences that are believed to distort the use of the fiscal policy
instrument. But these findings need to be qualified on at least three accounts.
First, the estimated improvement in the stabilisation property of fiscal policy in the euro area
after 1991 masks a significant change in the behaviour across the different phases of the economic
207
cycle. In the period preceding Maastricht (1980-1991), there is a clear pro-cyclical stance in both
stages of the cycle: the fiscal stance is on average expansionary in good times and contractionary in
bad times. The pattern changed in the second sub-period (1992-1998) when the countries, in an
effort to fulfil the Maastricht criteria for adopting the euro, ran on average tight fiscal policies
irrespective of the cyclical position (3). After the introduction of the SGP and the single currency in
1999, the pattern has shifted back to what it was in pre-Maastricht times with pro-cyclicality in
good times being particularly pronounced.
A second important provisio to keep in mind when considering the findings of Gali and
Perotti (2003) is that the panel estimates may not necessarily capture the correct policy
implications. While ensuring statistical rigour, panel estimates attach the same weight to each
country independently of its relative size in the euro area. Consequently, emerging statistical
regularities may not reflect the factors that actually shape the policy stance and, in turn, the policy
mix in the monetary union as whole. In particular, they do not appropriately highlight the role
played by the fiscal performance in large euro-area countries, whose behaviour ran afoul with the
provisions of the SGP and eventually led to the crisis of the Pact in 2003 (Buti and Pench, 2004).
Even if all euro-area countries run a counter-or a-cyclical fiscal policy, except Germany, France and
Italy (as was for instance the case in the early 2000s) the overall policy stance of the euro area
would still be pro-cyclical.
And third, Gali and Perotti's study accounts only for the period up to 2002 and therefore
does not capture the pro-cyclical episodes since. Across the EU-11 nearly half the years since 2002
were characterised by a pro-cyclical stance. Since this included the largest members of the
monetary union this has translated into pro-cyclicality for the euro area as a whole.
To underscore the alleged shortcomings of the EU fiscal framework, critics often called
attention to the US experience since the mid-1990s where, prima facie, fiscal stabilisation appears
to have been more successful. Based on the traditional analysis which looks only at the role of
discretionary fiscal policy, fiscal policy in the euro area emerges as having been more pro-cyclical
than that of the US. The euro-area fiscal policy was characterised by strong pro-cyclical fiscal
tightening in the run-up to EMU, followed by an adjustment fatigue that created a pro-cyclical
fiscal loosening despite sustained economic growth (2000-2001). When economic conditions
deteriorated from 2002, fiscal policy tightened again and then moved towards a neutral stance
during the upswing in 2005-2007. This pattern seems to be in contrast with the experience recorded
in the US where discretionary fiscal stance has largely helped to stabilise the economy even though
this was not the explicit and prime objective of fiscal policy in every year. In particular, the sharp
turnaround from a cyclically-adjusted primary surplus in 2000 to a deficit of more than 3% of GDP
in 2002 was not only a response to the economic slowdown following the bursting of the
information society and technology (ICT) bubble in 2001. Rather, it largely reflected (i) the
increase in defence spending linked to the war in Iraq and (ii) tax cuts with an electoral motive.
3. THE STANCE OF FISCAL POLICIES
Assessing the stance of fiscal policies is complicated since the cyclical position of the
economy is not always clear. From the point of view of fiscal policy the most common measure of
the cyclical position of the economy has traditionally been the output gap. The first ten years of
EMU then roughly coincides with a full cycle, consisting of three phases, dubbed “boom” (or "good
times"), “downturn” and “recovery”. A boom is defined here as an episode in which the gap is
positive and increasing. A downturn is called if the gap is falling and turning negative and a
recovery is called when the negative gap is closing (4).
There is a strong resemblance with the previous cycle, which according to the same criteria
also spanned ten years (1989-1998) and portrayed a similar time profile for the output gap. For the
assessment of the stance of fiscal policy it is important to consider that governments may have been
led by quite different perceptions of the cyclical position of the economy than suggested by the
output gaps as estimated ex post. Comparing the actual (ex post) evolution of the output gap in the
208
euro area with that observed in real time, it can be observed a much smaller variation of the level
and changes of the output gap ex ante than ex post, a phenomenon that is common to virtually all
participating countries. Apparently, most countries did not perceive the relatively hefty cyclical
swings going on at the time. More specifically, many countries did not recognise the positive values
and saw much smaller increases of the output gap in 1999-2000. They were also largely unaware of
the extent of the 2001-2003 downturn. The record of Euro area countries with respect to the errors
in assessing the cyclical position of the economy over this period compares unfavourably with that
of the United States where revisions of the output gap have been relatively small since 2000 (5).
Political economy factors play a role in explaining why official macroeconomic forecasts in
EMU display systematic optimism about medium-term economic growth and – by extension – of
potential output during upswings. While most forecasters had a tendency to overstate growth
prospects in the early 2000s, in a number of large euro-area countries, the macroeconomic scenarios
underpinning budget plans exhibited a rather persistent upward bias (Jonung and Larch 2006).
These optimistic growth projections biased the estimated trend growth upward and as a result
potential output was overestimated and the real time output gap accordingly underestimated. This
bias may be partly the result of the incentives generated by the SGP itself. Indeed, an
overestimation of potential output is "convenient" in the sense that it puts a favourable gloss on the
annual stability programmes by easing the move towards the close to balance or surplus
requirement over the medium term (since a bigger share of fiscal deficits will be labelled
"cyclical"). Ex post, however, it causes budgetary slippages as expenditure levels are typically not
immediately adjusted in the face of lower than projected economic growth and the associated lower
than projected revenues.
The issue then becomes how fiscal policy, as gauged by the change in the cyclically-
adjusted primary balance as a share of GDP, behaved during the cycle, both in real time and ex
post. Differences between the two largely reflect the assessment of the output gaps as revisions in
the nominal budget numbers themselves have been comparatively minor (6). Looking at the record
in more detail, the following can be inferred:
 In an ex post sense, although pro-cyclicality has not been widespread in the 1999-2000
boom, on aggregate the stance was slightly stimulatory. This does not compare
unfavourably with the boom of 1989-1990, when fiscal policy was clearly eased in a pro-
cyclical manner in the vast majority of countries – with the notable exceptions of Italy and
Belgium where high debt levels and an associated surge in debt servicing forced fiscal
consolidation upon them. However, the ex post observed neutrality was not in the plans in
most countries ex ante, with the real time measure suggesting that, on average, the fiscal
stance was tightening – i.e. counter-cyclical. This reflects the underestimation of the extent
of the boom and hence the cyclical component of fiscal gains.
 In the 2001-2003 downturn the fiscal stance was stimulatory in most countries (except for
Spain, Portugal and Austria) in an ex post sense – i.e. counter-cyclical. This may have been
motivated by stabilisation considerations, but it is more likely to have been driven by the
mechanism described above: governments were responding as if there had been a structural
improvement in the fiscal position. This tendency may have been reinforced by the
unusually busy electoral calendar at the time – notably in the larger countries (Buti and van
den Noord, 2004). The ex ante stance also suggests counter-cyclical fiscal stimulus in this
episode, but again this was probably accidental. It is in contrast with the 1991-1993
downturns when many countries tightened their budgets, possibly in response to
sustainability concerns and financial market turbulence.
 In the 2004-2008 recovery governments were forced to correct the past excesses, with
several countries facing Excessive Deficit Procedures. The fiscal tightening eventually
leaned against the wind of the recovery, but this was prompted more by the fiscal
consolidation needs imposed by the SGP than by a desire to choke off the upswing. This
drive to consolidate budgets is confirmed by the real time measure, which also indicates a
tightening stance of fiscal policy. This behaviour is quite similar to the previous cycle, when
209
fiscal policy was tightened in the recovery phase in a vast majority of countries (France is a
notable exception). This reflected the measures taken to qualify for euro adoption
subsequent to the Maastricht Treaty. Electoral considerations may have played a role as
well: qualifying for the single currency was seen to raise the odds of re-election unlike in
normal times when governments tend to ease fiscal policy during the election campaign
(Von Hagen 2002).
Building on the past experience, the macroeconomic projections underpinning budgetary
plans seem to have become more cautious in recent years. However, at this stage there is still
considerably uncertainty around the size of the output gap. There have recently been downward
revisions of the macroeconomic projections and this may be reflected again in lower potential
output, in which case the output gaps may well turn out higher (and the structural fiscal positions
worse) than initially thought. In addition, the structural fiscal positions may be biased upward due
to the (now maturing) housing booms in many countries. The experience of the end of the 1990s
has shown that upswings in asset prices go along with buoyant inflows of tax revenues going well
beyond the expansion of aggregate economic activity, which lead to a temporary increase in
implicit tax elasticity with respect to the output gap (7).
In several countries the convergence towards the euro unleashed a set of events that is likely
to have led to higher than normal government revenues, which in turn may mislead fiscal policy
makers to believe in a structural increase in available resources. This risk is further heightened by
the fact that during the upswing the composition of output itself is comparatively tax-rich, with
home pressure of demand and competitiveness effects squeezing VAT-exempt exports and boosting
VAT-liable imports. During the 1999-2000 boom these types of mechanisms led to the conclusion
that the high tax content of growth was likely to be permanent, and the policy response was to
reduce taxes or to increase expenditure plans at a time when the economy was de facto operating
above potential. The same type of errors may well turn out to have been repeated at the current
juncture.
4. SUCCESSFUL CASES OF DISCRETIONARY FISCAL STABILISATION
In spite of the generally negative findings of econometric studies, one may still raise the
question whether there are any specific and significant cases of successful discretionary fiscal
stabilisation in the recent history of the EU and, if yes, what lessons can be drawn from them.
Two episodes are of particular interest, which are however very a-typical as deficits were also run
in order to bail out financial institutions: Sweden and Finland in the early 1990s. At the time, the
two countries went through a very steep recession, in the aftermath of the collapse of the Soviet
Union coupled with a domestic crisis of the banking sector, and against the backdrop of an
overvalued exchange rate and tight monetary policy. Both economies recorded negative growth
over the three consecutive years 1991-1993, amounting to a cumulated loss of output of 4.3% of
GDP in Sweden, and 10.8% in Finland. In both countries, the crisis triggered a significant fiscal
expansion, largely focused on the expenditure side. Starting from surpluses, the headline balance of
the general government accounts moved deeply into negative territory posting in 1991 a deficit of
11.4% of GDP in Sweden and of 7.8% of GDP in Finland. Over the whole episode (1991-1993) the
cyclically-adjusted primary budget balance (CAPB) deteriorated by 9.9% in Sweden, while in
Finland it deteriorated by 'only' 3.4%. However, the latter fact could also be interpreted as a
successful switching strategy, with tightening taking place once the economy had been 'kick-started'
again. Indeed, by then the Finnish authorities already increased taxation considerably and only
reversed that policy stance from the mid-1990s onwards. The Swedes took longer to reverse their
fiscal policy stance.
The economies soon returned to a relatively high growth path and the rate of unemployment
declined. Fiscal policy remained tight in both countries after the counter-cyclical episode, with the
result that within a few years they were both building up budgetary surpluses, Finland in particular
some of the highest ones in the EU. So overall, and with the benefit of hindsight, both cases appear
210
to have been a success. On the face of their apparent success, however, much of the fiscal
expansions recorded ex post in Sweden and Finland in the beginning of the 1990s was simply the
working of automatic stabilisers or occurred un-intentionally; i.e. was about not adjusting
discretionary expenditure in the event of a sharp decline of revenues during the recession. In fact at
the time already fiscal contractions were actually intended (Jonung, 2008), but did not materialise
due notably to a mis-estimation of potential growth. Interestingly, in both countries the counter-
cyclical fiscal stance of policy was accompanied by far reaching measures to scale back public
consumption, which in Finland started earlier than in Sweden. A major decline of the size of the
public sector took place after the end of the recession period. Indeed, counter-cyclicality in the two
Member States went hand-in-hand with fundamental structural and institutional reforms.
5. LESSONS TO BE LEARNED FOR THE CURRENT SITUATION
Discretionary fiscal policy has the potential to smooth cyclical fluctuations. In practice,
however, the potential effectiveness most of the time does not come to fruition. Available evidence
shows that discretionary fiscal policy is at best a-cyclical largely because (i) policy makers do not
have the necessarily information in real time to implement effective measures and (ii) stabilisation
of output may not be the primary preoccupation of fiscal policy makers when implementing
discretionary measures.
One of the key lessons to be drawn from this is that the stabilisation function of fiscal policy
should mainly be taken care of by automatic stabilisers. According to existing work, automatic
stabilisers are comparatively effective in the EU reducing the volatility of output by around 25%
and more (van den Noord, 2000 and Barrel and Pina, 2000). The size of automatic stabilisers in
Europe also compares favourably with the US. In the group of countries adopting the single
European currency the budgetary sensitivity, the parameter that measures the automatic reaction of
the government budget to cyclical swings in output, averages 0.5, twice the size of what is
estimated for the US.
To the extent that it does not conflict with the requirements of the SGP, the recourse to
significant discretionary fiscal stabilisation could be instrumental in the wake of sharp and
protracted economic slowdowns after other policy instruments have not produced the desired effect.
These conditions are clearly not met at the current juncture. The EU economy exhibits signs of
recession, but is more resilient than the US. Automatic stabilisers and the common monetary policy
should take their part first, before any other measures are to be considered.
NOTES:
(1) Tax changes, as enacted in Germany in 2007, may partly mimic a depreciation, but this is not a
macroeconomic use and it does not require any change in the budget balance.
(2) A different literature looks at the automatic stabilizers. Some authors claim that a heavy tax burden may well
reduce the effectiveness of the stabilizers.
(3) The on average counter-cyclical stance in good times in 1992-1998 must be interpreted with caution since the
output gap was positive only in a single year (1992).
(4) The output gap showed another decline in 2005. However, this decline was comparatively small and in terms
of changes in the output gap the trough had clearly been attained in 2003.
(5) On the other hand, there is a substantial difference between real-time and ex-post estimates for the US prior to
2000. This reflects that forecasters ex post attributed a bigger share of the expansion in the second half of the
1990s to stronger potential growth as opposed to the cycle (which led to smaller output gaps).
(6) This is with the exception of cases where accounting issues gave rise to major revisions
(7) The increase in the stock of wealth had a beneficial effect on government revenues through a number of
channels: (i) via the wealth effect and high consumption on indirect taxes; (ii) via capital gains on taxes on
income; (iii) via transactions on assets on turnover taxes.
211
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12. Manasse, P. (2006) "Pro-cyclical Fiscal Policy: Shocks, Rules, and Institutions – A
View From MARS", IMF Working Paper 06/26.
13. Van den Noord, P. (2000) "The Size and Sole of Automatic Fiscal Stabilisers in the
1990s and Beyond", OECD Economic Department Working Paper No. 230.
14. Von Hagen, J. (2002) "More growth for stability – Reflections on fiscal policy in
Euroland", ZEI Policy Paper.
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CONCEPTUAL APPROACHES CONCERNING THE NEW PARADIGM OF THE

MONETARY ECONOMY
Professor PhD. Spiridon PRALEA

University of Iaşi „ Al. I. Cuza”, FEAA, Romania
Lecturer PhD. Irina – Ştefana CIBOTARIU
University Stefan cel Mare, Faculty of Economic Sciences and Public Administration, Suceava, Romania
irinac@seap.usv.ro
Lecturer PhD. Candidate Anişoara-Niculina APETRI
University Stefan cel Mare, Faculty of Economic Sciences and Public Administration, Suceava, Romania
anisoarad@seap.usv.ro
Abstract:
The currency played in generally an important part within the popular conception as concerns the economy
and life. The currency users have placed the currency within the economic activity, but in contradictory with the
classical theory, they have proved that currency has not a real effect, opinion that has been checked within the real
cycle theory of the business (according to authors F.E.Kydland and E. Prescott).
While during a long duration of time, the monetary theory has been governed by the idea, according to which
the currency has no significance, the FED has eliminated such an opinion – by its frequent decisions of modifying the
interest rates, fact that confirmed that currency does matter, at least on short term. Within this context, the most
important aspect of the economical theory is of explaining why and how it carries pout, in order to propose the best
references to the political deciding representatives, when these were trying to use the monetary politics in order of
reaching an economical expansion, until that point where the rate of inflation hasn’t increasing.
The new paradigm of the monetary economy consists in the fact that it proves the inconsistency of the
monetary theory, according to which the transactions have generated the currency demand. The part of the currency
has been in adjusting between currency demand and available funds. This aspect assumes knowing the importance of
the information imperfections and of banks behavior.
Key-words: Monetary Theorie, The New Paradigm, Monetary Aggregates, Monetary Politics, Taxes;
JEL Classification: E12, E52, E42;
INTRODUCTION
For the theorists, the monetary theories has been representing for long time a special
challenge, respectively the founding of hypothesis that can allow or not the validation of theories.
This challenge was difficult, since though the construction of the models where the currency plays a
central part was easy, although the number of those leading to quantitative effects was significantly
reduced, which might have offered the reality.
The macro-economical approaches have been based in generally on the effect that real
equilibrium, respectively on the situation, when prices are reduced and the value of the currency is
increased, thus allowing a greater satisfaction to the individuals. Actually, the importance of the real
effect is especially reduced, more towards the situation of an economical restarting.
The monetary doctrine, according to which the prices grow proportionally to the increase of
the monetary offer, no matter the monetary regime, it proves that there are no effects over the real
transactions.
A current opinion assumes that monetary theories are based upon the principles of the
micro-economy. Other economists emphasize the fact that monetary templates and theories are not
adapted, and that they have to be established upon the maximization principles, therefore
introducing the currency within the production and utility functions.
Research carried out after the 1990 year has tried to reaffirm that the currency has no
significance. For this fact, it has been proved that the public financial politics has no effects
considering the monetary point of view.
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Of the government reduces the taxes and increases the public due, the demand of treasury
certificates will grow by an amount rigorously equal to the increasing of currency offer. A
modification within the structure of due’s dates of payment will not carry out any effect,
On supporting this theory, certain hypotheses have been carried out, meaning:
 the absence of distortions produced by the rate installments;
 the absence of effects for redistributing between generations;
 the existence of the markets on capital perfect.
One of the most approached problems within the last 20 years was the investment of
consequences for expensive and imperfect information of the capital market activities carrying out.
It was proved that, therefore the models that assume imperfect capital markets are the most
adequate for the reality rather than those that are competitive, which might be characterized by
rationalization (limitation) of the credit and own funds. The models established towards the
imperfect and expensive information have supplied certain explanations over the secondary and
institutional character of the capital market, character that proves to be in contradiction to the model
of perfect market.
The model of imperfect market proposes a basis for the explanation of numerous aspects of
monetary aggregates functioning, which are not in harmony with the neoclassical competitive
model.
THE CRITICS OF CURRENCY DEMAND THEORY BASED UPON

TRANSACTIONAL REQUIREMENTS
There are many susceptibility reasons over the traditional explanations; J.M.Keynes could
not be comprehensible as concerns the currency definition, comprehension absence that authorized
different behavior and interpretations. Within this context, the attention was towards paid towards
the deposits demand, since they represent a part of the currency directly controlled by the monetary
authority and represents a larger component comparing to M1, which regroups all payment means
under the form of effective currency (bank tickets and divisionary currency) and of deposits into
current accounts, not carrying the interests and that represent the most active part of the monetary
mass or primary liquidity.
J.M. Keynes enumerated three reasons of currency preservation; precaution, speculation
and transitioning. J. Stiglitz considers pertinent only the third reason, the first two reasons being
related to using the currency as value reserve.
Therefore, the analysis of requirement has to be focused upon the currency requirement for
transactions. The last 15-20 years leaded to remarkable modification within transactions
technology, by the fact that a fast circulation of currency is possible. The relationship between the
conventional measured currencies mass and the level of incomes was not established in these years.
This fact, to which the unpredictable character of the currency speed is added, will prove that the
theory of currency demand has no practical utility and that this theory was exceeded.
THE CURRENCY CARRIES THE INTEREST AND HAS AN OPPORTUNITY

COST
A central topic and very controversial is the following: presently, within the advanced and
industrialized economies, the currency is carrying the interest, and the interest difference between a
monetary cost and a thesaurus certificate is determined, not by the monetary politics, but by the
transactional costs. In present, considering the modern technologies, the treasury certificates can be
used for transactions also, so that there is no opportunity cost in order to own the currency.
The monetary theories developed within last 30 years have developed an equation of
demand requirement, where the opportunity cost for owning it can also be taken into consideration.
The standard monetary theories explain the fact that monetary politics can carry out in order to
modify the currency offer, fact that induces a variation of interest rate. This modification is
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rebounded over the real economic compartments. Reducing the currency offer leads towards the
increasing of the currency price, the interest rate, this on its turn leads towards reducing the
demand. Within an opened economy there is a channel, by which the monetary politics can exercise
the influence. Increasing the interest rate makes more attractive the investments for the foreigners;
capital movements induced by the countries that increase the rate of interest leading therefore to
reducing the exporters’ demands and towards the increasing of importers’ demands. This model is
very useful for the currency politics representatives, since at least few relationships remains stable.
The conclusion would be that while the investment function is unstable, the currency demand is
stable also.
Recent models assume that currency demand is a function of national income value. The
biggest part of the transactions does not generate incomes, but are connected to sales or buying
assets. Although, these intertrade of assets do not involve obvious and stable connections with the
national income (the annual incomes of these transactions might be huge).
IS THE CURRENCY NECESSARY TO TRANSACTIONS?
Most of transactions do not need this type of currency that might be accomplished by credit.
The reason, for which the credit cannot be used in order to facilitate the intertrade, is related to
information insufficiency, which have to guarantee the approval of a credit, to an economical agent
or an individual. The decentralized character of the information within market economy makes
expensive the achievement of this information. But, the modern technology that allowed so many
progresses on monetary level, including the use of treasury certificates as currency, might allow the
use of the credit as basis of intertrade.
As concerns the variations of circulation speeds, the currency users have displayed certain
skepticism on mechanism for interest rate point of view, respectively for the real installment that
results from the real variables.
The business cycle theoreticians have developed the idea according to which the currency
has no importance for the real intertrade, it interferes over the prices level.
The explanations of the currency users are based upon the constant circulation speed, which
as compared to the classics that assume circulation speed as depending upon the opportunity cost of
the currency owning, the calculus proved that annual rate of the interest does not explain but
partially the variations of the circulation speed.
In order that relationship between currency and income to be explained, another definition
of the currency was in great demand. The error manifested into relationship between currency and
income needs a reexamination of the monetary theory basis, as more the apparent error of the report
between inflation and unemployment towards the end of 70 was produced due to certain postulates
of the traditional Keynes’s theory.
The monetary theory that is based upon using the currencies in order to perform transactions
carries out other problems, also:
 What do the investments determine?
 The rate of interest on short or long term?
 The rate of interest or the price of stockholding?
 The real or nominal rate of the interest?
The demand for investments is related to the rate of interest, on real terms, on long term or by the
price of stocks. Many empirical studies take into consideration the standard approach by which the
monetary politics exercises its effects.
The most important variable that influences the investments is the nominal rate of the interest. The
price of stocks is also the most pertinent measurement instrument of the capital cost, since it reflects
the market perception of the risk associated to the investments.
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THE THEORY OF JAMES TOBIN’S PORTFOLIO
J.Tobin explains, by theory of portfolio, which effects of the monetary politics result by the
modifications of relative currency offer into thesaurus certificates or by fiduciary currency, or, yet
by thesaurus certificates on long or short term (as the Twist operation, the Treasury takes the bonds
on long term and issues bonds on short term, in order to ameliorate the negative balance of
payments, and in order to maintain the economical growth). Such an action is based upon the theory
according to whom the rate of interest on short term is adapted by international capital movements,
while the rate on long term is related to the internal market, especially by the mortgage market.
Therefore, the theory of J.Tobin is advanced as comparing to the theory based upon
transactions, but excepts the part of institutions, since what matter the most in economy is the
demand and the offer for all the assets portfolio. The adjustments of the assets carry modifications
of the rate of interest and of the shares’ efficiency, fact that influences the real economic activity.
According to theory, the monetary politics carries out its effects, as result of the real rate of
the interest. The graphics prove that during times, the real rate is constant and there is no cyclical
variability.
The monetary politics balances other modifications of the economy but cannot make this
sufficiently, and didn’t succeed on avoiding the reducing of real rates of interest (according to
graphics, on long periods, except years ’70, of mineral oil shocks). Therefore, it becomes difficult
on relating the stability of real rate of interest, with enouncing the monetary theory that offer a
central part to the real rate.
The standard monetary theory focuses the rate of interest of the treasury certificates, but the
economical activity depends upon the rate that has to be paid by investors.
The hypothesis of standard theory is that these two rates of interest are separated depending
on risk; the interval between those two rates often varies. In 1191 in USA, the rate of thesaurus
certificates has decreased to 3-4%, while the rate of interest to credit cards was between 16-19%.
But, it becomes not justifying that risk adjusting has followed the same evolution with rates of
interest.
Other drawbacks of the monetary theory established on transactional needments:
1. The premises of theory are not enough convincing, where lots of problems remained
unsolved; do not explain the modifications in efficacy of the monetary politics.
2. The theory proposed by Stiglitz advances as alternative the fact that monetary
politics is unable to save economy from recession; it is unable on restarting the growth by its credit
offer or by ameliorating the conditions where credit is offered.
The standard approach of the monetary economy places the currency on a central place, but
the studies indicate the necessity of credit part’s emphasizing and also of its determinant factors.
Within recent approaches, the own funds concept is taken into consideration, on the part of
information on credits’ offer and on that of institutions, banks or economical agents, which achieve
information and assume risks associated to credits’ offer. Also, within monetary politics plan, the
recent approaches have proved the following aspects:
1. – Over the economical activity, influence is carried out by the conditions where credit
is proposed to the private sector; and the volume of credit and not the currency amount,
on general point of view.
2. – The relationship between conditions where credit is proposed (as the rate of interest)
and the rate of thesaurus certificates, which might considerably vary in time.
3. – The credit offer cannot necessarily vary in parallel with the currency offer,
modifying the relation between currency and credit being more obvious within crisis
period.
4. – The banks determine, on general point of view, the conditions of credit and its
volume. The aptitude and their attention towards loan is influenced by the rate of
interest to thesaurus certificates, but on a manner that depends upon the economical
conditions.
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5. – The variations of rate of interest affect the real value of the companies of banks and
of their preferences for loans.
6. – The monetary politics affect the economical activity, but no only by its effects over
the credit demanding (for the investments), but also by currency offer (especially when
there is the limitation of credit). Therefore, the monetary politics influences the offer
and demand required, which are interacting.
7. – On particular situations, the effects of currency demand over the offer mutual
influence (generating a distortion of the economical activity), but the effects over the
offer might be more powerful than those related to demand, in situation of a more
restrictive politics, even that inflationist.
8. – the monetary politics influences the behavior of banks and of companies, not only by
an effect of substitution generated by modifying the rate of interest, but only by an
effect of richness and cash-flow.
9. – The repercussions over the general equilibrium are propagated by crossing more
channels, other than those traditional. The high rates of interest influence the net value
and influence the risks and incertitude associated to value of assets and bankruptcies.
The increased rates of interest affect the preference for loans or for state bonds on long
term. Such effects can be increased, when regulations as concerns making proper the
capital impose also an inadequate risk adjustment, for certain categories of assets.
10. – The monetary politics has effects on long term. An actual increase of the rate of
interest, previously pronounced, can have very long term consequences, after the initial
impact.
11. – The monetary politics carries important economical distortions and these have to be
taken into consideration I order to emphasize the advantages comparing to other
methods of stabilization. The distortions can be corrected, but this solution reaches
towards decreasing the efficiency of monetary politics.
12. – When monetary politics takes action first over the bank system, the full effects are
rebounded over the economy assembly, due to credit installments.
13. – The competition growth within the bank system by eliminating or significantly
reducing the profits resulted from the spread of interest rate, will lead towards reducing
the efficiency of currency politics.
14. – Other modifications within the financial structure, as well as the growth of
commercial effects weight or of the market titles with dates of payment, and also for
the global integration of these, will lead towards alteration and even elimination of
monetary politics efficiency.
The new paradigm proposes that State has to be highly based upon the monetary politics, in
order to stabilize the economy, knowing the limits and costs of this action.
The monetary politics, in contradistinction to the politics of public expenses, needs a
reduced volume of information, since it is based upon market’s mechanisms, in order to guide the
low capacity functioning of the economy.
The monetary politics carries important a predictable multiplications; a growth of the
monetary basis leads to a multiplied expansion of the credit.
The monetary politics deform the economic environment and the incidences are not always
predictable. The market deformations are amplified once with the financial market development.
The monetary politics has a direct and powerful influence over the small and middle
enterprises activity (of the building field), which do not call commercial effects or titles on average
or long term, that can call only the bank credits. In contradistinction to the small enterprises, the
international companies can take their financing to one country to another. As these circulations are
more powerful, as much the impact of limitation to credit over the small enterprises will be reduced,
and the global impact of the reduced offer on internal credit will be smaller.
The monetary politics carries high costs correlated to the volatility and weakness of the
bounds market. Considering the absence of a performance bounds market, the companies prefer the
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self-financing or contracting credits. Therefore, the economies that depend upon, more and more of
the monetary politics, in order to be stabilized, can be marked by a reduced efficacy on global
allocation of capitals and also of the high disparities between marginal efficiencies of the
investments.
The distortion effects of the monetary politics are emphasized when aiming towards the
maintenance of rate of exchange. Such utilization leads towards the increasing of rates of interest to
extreme levels, if the economy is within the liquidity crisis.
Not involving within the stabilization of the rate of exchange carries similar effects, fact that
involves the question if there is no problem without solution? The answer is “no”. Reducing the rate
of exchange can have minimal effects over the economical activities if the companies exercise a
politics of careful indebtness and covering the rate of exchange.
The exporting companies carry out automatically the partial covering, since the incomes are
increased when the rate of exchange decreases. It becomes remarkable the fact that when the state
assumes such risk, it actually reduces the prices for companies that do not exercise an adequate
covering.
Over a long period of time, the FMI (Monetary International Fund) has supported the
necessity of offering the subventions, in order to avoid the devaluation, since the companies haven’t
practiced an enough covering over the currency risk. FMI was thinking that if companies do not
protect by specific techniques, it becomes necessary the intervention of public funds, in order to
maintain the rate of exchange or in order to reduce the devaluation diminution. Therefore, a system
by which companies that do not protect against the currency risk has been maintained.
The effects if monetary politics are found specifically on certain sectors of activity. The
agriculture and small enterprises cannot take the effects, being those that support most the
involvements of rates increased by the rates of interest. Majoring the rates of interests, towards the
years ’70 and beginning of years ‘80 in USA, has reduced considerably the activities of economies
houses, some of them having negative values. Numerous risk investments were made in order to
solve those respective situations. The employers have paid increased costs, and resources were not
adequately shared. These effects could have been reduced by two solutions: more rigorous
regulation and subventions, solutions that carried a considerable cost of the monetary politics.
As conclusion, the affirmation according to what the monetary politics is relatively
inefficient is based upon distortions and not adequate sharing of the effects. Also, not in the
advantage of monetary politics, the absence of foreseeing the effects and their irreversibility also
exists.
The monetary theory affirms that effects are predictable and easily reversible, due to the
simple relation existing between the monetary offer and the level of nominal incomes
On recent approach, where the main part is carried out by credit, the things are changing,
since a credit line for the individual cannot be substituted with a credit line from another. In this
way, the currency is considered to be anonymous, comparing to the credit. If a bank owns
supplementary reserves, and another one no, the reserves in surplus cannot be transferred to the
other banks.
Also, within the time of economical recession and financial crisis, it becomes difficult to
force the banks in order to loan more, respectively the amount carried out on increasing the
monetary basis. The incertitude that manifests as concerns this aspect comes from the fact that
banks have different expectations and that modifying the value of banks can become different.
Much more, the banks can have a better appreciation of the expected loss, in comparison to the
central bank, and each of them can hide the information that it owns.
Due to the high time interval between modification of monetary politics and the impact over
the economy, the authorities paid attention over the currency offer and more recently, on the rate of
interest to thesaurus certificates. These parameters progress normally, in tandem.
But, if circumstances are not normal anymore (as for instance: crisis states or inflation), then
for their economic activity it becomes important the credit offer, and also the conditions of offering.
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The responsible people of the monetary politics have reached to conclusion that average rate
of the credits’ rates of interest do not provide a fine measure overt the capital’s cost. If the
installments rates are increasing due to risk increasing, and of the information is symmetrical, and
the debtors and creditors are neutral as concerns the risk, then the increased level of the interest
rates do not lead towards restricting certain activities’ sizes.
A new conclusion can be formulated; meaning any type of monetary politics behaves a
certain level of uncertainty. The best instruments of monetary politics are these that allow the fast
detecting of an error and fast and facile. If the time interval necessary for detecting and amendment
is high or if consequences are irreversible, then this type of instrument has to be carefully used.
When FMI imposed installments of the huge rate of interest in East Asia (60% the nominal
rate of interest in Indonesia, real rates of 25% in Korea), affirmed: if they are too high, it will come
back over the monetary politics. But, these rates of interest have brought thousands of enterprises in
bankruptcy state. Decreasing the rates if installments could not reestablish the situation,
immediately, and the malnutrition and interruption the schooling have been represented the effects
on social level.
Considering the traditional way, the monetary politics and that of financial regulation are
considered separate topics. One is the branch of macro-economy, and the other appears as a branch
applied to micro-economy. One is based upon currency offer, and the other on the stability and
security of banks.
The aim of the new paradigm is that of proving that separation of the two systems is an
erroneous approach and of proving that financial bank regulation attenuates the effects over the
general state of the equilibrium.
THE RATIONALITY OF BANK REGULATIONS AND DEREGULATIONS
Why does the public power regulate the activity of financial institutions within the entire
world? The answer consists in the increased number of bankruptcies, which carried considerable
crisis into all economies, as well as public expenses dedicated to these directions. Upon basis of
these bankruptcies, the inadequate practices as concerns the credit exist; they come either by an
apparent behavior or by assuming certain increased risks.
Why do the banks perform such risky loans? The answer is the following: the private costs
had by banks are less important than the social costs. The argument to such intervention of the
public power can be analyzed on two points of view: if there are externalities associated to real
practices, then the state can play its part by the alignment of private costs to the social costs. On the
other hand, the state manifests its part by having the quality of underwriter. The state actually
assures the bank deposits, fact that involves an ethical problem of the risk: the insured persons
cannot fully support the costs of assumed risks. As result, the insurance companies try to regulate
the behavior of the insured persons, respectively of the banks. Therefore, the problem of the
financial regulations hasn’t been limited only to the rules of making proper the capital.
The real reason that justify the excessive trust within the norms of making proper the capital
result from the fact that it represents a solution less bad than free exercitation of bank profession.
The pertinence of the capital represents a stabilizer: as more a bank owns more own funds, as much
the state will support lower costs in situation of bankruptcy. On the other hand, the pertinence of the
capital leads towards a system of stimulations: as more the owners risk more the capitals, more
these cannot accept the risks of bank activity.
The impact of the capital pertinence has been analyzed by Hellman, Murdoch and Stiglitz
authors. These have proved that trusting within pertinence normative of the capital is not efficient,
in the Pareto way, no matter if there is or not an insurance of the deposits. The pertinence normative
of the capital might lead towards a less careful behavior, and the bank’s ability of operating can be
negatively influenced.
The fail of the regulations put in a concrete form on capital pertinence is recognized in
present as having an important part towards financial stability that characterized the greatest part of
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the countries developed and in course of development. On the above mentioned authors’ opinion, a
significant cause consists in the absence of the theory related to banks behavior, upon basis which a
theory of the bank regulations has to be built. The process of transaction into outgoing direction has
also been representing another major reason of the financial crisis, therefore manifesting by a vital
lack of the qualified staff.
As concerns the Asiatic crisis, this has been argued that the absence of a powerful financial
institution. Instead, as concerns the Scandinavian crisis, the institutions apparently powerful could
not prevent a crisis of proportions. On the other hand, as concerns Thailand, the Central Bank,
considered one of the most solid banks of the world in ’80, this knew a diminution of its part, as
result of the process of financial freedom, fact that emphasizes that before liberalization there were
institutions in better and powerful situations.
Although the regulation authorities are aware of these problems and propose a gradual
liberalization, this objective is difficult to be reached, since the preference for such risks has been
increasing once the programs of liberalization were announced.
The increased liberalization and integrating the capital markets, as well as creating the UME
have reached the problem of using possibility related to monetary politics in order o prevent an
economical crisis or in order to limit an overrunning of the economy. It becomes improbable, for
instance, for the Central European Bank, to decrease the level of unique interest rate in order to
restart the economy of Portugal. In this way, the governments are obliged to abandon such
representative instrument, for their power; the governments have also a freedom to action in this
field, where any difference of rate of interest between internal and exterior parts would generate
huge movements of capitals.
The analysis of this topic, within the context a new monetary paradigm, would allow
understanding of why regional fluctuations remain so important, even in situation of certain
integrated economies (as USA) and why the national governments have such possibilities of using
the monetary politics, and respectively of affecting the credit flows. This analysis explains why
there is yet an important part of the central banks in certain countries where using dollars were
carried out (the situation of Ecuador, the currency is related to the dollar).
The credit is funded by information, and particular, on information provided by small and
middle enterprises. From this, it results that information is local. The credit does not circulate on its
own, from one region to another and the part of local banks is very important on credits’ offering.
In situation where to these banks level, modifications as concerns the net value are produced, the
casualties cannot be compensated immediately by establishing new banks in those regions.
Although the theory admits that perfect information leads to capitals mobility, it was proved that
adjustments as concerns the credit situation are made due to migration of work force.
The connections between the level of regional development and state of recession can be
emphasized within integrated economies (as USA and UME). The main problems of this argue is
that of manner when the increase of the labor force is related to the local economic conditions
(regional) in comparison to those of world level. For instance, the weak local economic conditions
can carry a deterioration of the banks situation (by increasing the number of debtors with problems)
and a decline of the activity. Also, if local services are not developed, the labor force will be
directed towards industry.
In order to develop the correlation between recessions, the regional development and
monetary politics have been developed by two ways:
 One based upon the information and regional regulation of the capital market;
 Another model, based upon traditional approach of the competition.
The model based upon the information has proved that an amelioration of the local conditions,
as result of the economical growth can have very good effects over the financial market. Also, of
the financial markets are integrated, the funds will freely circulate. Remaking the local banks can
lead towards the increasing of the credit activity, directed on the most profitable projects. If the
information proves to be much localized, at least one part of the supplementary credit capacities
will remain at the local level.
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Within the classical model, the basic idea is that within economies of Eastern Europe, major
disparities are manifested as concerns the capital (and the migration of capitals is produced within
countries so that an equalization of efficiencies has to be reached). To such situation, certain
mechanisms have to be developed, which have to assure a better assignation of capitals, as for
instance, subsidizing the institutions involved, in order to replace the information lack. In other
terms, within this approach, the credit activity remains always under optimal; and the most
important problem is that of knowing the type of subsidize. Therefore, direct subventions can be
offered towards banks accompanied by over-evaluation of funds to financial market. This type of
subvention, named sovereign subventions, has the characteristics of being flexible and potentially to
be continuously given, not every year, as the budget subventions. For instance, the central bank can
subvention directly the regional banks, b reducing the bounds under the obligatory reserves form, or
by giving certain credits of rediscounting in exchange of the reserves remunerated to a very reduced
rate of interest. Therefore, an increased flexibility is increased comparing to the public subventions.
Another aspect of the analysis is that of politics modification to the developed countries, in
the way that modern technologies reduced the capacity of states in order to reduce the competition
within bank system. There are also certain regions where the development level of the market needs
the intervention of the governments in order to stimulate the economy. Therefore, it results that for
certain regions, the monetary politics is an instrument less and less efficient, in order to solve
certain crisis situations.
CONCLUSIONS:
The alternative paradigm of the traditional monetary theory proposed by authors Joseph
Stiglitz and Bruce Greenwald can be summarized by the following conclusions:
- the relationship between currency and credit is endogen and can be influenced by the
monetary politics.
- making hard the conditions for the monetary politics cannot be measured by the real rate of
the interest, more important being the available credit; if there is the credit rationalization,
then the demand matters, not the credit offer.
- the real rate of interest, pertinent for the economical activity is the rate of interest to loans;
it can register variations due to the rate of interest to treasury certificates and to the rate of
bank credits.
- the banks have an essential part of the credits allocation.
- the bank authorities have to prove attention in order to maintain the organizational and
informational capital, within the bank system, even when the economy starts a recession.
- the credit is heterogeneous; therefore, the monetary aggregates can supply wrong
information, and an excess of liquidity will not compensate the lack of funds from another
bank.
- the regulation politics, the norms of capital pertinence and the adjustment to risk can have
an impact over the credit, where trying of monetary authority on stimulating the economy
can be completely compensated by the modifications of the bank regulations field.
- the regulation politics has to be based upon the banks behavior theory.
- the ,monetary politics has its effects by actions over the global demand, but traversing the
global offer.
- the bankruptcy is a very important variable, which monetary politics has to take into
consideration. Within the monetary politics, the non-linearity and irreversibility phenomena
are manifested. A powerful increasing of the rate of interest can carry an increased number
of bankruptcies, and decreasing the rate of interests cannot protect the companies from the
eventual bankruptcies.
- on carryout out the causes and restructuring the financial systems, the consequences over the
credit flows have to be taken into consideration, which might influence the bankruptcy.
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- since the monetary politics affects not equally the different sectors of activity, an increased
trust of the monetary politics might involve powerful distortions and can carry institutional
adjustments, fact that on long term, reduces the efficiency of the monetary politics.
- the transformations that manifest within the transactional technologies and information can
carry into the future significant effects over the efficiency of monetary politics.
BIBLIOGRAPHY:
1. Basno C., Dardac, N.,(2000) Operaţiuni bancare, Editura Didactică şi Pedagogică,

Bucureşti;
2. Cibotariu, Irina-Ştefana, (2008) Finanţele întreprinderii, Editura Didactică şi
Pedagogică, Bucureşti;
3. Clarida, R., Gali, J., Gertler, M., (1999) The science of monetary policy: a new
Keynesian perspective, Journal of Economic Literature, Vol. XXXVII;
4. Costică, Ionela, Lăzărescu, S., (2004) Politici şi tehnici bancare, Editura ASE, Bucureşti
5. Hlaciuc, E., Mihalciuc, C.,(2006) The monetary policy- the main responsibility of the
Central Bank: Romanian case towards EU integration, the International economic
conference, The preconference for the International economic history congress
(Helsinky, Finland, 21-25 August 2006), Session 44: „Identity, Globalization and
Universality in the Eastern and Central European Economic Area and Involutions in the
Modern and Contemporary Period: Experiences, Meanings, Lessons”, Section 3:
Monetary and financial structures in East and Central Europe: Evaluations in the context
of European integration, Volume III, Lucian Blaga University Publishing House, Sibiu;
6. Hlaciuc, E. Mihalciuc,C. (2006), Diagnosticul financiar - instrument al analizei
performanţei financiare şi al managementului întreprinderii, Analele Ştiinţifice ale
Universităţii de Stat din Moldova, seria socioumanistice”, secţinea Finanţe, Chişinău;
7. Obstfeld, M., Rogoff, K., (2005) Foudations of International Macroeconomics, The
MIT Press;
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COSIDERATIONS REGARDING THE ORGANISATION OF FINANCIAL

MANAGEMENT OF THE ECONOMIC ENTITIES
Lecturer PhD. Lucia RISTI

“Aurel Vlaicu” University Arad, Romania
lucia_risti@yahoo.com
Abstract
This research deals with analyzing the legal aspects of organizing the financial management at one of the two
participants in the taxing process that is of the tax payer. We managed to analyze the constitution of the financial
management from the perspective of the tax payer as an essential resource of taxing information both for him/her and
also for the other user that is the taxing administration regarding the constitution of the taxing debt.
The analysis of the constitution of the financial management that I have done was made in two ways. In one
way the means (the procedure) were analyzed and also the instruments (financial vectors) of constituting taxes and the
second way refers to the means and instruments of gathering these obligations.
The conclusions refer especially to the demands of leading this management so that it will be assured by the
rightfulness of the transmitting information on the taxing vectors of ANAF structures (ANAF – National Agency of
Taxing Administration) as a support for the taxing debts leading by these structures respectively the need to know at
any moment, the amount of the debts towards the state, the debts which are at the general consolidated budget,
respectively.
Key words: taxing, taxing process, taxes, financial management, financial vectors.
JEL Classification: H30
INTRODUCTION
The open purpose of this paper is to show the role of the tax payer’ financial management in
an efficient and operational taxing system in order to fulfil its role. Its first role is to assure
sufficient financial resources at the society’s disposal. In this respect I have analysed the services
which revert to the tax payer by the financial management that he is leading. I have also analyzed
the way in which it refers to the above mentioned objective by the way it is organised, taxing and
financial procedures and used taxing instruments.
THE CONCEPT REGARDING OBLIGATION AND FINANCIAL MANAGEMENT
The tax payer’s obligations include a larger area, meaning more than paying a tax at the
taxing institution. This term also includes the tax payer’s obligations regarding the declaration of
the goods and the income, the calculation, the retention and the recording of the taxes in the
bookkeeping records as well as other obligations from the taxing legislations.
However, by defining the term management, which comes from the Latin word ”gestio”,
meaning ”organising the management of a patrimony in all its complexity”, and also in the context
of our theme here and of the French expression ”gestion” which co-responds to the Anglo-Saxon
term of management, we could define the notion of fiscal management as ”an assembly of
operations which have as object the administration of the obligation-financial claim report and the
relationship of the tax payer with the ANAF structures, that is, the fiscal units of the local
administration.
The concept of financial management presupposes the management of the taxing obligations
from the point of view of the tax payers and his/her debts towards the state.
According to the juridical form of setting it up, the way it is organised and the functioning
of the financial management is different for a natural person or a judicial one.
Therefore when we approach the problem of fiscal management which is necessary to be
organised by the tax payers and the taxes from a conceptual point of view we must take into
account the specificity of each tax payer, be it normal or judicial person and also the five main
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groups of fiscal obligations which everyone in particular imposes different documents and
methodologies of quantifying these obligations. Some of them are determined by the tax payer and
the others by the financial institution.
PROCEEDURES REGARDING SETTING UP THE MANAGEMENT OF

FINANCIAL OBLIGATIONS
The management of taxes which is set up in the tax payer’s own informational and
accounting system is made up by more categories of taxes, respectively:
a) taxes which set up cost elements (local taxes, excise, custom taxes, social contributions,
etc);
b) taxes which issue from the newly created value (profit tax and dividend taxes) income tax in
the case of income coming from independent activities;
c) although the tax payer contributes as a physical person or a juridical one to the taxes and in
the case of the tax on the income and on their social contribution they issue from the
employees’ income, which themselves, they represent cost elements;
d) taxes, VAT, respectively, whose fiscal management is specific because although the taxing
base is added value, created during the tax payers activities, it being collected and paid by
him/her although its supporter is his/her final consumer.
The management of taxes owned to the budget is bound in the whole of the tax payers’
management (economic agents). By this structure of management the basis of determination,
recognition, recording, declaring and discounting the taxes’ obligations is assured. These are the
taxes that the economic agents owe to the general consolidated budget according to the taxing
system made by the Law of the Public Finances and the Fiscal Code.
All the taxes which are owned to the budget by a society are included in the content of the
taxes management of the economic agents. In this respect, in order to organise this management, the
society must set up its own organisation chart of the taxes owned to the budget.
In other terms, we believe that one cannot talk about a proper financial management of the
tax payer. This is because in the organisational system of the tax payer functioning, there is no
certain explicit compartment which deals exclusively with both the determination and the
quantification and also with the setting up his/her financial management towards the state. In the
financial-accounting departments of the tax payer or in the departments which deal with costs there
are employees who calculate the elements of cost which, for instance are formed by the quantum of
certain taxes, for instance the taxes on the buildings, the taxes on the land, taxes on the auto
vehicles, taxes of using the state property etc.
Despite all these, we consider it necessary to set a limit on the procedural technical outlines
in order to instrument the necessary elements in order to determine and remove the taxes which can
assure a conceptual unit in what the way of evaluating and of recognising the taxes is concerned.
This is from both the tax payer and the financial institution are concerned. From our point of view
the organization of the financial management of the two financial partners is concerned, the state,
represented by ANEF in the taxing process must undergo many steps, as follows:
1. setting up the management procedures of each type of tax from the organisation chart ;
2. setting up the means of making the procedures ;
3. determining and recording the taxes in the bookkeeping ;
4. declaring the taxes at the local administration ;
5. the payment of the due taxes ;
6. the control of making up the management operations regarding the taxes ;
7. setting up a financial management of the tax payer with the debt management of the fiscal
administration.
This frame of action ensures the premises for creating a taxing data base, which can be
accessed at any moment, in this way one can know precisely the financial-taxes situation of the
institution if we refer for example at the tax payer as a judicial person.
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We also have to bear in mind when we approach the problem of the fiscal management of
the tax payer that it presents a set of particularities according to the nature of that certain tax, its
approach being different in the case of the direct taxes than in the case of indirect taxes, the taxes on
circulation.
Thus the fiscal management regarding the profit tax or the income tax from independent
activities or on dividend tax presupposes other methods and techniques of calculation than in the
taxes which form the elements of cost. The income tax from the independent activities or from the
dividend tax are taxes supported from the newly created income.
Therefore, the fiscal management of these two last taxes is organised differently than in case
of the financial management which make up the elements of cost, only after finalizing the financial
exercise, on the basis of financial situations and the profit/loss account. This account is temporary
throughout the year and final at the end of the exercise.
Another taxing obligation of the tax payer for which one must set up a specific financial
management is the financial obligations from the salary tax and the compulsory contributions of the
employees.
A similar fiscal management is also organised by the tax payer in the case of the income
taxes made by the non-resident if this is the case.
In what the circulation taxes are concerned, the same personnel or another one from the
financial departments quantifies the excise by specific techniques or one receives from the customs
the quantum of the determined excises in the customs or the custom taxes.
And later on, these quantified financial obligations are in a certain way reflected in the
spending accounts and make up cost elements for the new products or services and at the same time
these are set up in the tax payer’s financial obligation.
In this regard a specific financial management is made up by the VAT tax payers. I have
underlined a particular fiscal management because in all the other cases of tax management they are
either supported by the costs or they are part of their newly created value, in the case of the VAT.
Although it is collected and taken to the financial institution, it is supported by the final consumer
and not by the tax payer.
Because of the fact the tax payers are divided into two large categories, juridical tax payer
and physical tax payer, they have different rights and responsibilities in what the organisation and
the leading of the financial/accounting system is concerned. Therefore it will be very different than
the way in which they will be able to organise the fiscal management regarding their obligations to
the state.
FORMULATING THE RESULTS
Thus, the tax payer, a judicial persona is obliged to outline the entire patrimony as well as
its movement in the technological process, according to the type of the activity, as well as the
results of this process by a bookkeeping based on the double recording. This allows him to have
access to the data and to the more complete and precise information regarding the financial
management to a natural person who manages the patrimony based on bookkeeping. This thing will
have a negative influence on the possibilities of organising a correct financial management.
Therefore when we approach the problem of financial management which is necessary to be
organised by the tax payers, we have to take into account the category of each tax payer, judicial
or natural person as well as the five large groups of taxes which each in particular, must impose
documents and different methodologies of quantifying these obligations. Some of them are
determined by the tax payer and the others are determined by the financial institution. There are
notable differences that must be taken into account among the two categories of tax payers which
must determine the taxes or which influence in many ways the financial management of the tax
payer in its own computerized and bookkeeping software among which:
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a) There are notable differences among the taxes of the judicial person’s tax payers and the
taxes of the natural person. We give an example the fact that the judicial person
calculate a profit tax and the natural person calculate an income tax ;
b) There are differences in what the accounting system is concerned regarding the
reflection of the income and of the expenses for their activities. Some do this thing with
the help of accounting, based on the double recording - judicial person and the others –
the natural person do this thing by a simple party accounting and thereby there are all the
advantages and disadvantages regarding the precision and the rightfulness of reflecting
the operations regarding the income and the spending and finally the taxed database ;
c) There are differences in which regards the way of the quantum of the taxes is concerned.
This is because of the accounting system of rendering evident the income and the
spending at the two categories of tax payers. We refer here to the profit tax and to the
income tax as well as to the decisive factor which makes this thing. In the case of the
profit tax, the accountant makes the determination and in these conditions we refer to
self imposing fact. In the case of the income tax the natural person declares the income
the quantum of which can or cannot be taken into account by the fiscal institution. What
follows is the right dimension of the income tax. This will be done by the taxing
institution and in this situation we refer to a decision of imposing of the taxing
institution.
The difference between self imposing and imposing in the case of taxes is that in its case it
is the tax payer’s emanation which can or cannot be accepted by the financial institution when
there are financial controls and in the great majority of the cases, some differences are seen in
determining the taxes, while in the case of the tax income, the taxation will be made by the
financial institution and can or cannot be accepted by the tax payer, who can, therefore contest the
decision of the taxing institution.
We mention that in the case of the established differences by the financial control
institutions, the tax payer has the legal possibility to contest these differences.
The rendering evident of the accounting obligations is made on the basis of different
instruments of taxation, from the self imposing documents to communication of the financial
administration, the pay list of the salaries which on one hand has a closed circuit, all of these
giving information regarding on accounting and giving internal financial fluxes. On the other hand
with the help of the informational-accounting interface, another series of fluxes is released by this
exterior data, that is those informational fluxes to the fiscal administration. On this basis the
management organises its own management and accounting of the debts lead by the state. This is
the source of information and the justifying instrument for the management and the financial
accounting. The meeting zone of the informational exchange, we call it interface and the
information which circle in this segment we named it exterior, because they are issued by the tax
payer, the state respectively, in the rolling of the activities from the fiscal process but they circle
outside it.
The reflection in the judicial person tax payer’s accounting of the quantum of the self
determined fiscal accounting or of those established by the taxing organisations is recorded on the
economic subject with its value and in the case of the salaries, these will be diminished by the
quantum of the taxes by retention at the source, by debiting the accounts of the third party on one
hand and by crediting the accounts of the third party which reflect the fiscal duty to a budget or
another on the other hand.
For example, the taxes which are cost elements as well as the local taxes, excises, the
custom taxes and the obligatory contributions which fall on the employer’s shoulder are outlined
and reflected on the spending at the moment of producing the economic operations. For example,
in the case of the taxes and the local taxes, it is reflected on the spending accounts, ct. 635
“Spending with other taxes and payments” on debits and the account nr. 446 “Other taxes and
payments” on credits. They reflect a tax without which it being produced in fact by the payment.
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However this system reflects the principle of obliged accounting with all its advantages and
disadvantages.
Other analytical are reflected in the same spending account, nr. 635 “Spending with other
taxes, and payments”, for instance even the excises, custom taxes, taxes on dividends, on one hand
and by credit, by the third party account nr 446 “Other taxes and payments” analytical and distinct,
obligations for the state budget, on the other hand.
In the same manner and under the same principles the duties of the employer are outlined,
every month, the duties of the employer regarding the obligatory contributions, in the accounts of
corresponding expsenses, the 645 account, respectively “Expenses regarding the assurance and the
social protection”, distinct analytical for social assurance, unemployment and health on one hand
and credit corresponding, 431 accounts “Social assurance” nr 437 respectively “Unemployment
Aid” for recording the state social assurance and health and the unemployment aid, respectively.
And also for rendering evident the tax payers’ contribution to the profit tax, according to the
actual regulations are outlined by the debit of the account of expenses nr 691 “Expenses on the
profit tax” and on the credit in correspondence with the account 441 “The profit tax”.
Regarding the way in which the law maker has solved the reflection in the account of the
financial accountant of the taxes, we formulate the following opinions:
We appreciate that the structure of the accounts from the financial accounting of the
spending and the third party person must be harmonised with that of a five public budgets, the state
budget, the social security budget, the local budget, the unique National Fund of the health social
securities and the budget for the unemployment assurance. This bookkeeping is organised and
structured regarding the budgetary debts from the public bookkeeping. We choose for the similarity
of the structure of the accounts of the five budgets from the financial bookkeeping regarding the
taxes with the structure of the accounts on the five budgets from the public accounting, which has
already been achieved as we have shown previously, so as to allow the look in the mirror that is a
permanent comparison of the outlined sold in the two bookkeeping systems, in order to improve the
communication among the two participants at the taxing process. Because of the way in which the
activity is organised today, the process of comparison is very shaky. This is one of the unsolved
problems until present days from the domain of the accounting interface.
We believe that it would be correct if there were an identity between the structure of the
spending of the taxes category and the structure of the account of the third party person, like it is the
case of the profit tax. In other words it would be fair if there would be excises or custom taxes for
the custom taxes in the spending accounts and to match the discount account.
We appreciate that the law maker has found an inadequate solution when it mattered for the
outlining the obligation regarding the tax profit, an account of spending because the recording of
the obligation and its payment does not represent an expense for the tax payer. It is a tax owned by
the newly created value, from the profit and in this situation the account which should reflect this
thing could not be another account but the account number 129 “The redistribution of the profit”,
following that on the credit, the account must reflect the obligation to remain the same accountable
treatment applied in the case of dividend tax, whose source being also the profit, the newly created
value, respectively.
Another category of financial obligations whose quantum and reflection in the accounting
fall in the task of the tax payer are tax duties owned by the employers as well as the wage tax and
their social contributions. Their reflections in the financial accounting outlines the diminishing of
the employers’ rights by debiting the account number 421 “Employers – due wages” and the
accounts regarding the wages tax, account number 444 “Wage tax”, account 4321 “The employers’
contributions to the social assurance”, 4314 “The employers’ contribution for the health social
insurance” 4372 “The employers’ contribution to the employment fund”.
By reflecting the financial accounting accounts as it was above mentioned, the tax payer has
its operations with the help of those who create and define the management of the taxes. By
debiting the analytics of the third party accounts at the reflection of the taxes, the supporter of that
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tax, the tax payer, respectively or a potential beneficiary (employer – account nr 421 etc) of income
from that beneficiary.
The third party accounts and their analytics reveal to which budget those taxes are due, from
the collection of taxes and social contributions.
I have already expressed by reserves regarding the way in which the law maker has
understood to structure the third party accounts regarding the reflection of the taxes in the financial
accounting of the judicial person. I believe that a possible modification of the account plan of the
financial accounting must be taken into account.
As a last thought we underline once again the importance of the taxing instruments and not
only in the case of engagement bookkeeping of the two systems, the financial bookkeeping and the
public one. This is because they are primary real documents on one hand and they are the form in
which the exterior fluxes manifest in most of the cases, on the other hand. So, a correct
communication in the interference zone, by this taxing vector, this is the premise regarding the
evaluation and the correct recognition of the obligations and the duties of the two participants at the
taxing process.
After making the first informational – accounting flux which has lead to the making the own
taxing management of the tax payer and to those from the ANAF structures and the administrative-
territorial units, the second most important flux is that of charging, of closing in one way or the
other the budgetary debts made by those financial managements.
We could state, without being wrong, that this flux, this second phase of the taxation, the
collecting is more difficult and much more windy than the first flux, which was described in the 6
chapters of the paper.
This second flux, that of deleting the taxes is made by the tax payers who are aware of their
duty of tax payers, by paying the debts that they have for the state out of their own will.
The effective payment of those duties can be made either by money transfer from the open
accounts or at the state institutions, the Treasury, or by cash. According to these two ways of
payment by the tax payers, in the banking institutions or at those of the state Treasury, different
financial fluxes are generated but they all lead eventually at the same purpose, that of deleting the
tax payer’s debts.
These payments of taxes for the state, made by their own will, by the juridical persona or the
natural ones, generate treasury fluxes in the patrimony of the economic agent. These are under the
form of outing by the financial resources by the “banking accounts” or the “registry” on one hand
and the reduction or the deletion of the taxes by the state, things which are reflected in the tax
payer’s duties towards the general budget’s components which was consolidated in the moment of
their quantification.
As an example, the payment of the profit tax is outlined by debiting the 441 account, “The
tax profit” and the crediting of the 5121 account “Lei deposit account” or the 5311 account “The lei
registry”.
The payment of this deposit, in our example, denotes deleting the obligation that the tax
payer had for the state on one hand and the fact that the tax payer’s patrimony or taken by financial
resources, in equivalent, money from the account or cash on the other hand.
Taken separately from the deleting of the taxes by direct payment, these (obligations) can
also be deleted by cancelling, prescription, diminishing with the help of administrative contestations
or compensation.
According to the deleting of the other ways of deleting the taxes than by direct payment,
reducing or diminishing the obligation in the tax management of the tax payer, they take place
based on some specific bookkeeping for these operations, such as.
o Deleting from the tax management the taxes which are on the verge to be deleted after
some financial controls, on the administrative way as the contestations or on the
extinctive prescription which takes place by keeping the initial records:
cls.6xxx = cls.4xxx (operation in red)
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o Reducing the tax payer from the taxes by compensation. Accounting records take place
on the accounts by third party people, deleting on one hand the right of debiting on the
state with a payment obligation at its disposal ;
o Also, in the case of VAT, the compensation among the negative VAT sum, account
number 4424 ”Repaid VAT” and that of payment, account number 4423 “Payment
VAT” is outlined by outgoing records made by the two accounts (4423=4424) or in the
case of compensation the negative VAT sums, having other debts than the general
consolidated budget by deleting the right of debiting the VAT with respective
obligations, with the help of third party accounts (cls.4xx = 4424„reimbursed VAT”).
CONCLUSIONS
In conclusion, the tax payer’s tax management is generated objectively by its obligation to
know at any moment which are the debts that the consolidated budget has, either it is about the
central or the local administration or about the way in which the sold of this management, by
payment or other ways which have been outlined earlier.
It must be said that the tax management that the tax payer is obliged to make, as well as
their dynamic revolution is permanently under a state of control and monitoring by the help of tax
management which are organised and led by each tax payer individually and partly by the ANAF
structures and the local fiscal authorities.
There also has to be mentioned the role and the importance that the computerised-
accounting system has, regarding the financial claim, that is that which was constituted by the
financial accounting, the public one respectively of the budgetary claims for the ANAF structures
and the financial organisations of the local public authority. In this respect, we have in mind the
revision of the general accounting plan and its correlation with the structure of clarifying the public
finance indicator for giving in an unitary way, the information and agreement the date in the easy
way.
The treatment for the accessories that is the interest, fines and penalties could be revised in
the tax payer’s financial management by recording on the accounts’ analytics by which the main
obligations are recognised, achieving in this way the harmonisation of the data content and a better
communication between the tax payer and the fiscal administration.
We cannot conclude without stating that at least for now the safest computerised support for
the tax users remains the financial management lead by the tax payer. For so many times, the
management of the debts lead by the public administration offers incorrect information and require
permanent communication with the tax payer, loss of time various material consumes, on one hand
and on the other a reason why we think is necessary to create a non-stop access software on the
fiscal claims of the two fiscal actors, the tax payer and the public administration.
BIBLIOGRAPHY
BOOKS:
1. Belean P., Risti Lucia şi colaboratorii (2007) Finanţele publice ale României, Editura
Economică, Bucureşti;
2. Halpern Paul J., Fred Weston, Eugene F. Brigham (1998) Finanţe manageriale, Editura
Economică, Bucureşti prin traducere coordonator lector drd. MBA Livia Ilie;
3. Văcărel I. şi colaboratorii (2006) Finanţele publice Ed.V, Editura Didactică şi
Pedagogică, R.A.Bucureşti;
4. Dicţionarul explicativ al limbii române, ediţia a doua, Editura Univers Enciclopedic,
Bucureşti 1998;
229
ARTICLE AND REVIEWS:

5. Comaniciu Carmen, Caraganciu A., (nr.2/2007), Posibile scenarii pentru optimizarea
politicii fiscale româneşti în contextul aderării la UE, Revista Finanţe publice şi
contabilitate;
6. Ionică Maria Cristina, (nr.4-aprilie 2004), Metode de declarare a impozitelor, taxelor şi
contribuţiilor sociale , Revista Finanţe publice şi contabilitate;
7. Mitrache R., (nr.1/ ianuarie 2006), Evoluţii semnificative în sistemele de plăţi: sistemele
de decontări pe suport de hârtie cedează locul Sistemului Electronic de Plăţi, Revista
Finanţe publice şi contabilitate;
NORMATIVE ACTS:
8. Ordinul 537/03.04.2007, pentru aprobarea modelului conţinutului formularului
„Declaraţia recapitulativă privind livrările/achiziţiile intracomunitare de bunuri;
9. Lege privind Codul Fiscal nr.571/22.12.2003, cu modificările şi completările
ulterioare, publicat în M.O.R nr.927/23.12.2003;
10. Ordonanţa Guvernului nr.92/24.12.2003 privind Codul de procedură fiscală cu
modificările şi completările ulterioare publicat în M.O.R. nr.941/29.12.2003;
11. Legea finanţelor publice nr.500, publicată în M.O.R. nr.597/13.08.2002, cu modificările
şi completările ulterioare;
12. ANAF: Portal m.finante.ro
230
RELEVANCE AND CREDIBILITY OF THE INFORMATION FROM

THE FINANCIAL-ACCOUNTING STATEMENTS
University Lecturer Ph.D. Marilena ZUCA
Romanian American University, Bucharest, Romania
marilena_zuca@yahoo.com
Abstract:
The relevance of the accounting information is one of the most significant features in terms of quality and
refers to its capacity to influence investors, creditors and other users of the financial statements in their decision-
making. A relevant piece of information helps the user assessing present, future and past events, confirming and
correcting potential past errors. The information’s relevance regarding a certain element which must be acknowledged
in financial statements, may not be assessed distinctly, but it must be assessed within the frame of the main objective of
the financial statement, namely to provide useful information for decision-making with respect to investments, financing
or exploitation. Moreover, the relevance must be taken into account within the frame of the drafting of the entire set of
the financial statements and the way according to which an acknowledged element is useful in the decision-making
process.
The credibility assumes that the accounting information does not comprise any significant error or subjectivism
and it offers a faithful image of the mirrored phenomena or processes. The conceptual frames detail the elements which
ensure the information’s credibility equally in terms of content, but underlined in terms of wording. Thus, the accounting
information must be objective (to faithfully mirror the transactions and events), must reflect the meaning and consequences
of the economic events just as the legal requirements, it has to be neutral (to avoid influencing a decision or issuing a
judgment for the accomplishment of a pre-determined outcome or objective), it must be complete and illustrated within the
limits of cautiousness.
Subsequently the perusal of the argument for the two classes of opinions, we conclude that the information
provided in the financial statements must be believable enough and relevant enough at the same time. Thus, the result of
the display in the financial statement must comply with the cross point of these two features.
Keywords: financial statements,accounting information, economic decision, the relevance, the credibility
Cod JEL: M41 – Accounting
INTRODUCTION
The professional judgment, supported by the accounting standards, allows companies to select
their accounting policies regarding the ascertainment, assessment and display of financial-accounting
information as long as the user’s decisions are not affected.
Based on such idea, Simmons claims that the deviations, even the insignificant ones, trigger
distortions of the comparability process. Hence, the need of additional certifications which ensure the
users that the drafting grounds for the financial statements comply with approved standards. Moreover, it
arises the high significance of a statement regarding the detailed display of the accounting policies in order
to remove any trace of subjectivism upon the information’s supply.
The effective use of the concept of comparability must be ascribed to the elements of materiality
and subjectivism.
1. THE INFORMATION’S RELEVANCE. THE RELATIVE SIGNIFICANCE AND

MATERIALITY BENCHMARK
The relevance of the accounting information is one of the most significant features in terms
of quality and refers to its capacity to influence investors, creditors and other users of the financial
statements in their decision-making. A relevant piece of information helps the user assessing
present, future and past events, confirming and correcting potential past errors. The information’s
relevance regarding a certain element which must be acknowledged in financial statements, may not
be assessed distinctly, but it must be assessed within the frame of the main objective of the financial
statement, namely to provide useful information for decision-making with respect to investments,
financing or exploitation. Moreover, the relevance must be taken into account within the frame of
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the drafting of the entire set of the financial statements and the way according to which an
acknowledged element is useful in the decision-making process.
Example given: the ALFA Company manufactures apparel for the BETA Company, which
operates a domestic retail chain. In time, BETA has become the main client, ensuring 80% of
ALFA’s retail market. Although, the international standards do not provide explicitly such case, the
ALFA management has to provide in their financial statements, information regarding the sales’
preponderance towards BETA in order to ensure the relevance of the information provided. BETA
is a significant client, which may affect the future economic situation of ALFA. Therefore, failure
to provide such relevant information may affect the decisions made by users based on the financial
statements.
If the classification of the relevance among the qualitative features is accepted by all
standards, the ways of the presentation and design of the explanatory discourse differs. Thus, the
General IASB frame claims that the information’s quality depends on the contribution of the
information’s nature and materiality benchmark to the drafting of the financial statements. The
information’s nature refers to the information’s descriptive feature (related to a new activity segment,
related to an incorporeal immobilization, etc.) and the materiality benchmark endorses the
information’s numerical feature (the value of the outcome achieved within the new segment, the value
of the reported incorporeal immobilization, etc.).
By means of an original disposition, the British standard presents the materiality benchmark as
a self-contained feature and more over the most significant feature. This significance arises from the
fact that failure to provide insignificant information leads to complicated financial statements, which
limit the audibility of the other information provided. Two factors are under analysis for making the
decision regarding the removal of insignificant information:
a) The value of the element perused both taking into account the entire set of financial
statements and the availability of the user’s assessment.
And
b) The nature of the provided element, mirrored by means of the transaction and events
carried out, by means of their consequences, by means of the identity of the involved
parties or by means of the class where such element is acknowledged.
The two positions regarding the reasoning ascribed to the materiality benchmark regarding
the qualitative features are blended in the American frame. This defines the materiality benchmark
distinctly from the qualitative features, but closely related to relevance and credibility. For
instance, the decision to not provide certain information may be made due to the fact that investors
(main users according to the American definition) do not need such information (it is not relevant)
or the involved elements are too small (both in nature and value) to be provided (the information is
not significant).
Exceeding these details regarding the approach and wording, the actual content displays the
double role played by the information’s relevance:
1. Foreknowledge role: the information regarding the financial status and the performance are
used by management for forecasts regarding the company’s ability to react in the future and
to avoid unfavorable situations;
2. Confirmation role: the information from the financial statements is used to peruse previous
forecasts and to define the company’s management control (to confirm or correct previous
assessments and forecasts).
The assessment of the past event’s consequences mixed with present information generate
information which represents the raw material for reshaping previous forecasts and for establishing
new scenarios with respect to future activity.
We illustrate hereby the relevance’s double role by means of an example based on the case
of a company, which invests its moneys in order to obtain income from interests.
We start from the fact that the company keeps during the year if 200X, in a deposit, 20,000 u. m.
with a rate of interest of 10%. The company’s investing of the moneys would benefit to the
company an interest of 13% for the year of 200X. We already have information regarding the
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confirmation role of the information, namely the actual value of the moneys which may be invested
and the actual interest rate. Therefore, the confirmation value allows the company to compare the
amount of 20,000 u. m. from the beginning of the year of 200X with 22,000 u. m. that could be
available at the end of the year of 200X. However, taking into account the forecasts, we may detail
our perusal by orientation towards the future. Future pessimistic forecasts show an interest rate for
investments to 12% and the optimistic ones to 15%. Forecasting an investment on term, the amount
of 22,000 u. m. from the end of the year of 200X may bring to the company an overall gain of 2,860
u. m., taking into account the interest rate at the beginning of 200X, or a gain of 2,640 u. m.,
according to the pessimistic forecast, or a gain of 3,300 u. m., according to the optimistic forecast.
Detailing further such information, the company may develop evolution scenarios, ensuring a
significant basis for the decision-making process.
Providing in the financial statements such detailed information bestows relevance for users,
as they narrow the decisions’ diversity field and, implicitly, decreases the probability for erroneous
construal, thus ensuring a guide of construal. In literature, we find various suggestions for
information display. An alternative claims that it is highly significant to offer past information over
present information, based on the fact that it offers the possibility to peruse the trend, which
activates the information’s usefulness in decision-making. Another alternative suggests that the
financial statements should detail and the management’s forecasts and synthetize the present values.
Such display of the information helps the users to supersede the border arising from the lack of
economic and accounting training and allows them to issue judgments regarding the managing
performance. However, these arguments do not support the removal of present information, but
they claim that such information should be illustrated within a past/future frame.
The study of Sterling illustrates an interesting association of present-past by analogy with
navigation. The author sees the reported elements by means of the two coordinates of a watercraft’s
position: latitude and longitude and supports the idea that the present position is the one generated a
future position. The optimal choice for reaching its destination may not be achieved in the absence
of possible alternatives. The possible alternatives to be achieved in the future are defined according
to the present position and the targeted destination.
Moreover, the present position is the result of the distances run in the past, seen by means of
gains (the correct path) or losses (deviations from the correct path) generated by better or worse
decisions. Thus, the present decision is the result of a past position and the distances run in the past.
According to the same logic, the author claims that the present information arises from the past
information and from the decisions made in the past. This information becomes ground for the
future together with extrapolations of the past forecasts corrected with the past and present reality or
related to forecasts built on future reality. In this respect, the present financial position (as the
moment’s image) and the past overall outcome (as reflection of the time period) reflect starting
points in the achievement of the forecasts regarding the financial position and the performance,
which bestow forecasting value to such information. If we bring the future into present, the present
financial position and performance are the consequences of the forecasts made based on past
information, which bestow confirmation value to such information.
Thus, the relevance, meant to ensure that the information provided is correct in order to
make proper decisions, accomplishes its objective by means of the two values:
a. Forecasting value - it uses past and present information to guide future decisions, and
b. Confirmation value – ensures the grounds for comparing the effects of past decisions
based on the information from the forecasting financial statements with the decisions to
be made based on present statements.
2. INFORMATION CREDIBILITY OR FEASIBILITY. FAITHFUL IMAGE
The credibility assumes that the accounting information does not comprise any significant error
or subjectivism and it offers a faithful image of the mirrored phenomena or processes. The conceptual
frames detail the elements which ensure the information’s credibility equally in terms of content, but
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underlined in terms of wording. Thus, the accounting information must be objective (to faithfully
mirror the transactions and events), must reflect the meaning and consequences of the economic events
just as the legal requirements, it has to be neutral (to avoid influencing a decision or issuing a judgment
for the accomplishment of a pre-determined outcome or objective), it must be complete and illustrated
within the limits of cautiousness.
The faithful display of transactions and events is a primary element which ensures the
credibility of the information provided in financial statements, as it ensures a balance between the
information provided numerically and descriptively and the information’s inductive phenomenon.
Thus, the existence of an event or transaction is compelling in order for faithful information to be
generated. This feature is embodied upon the level of the Balance sheet with regard to the display of
the elements concerning the company’s assets, debts and own capital according to the acknowledging
criteria.
Example
A company stipulates, in its financial statements, a piece of information regarding a doubtful
debt in amount of 50,000 u. m. In order to ensure the faithfulness of the statement, it is necessary to
check if:
a. There is a sales transaction with due date which generated a debt in the past;
b. The due date has been exceeded without being postponed by means of a payment tool;
c. The assessment of the debt to 50,000 u. m. is believable (there are documents or rational and
acceptable arguments);
d. The probability of cashing in to future the amount of 50,000 u. m. is confirmed or it is
necessary to re-assess it.
The description of transaction and event in the financial statements depends on the rights,
obligations and economic resources, on their ascribed significance, on the assessment grounds and
on the display techniques used to recognize them in the financial statements.
The credibility of events and transactions by means of faithful display is directly related to
the display of the economic phenomena which affect the company’s resources. The transactions’
economic reality is comprised by the economic benefits generated by each transaction, which
benefits enter or exit the company, ensuring, together with their believable assessment, the
fulfillment of the criteria for the elements’ ascertainment in the financial statements. Thus, the
transactions’ economic reality may ensure, in the absence of a complete legal form, a believable and
useful display of information in the financial statements.
Moreover, a piece of information is believable if it is not influenced. Such neutrality is
ensured when, by means of information selection and display, the decisions made or the judgments
chosen by the management are not influenced in order to shape the outcomes.
The neutrality requirement refers not only to the possibility to chose between various
accounting methods, which would generate differences regarding the information’s display, but to
the regulation gaps which allow the accountants to involve into the information’s contents and to
shape them in order to comply with the achievement of a pre-determined outcome. This limit must
not be mistaken for an exclusion of the existence of a purpose governing the drafting of the
financial statements or an exclusion of the professional judgment. It mainly refers rather to the
limitation of the trend regarding the selective display of information.
It is very difficult to ensure the information’s credibility because of the incertitude which
features certain events and circumstances of the company. Such incertitude must be displayed in
terms of nature and value and assessed based on cautiousness. By means of cautiousness, we
understand that there must be taken into account a sort of cautiousness degree in the assessment
issued under incertitude circumstances, thus the outcomes are not overestimated (the assets and
incomes must not be overestimated and the debts and expenses must not be underestimated), but
there must not be displayed highly cautious values as they affect the neutrality.
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The limit up to which the cautiousness may reach in order to ensure all the other qualitative
features is highly sensitive, especially due to the fact that cautiousness has always been seen as a
means of permanent underestimation of the outcome. When the information held by the company
leads to the same probability, namely an amount of money is lost or gained, the cautiousness tends
to confirm the loss. However, if the probabilities are not equal, for instance, the possible
alternatives generate losses, but with different values, the cautiousness does not compel the choice
of the most pessimistic alternative.
The cautiousness triggers a difference regarding the approach of the qualitative features
under different standards. Thus, if on international level, due to European influence, the
cautiousness is defined as the credibility’s grounded justification, the American standard, although
not excluding the cautiousness in the information’s display, deals with it critically, trying to bring
into discussion its limits, under present circumstances, of convergence in the accounting regulation.
The topics regarding the reassessment of the Conceptual frame underline the support of a flexible
cautiousness.
Another element which ensures the information’s credibility, sustained by all the accounting
standards, is entirety (completeness), which implies the complete display of information, within
reasonable limits, ensured by the materiality benchmark and the ration cost/benefit arising from the
procurement of such information. Such limits are justified by means of the practical impossibility to
display accurately the elements or consequences arising from transactions, especially in terms of
their magnitude. The incertitude characteristic to the value’s assessment, the specific of the
professional judgment of various experts or even of the same expert at different moments, the
permanent fluctuations of the factors used in mathematical calculations, on which the assessment is
based, are elements which shape and explain the reasonable limits of the entirety of the
information’s display in the financial statements.
Such features of believable information are stipulated under each standard, but the display
method differs. For instance, the American standard deems that a piece of information is believable is
it is faithfully displayed, if it may be checked and if it is neutral. If the faithful display and neutrality
are met under the requirements of the General IASB frame, the capacity to be checked is not defined
as such, but it may be said that it is implicit.
The verifiability is the process by means of which independent observers issue assurances
regarding the relevance and credibility of the information provided in the financial statements, by
confirming the correspondence between the displayed image and the purpose perused for the events
and transactions carried out. This quality is embodied by means of the accomplishment of an
agreement between observers and of a correspondence between the economic and accounting aspects,
but, also, between the direct and indirect verification of the displayed information. Thus, the
information assessed by an evaluator may be deemed believable if it may be confirmed by another
expert. This agreement presents various accomplishment degrees according to the nature of the
displayed phenomenon or element. For instance, it is significantly easier to ensure an agreement for
the presentation of a building than of a provision for disputes.
The need to ensure correspondence between economic and accounting aspects arises from the
reality of erroneous construal made intentionally or unintentionally and which distorts the provided
information. Such construal errors may be limited by direct control (quantitative inventory,
confirmations debtors/creditors, confirmation of market values) or by indirect control (reassessment
of inputs and recalculations of outputs, using the same methods). Examples of directly controllable
information are those which mirror the transactions carried out on the market between various
companies and examples of indirectly controllable information are those arising from costs’ allotment
arising from mathematic calculations, such as the calculation of the input cost as amount between the
purchase price and the costs directly allotted to purchase or the calculation of the value recovered by
means of amortization.
The American frame ascribes to credibility, features such as the appropriateness of the
information’s display or the ratio cost/benefit, which elements, according to the British or
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international concepts are dealt with within the limits of the display of qualitative information and not
among proper features.
3. CONCLUSIONS. THE CROSS-POINT RELEVANCE-CREDIBILITY IN THE

FINANCIAL-ACCOUNTING STATEMENTS
In order to justify the features ascribed to credibility, it must be taken into account together
with relevance. The usefulness of the provided information is carried out when both requirements are
met. Although, the starting point is the idea that a relevant information may be as believable (or the
opposite) as it may generate errors in the decision-making process, we deem that the two requirements
must be met, without trying to decide if a better credibility supplies a lower relevance or the opposite.
They are clearly defined features, which complete each other mutually, without intersecting. Thus, the
relevance refers to the accomplishment of the connection between the economic phenomenon and the
decision made for the company while the credibility describes the connection between the economic
phenomenon and its display in the financial statements, both descriptively and in terms of value.
In order to provide a believable and relevant piece of information in the financial statements,
the professional judgment must follow the following path:
Decision Existence of an Projection in the Information

projection event company’s usefulness
activity
The high generalization degree of the relevance concept triggers its layout in the decision-
making frame in order to check the information’s relevance. For instance, the assertion, according
to which the supply of information regarding own capitals is relevant for investors’ attraction, has
quite another representation than the assertion, according to which the supply of information
regarding own capitals is relevant. Identifying the decision which must be made based on the
provided information must be placed within the frame of an event, transaction or phenomenon
which may be related to the company’s activity. Thus, the assertion, according to which reporting
information regarding the provisions for disputes is relevant in order to establish the risk degree,
which describes the company has a completely different meaning that reporting information
regarding the provisions for disputes is relevant.
Detailing further, we may say that placing the decision within an event characteristic for the
company triggers relevance for the information only if such information may be described. A piece
of information, although relevant for the company, may be believably displayed (the control of the
generated economic resources belongs to the company and the assessment of such resources
provides a justifiable and acceptable value) or may not ensure credibility. Resuming the
aforementioned example, the display of the provision in the financial statements, although relevant
by means of the fact that it helps the company with the control of the result’s allotment and it arises
from a disputes regarding the trial’s loss, is not high enough or the value of probable losses may not
be assessed related to reality.
Starting from such mutual assessment between the relevance and credibility of a piece of
information provided in the financial statement, the regulators have brought into discussion a
comparison of the significance of the two features for the guidance of the professional judgment.
For instance, the decision to provide the information in historical costs or real values is
ascribed to the significance that the two features have in the endorsed alternatives. As mentioned in
the first chapter, at present the regulators’ trend is to leave the assessment is historical costs in the
detriment of the one in real values. One explanation is that real values ensure a higher relevance than
historic costs, although they are not as believable as the historic costs. However, the opinions differ.
Certain experts assert that a higher credibility justifies the supply of less relevant information while
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other experts place relevance before credibility. In this respect, those who draft financial statements
incline to give a higher importance to the supply of believable information, although it is not relevant
enough, while auditors incline to place on first position the information’s relevance and then to
check if the relevant information is believable, as well.
Subsequently the perusal of the argument for the two classes of opinions, we conclude that
the information provided in the financial statements must be believable enough and relevant enough
at the same time. Thus, the result of the display in the financial statement must comply with the cross
point of these two features. Using mathematic rapports, we are able to build a function of the
provided information, such as:
Provided information = /(relevance n credibility)
The comparability endorses the need of users to compare the information provided in financial
statements in time, for the same company, and in space, for different companies and to extract trends
regarding the companies’ financial positions and the performances. The purpose for the assurance of
this feature is that of perceiving and explaining the differences and similarities between certain
information provided in the financial statements. For this point of view, the comparability involves the
existence of common features for the compared elements. In this respect, it is necessary:
a. Display of the accounting policies used for drafting the financial statements and their
changes and the consequences of such changes;
b. To ensure the consistency of the display in time and space by keeping the chosen
accounting policy as long as possible, without distorting the resulted information.
However, the comparability must not be mistaken for the information’s equality and, at
times, it may be better mirrored by means of the perusal of differences than similarities’.
Therefore, it is necessary to supersede the consistency’s inflexibility (the methods’ permanence)
by waiving certain accounting methods which do not ensure the supply of relevant and believable
information given the display of all information regarding the respective change. The
comparability’s quality is preserved if different accounting methods are used and even if there are
adjusted, given that there are displayed comprehensibly, believably and relevantly all the
consequences arising from such situations.
The comparability between companies and the consistency of the accounting policies in
time ensure the increase of the informational value of the economic opportunities and
performances and the information’s meaning, especially the qualitative one, depends on the user’s
ability to relate it to certain standards.
J. K. Simmons underlines in his article A concept of comparability in financial accounting, the
significant role played by the endorsing of the financial statement of a Conceptual frame. Given the
absence of such frame, the concept of comparability may not be applied and the comparisons of two
companies which do not use the same accounting frame on specific elements do not have informational
usefulness. Simmons defines comparability by means of the economic substance and claims that we may
speak about comparability when there are similar reflections of the information’s economic substance,
which allows establishing differences and similarities.
BIBLIOGRAPHY:
1. N. Feleagă, I. Ionaşcu, „Tratat de contabilitate financiară – Contabilitatea ca joc social”, vol.

I, Ed. Economică, Bucureşti, 1998.
2. M. Ristea, „Metode şi politici contabile de întreprindere”, Ed. Tribuna Economică,
Bucureşti, 2000.
3. „Illustrative Corporate Consolidated Financial Statement 2005”, study published by Price
Waterhouse Coopers, www.pwc.com
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THE RELATIONSHIP BETWEEN FINANCIAL MANAGEMENT AND THE

INFORMATION SUPPLIED BY ACCOUNTANCY IN THE PROCESS OF
SUBSTANTIATING THE FINANCIAL DECISIONS AT THE LEVEL OF AN
ECONOMICAL ENTITY
Assistant Irina CHIRITA

University “Ştefan cel Mare” Suceava, Economic Sciences and Public Administration Faculty
irinachirita@seap.usv.ro
Assistant Claudia GRIGORAŞ-ICHIM
University “Ştefan cel Mare”, Suceava, Economic Sciences and Public Administration Faculty
claudiag@seap.usv.ro
Abstract:
The present paper outlines the relationship that exists between the financial management and the accountancy
science regarding decision making mostly of financial order.
The paper called “The relationship between financial management and the information supplied by
accountancy in the process of substantiating the financial decisions at the level of an economical entity” is structured
into three parts, starting from an general view of what financial management is, followed by the information supplied
by accountancy used in making mostly financial decisions, because it consists the purpose of this paper also.
The third part refers to the types of decisions which can be made as a consequence of analysis of an
economical entity from the financial management point of view but also of the information from accountancy. From the
financial management point of view, decisions are clearly stated, the specialty literature offering a plenitude of
information regarding types of decisions, on what are them substantiated and what is their concrete form after applying
them. From the accountancies point of view decisions are based on the interpretations of the annual financial
statements, which offer us a clear and faithful image over the analyzed economical entity.
The finality of the paper are the conclusions based on the analysis, which is composed of a summary
appreciation of the types of decisions that can be taken in an economical entity after analyzing the information from
accountancy and having at hand the organization of the financial management of the economical entity. Also, we want
to outline the importance of having an organized financial management whose results to take into account in the
economical entity, as well as the importance of correctly producing the annual financial statements, these being of a
great influence, both positive and negative, of the financial decision making system.
Key words: financial management, financial analysis, the budgeting prediction, decision process, financial
framework
JEL Classificaton: G32, M41, M51
INTRODUCTION
In the actual conditions, those of the existence of a market economy, the efficiency of an
economical entity depend in a high proportion of the manger’s capacity to understand and apply
modern management principals, methods and techniques.
The quality of the management act is a primordial condition for the firm to gain competitive
advantages and withhold the competitive mechanisms. The previous statement is further more
important since, in the last few years, it has been proven that the main factor leading to bankruptcy
of an economical entity is the incompetence of managers and leading mistakes due to errors in
decision problems. In a structured analysis, this factor owns a 60% ratio, being followed at great
distance by the unfavorable evolution of market (with a ratio of 20%), natural phenomenon , fires,
calamities, earthquakes (with a ratio of 10%) and other causes (10%),
From those presented above we can notice the importance of organizing a well structured
management in order to make the adequate decision in a certain given situation but also the most
correct ones, and if we refer to the financial decisions, these, through the present paper can be
outlined with the help of the annual financial statement analysis. If we speak of making a decision
from the financial point of view, we will analyze each component from a complete set of annual
financial statements. The information regarding the element from the income statement, are capable
of presenting to us the net turnover, which results from the accountant notes, turnover which is
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parceled on activity segments and geographical markets, also here there are presented information
regarding the average number of persons employed during the financial exercise.
Also the balance sheet is a very important element because it reflects the movement of
different elements of fixed assets, as well as the reevaluation of different elements of the balance
sheet and the moments in which these reevaluations are made, thus influencing the financial
decision making process.
The financial decisions can’t be characterized as insignificant, finding correct solutions
meaning the processing of a large amount of information, the factors which must be taken into
consideration being very numerous and the mistakes with serious effects.
COMPONENTS OF THE FINANCIAL MANAGEMENT
Financial management is a component if the general management of the firm. Its main
objective is to ensure the efficient use of the capital utilization, to sustain the process of creating
new capitals necessary to the economical entity and to produce this way the necessary support
needed to gain market performances.
The financial management operates always in a well outlined framework defined by the
market strategy of the firm and is subordinate to the objectives of the strategy. The financial
management of the enterprise can be understood as a group of persons, methods, techniques,
procedures, instruments and actions trough which the financial decisions are substantiated in the
context of the organization’s objectives accomplishment who are formulated in a firm’s strategy.
Inside the financial management we can identify four domains, each with very distinctive
objectives, forming at the same time a whole because of the strong interactions between them:
1 The financial analysis aims to give an appreciation of the economical entity under the
aspect of profitability, risk, tracking deficiencies and estimating possible growth possibilities. It
makes possible, both as a separate procedure (used in the actual financial state evaluation) as well
as a procedure used in other domains, the examination of the decision’s consequences.
2. Financial planning has as objective establishing a growth strategy of the entity, which will
be registered in the budgeting system. The budgeting prediction have a strong influence on financial
decision, and adopting real decision will generate, at its own turn, a feedback process in the sense of
crayoning and adjusting the predictions.
3. Short term financial management refers to the circulating assets and debts administration,
the decisions adopted having an immediate effect on the financial state of the entity. Studying more
detailed what we call the treasury administration we can observe that in this point all of the
financial decisions meet, including those regarding long term financial management.
4. Long term financial management has as objective the analysis and selection of the
investment projects and financing sources, the decisions adopted being registered in the investment
budgets as an integrated part of the budgeting system of the entity. The terms in which the entity
makes business suffers a continuous adjustment, which leads to a constant need of finding rational
ways of organizing and leading the processes affected. The selection of the organization and
leadership ways which responds the best to the firm’s objective, is made trough the optimum
combination of the material, human and financial resources available.
This is what defines the enterprise’s administration which is a practical method of leadership
and organization of the productive activities. Manifesting autonomy, exercising the right to
organize and lead the activity, also imposes action and means of reaching the predetermined
objectives
The economic administration concretizes itself in an ensemble of decisions and operations
regarding the accomplishment of, on one side, the efficient producing and using process of the
production factors, and on the other side, the self-management of effects resulting from the activity.
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ACCOUNTANT INFORMATION – PLACE AND ROLE IN THE

SUBSTANTIATING OF DECISION PROCESS
The main sources of information used in financial management are the accountant papers,
especially the balance sheet and the income statement. They help to know the enterprise’s situation
at a certain time, occasion with which it is verified if the previous decisions were valid and
according to the reality, and if they contributed to the objectives accomplishment.
The extent to which the obtain results come close to the predictions is the measure in which
one can say that the managerial team has reached the expected performance. The accountant
informations have a historical character, because they refer to a past period and they are the result
of some conventional norms of data producing, specific to accountancy. That is why most of the
time the management must reorganize the information from accountancy.
The reorganization of the accountant information is made according to specific criteria,
compatible with the financial domain and must be a support in the substantiation and adoption of
decisions, because management works with the future, uncertainty and risk. The balance or the
balance sheet of the firm, as well as other synthetic accountancy documents, must be just starting
points in the analysis and diagnosis of the present situation, in the characterization of the changes
that have produced themselves in the interval marked by the administration period. They are trough
their content, a situation that offer information regarding the results obtained by management in the
past periods regarding the efficiency of capital use.
Relevant information for the financial management is the cost. It represents the monetary
expression of the financial effort of the firm to finance its actions. In means of cost calculating,
there are conventional rules with their advantages and disadvantages, reason for which the cost
relevance for the financial management becomes crucial.
TYPES OF DECISIONS THAT CAN BE TAKEN BASED ON A ACCOUNTANT

AND MANAGEMENT ANALYSIS
The financial decision needs a thinking effort from the managers with this type of
responsibilities, in order to chose the best option from all those possible.
The variety of situations taken into consideration and played , generate a multitude of
financial decisions, and their classification and be made based on more criteria, in our opinion, we
consider it’s worth insisting only on two basic criteria, which outline the most representative
financial decisions of the enterprise, thus:
a) After the nature of the objectives (the time horizon aimed), we have the following
categories of financial decisions: strategic decision, tactical decisions, operational decisions.
The strategic decisions refer to engaging in high perspective objectives, having a complex
content and an essential role in the enterprise’s evolution. They establish the major coordinates of
the financial strategy promoted on the long term. To some opinions of these decisions is considered
to depend the very own survival of the enterprise. It is the case, for example, of the introduction of a
new product, of an expensive investment or an out of border expansion through the acquisition of
another firm. Taking such a decision requires a complete analysis of the enterprise and its
environment in order to limit the possible error risk. The decisional process is in this case long and
it appeals to numerous techniques (market studies, financing plans, profitability analysis of the
investments).
Tactical decisions are the ones regarding the daily financial operation and their
accomplishment, being subordinate to the strategic decisions, and representing a continuation of
their logic, which they will segment and detail. They are more numerous, but simpler trough
content and more specifically crayoned. It is the case for example, of the budgeting process and
supplying policy. These decisions demand limited information, but are never the less important.
Operational decisions are the most numerous ones. In their case it is about the solution to a
production stopping problem, as a consequence of a machinery brake-down or of some disorders in
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the supplying system which has generated a stop in stocks. Such decisions ask a reduced number of
information, but have a special importance, because of the rapidity with which they are handled
depends the efficiency and productivity of the enterprise.
b) After the nature of the activities that generate the financial fluxes, financial decisions are
of three types:
-investment decisions, with a direct influence on the enterprises assets structure, so on their
liquidity
-financing decisions which determine the structure of the debts and bring modifications in
the demanding time of the debts and in the capital costs
- profit repartition decisions which influence the ways of distributing the dividends and thus
exercising direct implications on investments and self-financing
The investment decision can be considered one of the most important decisions taken by the
financial managers, but not the most important. By the correct substantiation of the investment
decision are depending the enterprise’s capacity to stand out into the business environment and the
growth of its market share. The decision to invest approaches the capital allocation problematic for
physical and financial assets: the central place goes to the immobilized assets gained as a result of
the capital investments. Trough this decision the monetary resources which the enterprise disposes
of, are rationally and efficiently allocated to buy, build, and modernize fixed assets and accumulate
stocks of material etc. in the volume and structure adequate for it to function at its highest
performance.
The financing decision purpose is choosing the enterprise’s financing structure, by
analyzing trough the optimum criteria the cost of each source of capital. Within these decision
types, it is chosen the ratio between the self-owned capital and capital coming from loans. Also, we
must take into consideration the possibility of attracting temporary monetary resources that belong
to other persons (individual, juridical, the state) with which the enterprise maintains financial
relationships.
STAKEHOLDERS - THE CATEGORY OF USERS INVOLVED IN THE

SUBSTANTIATION OF A FINANCIAL DECISION
Interest groups also called stakeholders represent a less known notion in the corporate
governess in our country. In Romania there are only two group categories whose interests are taken
into consideration in the decisional process: employes and creditors. With all of this, neither of
them is treated systematically by the Administration Board as legitimate interest groups.
Regarding the financial decisions that form the content of an entity’s financial management,
these can be represented trough a financial circuit. This financial circuit resulted as a following of
the enterprise’s three basic financial decisions’ execution which are the investment decision, the
financing decision and dividend one and which presume the following stages.
In a first stage the economical agents who dispose of liquidities grant enterprises the
necessary funds for their investment operations. Thus, appears a confrontation between the demand
for liquidities of the enterprises and the offer of liquidities of the capital’s owners. As a
consequence, the enterprise issues titles (financial assets) which are either property titles (shares),
either demand titles. The capital market is the result of the confrontation between the offer and
demand of financial titles. The operations of collecting capitals are financing operations (external
financing). In the second stage the leaders of the enterprise use the funds to purchase assets,
decision which generates investment fluxes. The purchased assets are either in industrial or
commercial assets, either in financial assets issued by other enterprises or financial institutions. The
entity can afterwards sell the purchased assets and receives in return a flux of liquidities; this is a
disinvestment flux.
The investment in industrial and commercial assets is made with the intention of generating
future liquidity fluxes from exploitation operations such as supplying, production, retail which
implicate the acquisition or creation of exploitation assets (stocks, demands, clients etc.). These
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assets are partially financed through the credit obtained from suppliers. The liquidity fluxes
obtained from the exploitation operations are completed by the fluxes determined by the financial
assets (participation titles, placement titles). The fluxes of exploitation liquidities, increased
eventually with the value of the fluxes determined by financial assets and disinvestment operations
and diminished with the fiscal assay, can be used with the following purposes: to pay back the
credits and their interest, to pay dividends to the shareholders, to reinvest in the enterprise.
The remuneration operations (as interest) and those of refund belong to the category of
financing operations, because they result from the collecting of capitals decisions. The operation of
reinvestment of the formed fluxes is also a financing operation (internal financing or self-
sufficiency). In the process of the financial operations from a financial circuit, interfere the
following participants, with a direct or indirect, role in the substantiation of the enterprise’s
financial decisions; shareholders, leaders, creditors, the state.
The shareholders are the owners of the property titles over the entity, these being mostly
under the form of shares. The shareholders are taking a risk because their remuneration is according
to the financial results that the enterprise is going to obtain. They search for a maximum
remuneration for their subscription, taking into account the risk that they are taking.
The leader of the financial compartment can, usually, be included in the managers’ category.
He must check, trough the financial criteria’s perspective, the level of efficiency of all the other
elaborated share programs and the implementation from the leaders of other responsibility centers.
In this case he collaborates on horizontal with all of the decision factors in order to crayon the best
action alternative in financial plan, without diminishing from a quantitative and qualitative point of
view the economical action put at work.
Another category of participants involved in the substantiation of the entetity‘s financial
decisions are the creditors. These are of more than one type, as: creditors note-holder whose
demands appear under the form of a title, listed on the market and slightly negotiable, called bond;
banks and different financial institutions that finance most entities, creditors who rent different
fixed assets, the financing operations being under the form of a location or location with the
possibility of purchase (leasing).
In general, foe each entity that has a clear strategy of action and wants to maintain itself
viable, there are certain minimal limits set by owners, whose un-accomplishment draws the
manager’s penalization. To avoid such negative consequences, the managers will commit in
profitable projects, but extremely risky, that need them to recur to bank credits, In this
circumstances, monitoring the activity of the firm with debs by the crediting bank seems fully
justified, even if it generates displeasure for debtors.
CONCLUSIONS AND PROPOSALS OF IMPROVEMENT OF THE ACTUAL

SITUATION
From the beginning of this paper we may ask the question if there is a relationship between
the financial management as part of the general management process and the data from
accountancy?, and who’s answer may be found inside it, from where we can draw the conclusion
that the information from accountancy are important in substantiating a decision of a financial
nature. Decision making is indeed very important, but just as important is its implementation and
especially improving the existing situation, so that the new strategy can work as predicted.
The situation existent in every economical entity is that, not every manager has a well
organized strategic plan, decisions being implemented without a strategic plan, without even taking
into consideration any king of accountant information in the decision making process, especially in
the financial decision.
The conclusions of the present research are that the system of decision making should be
changed at the level of every economical entity, should be better organized, should take more into
consideration the financial director’s opinions who can supply data very important for the entity,
even more hence the entire financial situation of the entity is in his hands. Avery well organized
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financial management system would be possible first of all trough a manager’s training regarding
this type of management and about the importance and relevance of the financial data for the entity
he is leading. Such a solution may be expensive, but the advantages can be numerous, since it can
bring benefic results for the entity.
REFERENCES
1. Berheci, M., -“ The Financial Reports – Purposes, Drawbacks and its Improvement”,
articol în Analele Ştiinţifice ale Universităţii „Alexandru Ioan Cuza” , Iaşi 2005/2006
2. Bucătaru, D., - “ Decizia financiară a firmei în condiţii de risc “, Universitatea „ Alexandru
Ioan Cuza” Iaşi, Facultatea de Economie şi Administrarea Afacerilor, Suport de Curs, Iaşi,
2008
3. Onofrei, M., - “Management financiar” , Ed. C.H. Beck, Bucuresti, 2006
4. www.ase.ro/bibliotecadigitala-
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CONCEPTUAL DELIMITATION OF FIXED ASSETS PROCUREMENT

IN PROJECTS WITH GRANT FUNDING
Assistant PhD. Student Mihaela Nătăliţa LESCONI-FRUMUŞANU

University “Eftimie Mugu” Resita, Romania
mihaelafrumusanu@yahoo.com
PhD. Student Ec. Ioan Anton PAULESCU
University Eftimie Murgu, Resita, Romania
anton.paulescu@prefcs.ro
Abstract:
In recent months, the notion of economic crisis is a “fashionable” one, and it affects also the access of
Structural funds. It can be noted that nationally a series of measures have been taken to reduce the time of the selection
process of projects so as the period from writing the project until implementation it to be as short as possible. Let this
be a strategy to hasten the absorption of funds allocated to Romania for this year?
Due to the economic crisis through which we pass, at the level of European Union certain measures are taken
in order to combat it, one being that the grant funds will be mainly awarded to projects that promote sustainable
development of the implementation zone (infrastructure, productive activities, creative jobs, etc.) projects, in which,
fixed assets must be purchased.
In present paper we will stop over some terminology issues (national vision, continental, British and
American), related to fixed assets (tangible and intangible valuations), because as it occurred in literature, but also
among practitioners, a series of discussions on this assets category. These discussions are caused by lack of
communication on the existing organizations involved in the process of accounting harmonization, imposed by the
globalisation of economies, especially of financial markets. Harmonization or the convergence of accounting is
considered an irreversible process, as determined by the need for comparability of financial statements.
Keywords: grants, fixed assets, tangible, intangible valuation, depreciation, accounting
INTRODUCTION
To exist, and especially to work of developing an economic entity it needs money for
material goods or purchased services, after which it will gain certain benefits, which can be
obtained either in the current period or future periods. If benefits are obtained in the current period,
the value of goods and services consumed becomes expense during the same period. If benefits are
expected in future periods, then the goods and services will be considered fixed assets in the current
period and the payments made to purchase will be capitalized.
Due to the economic crisis through which we pass, at the level of European Union certain
measures are taken in order to combat it, one being that the grant funds will be mainly awarded to
projects that promote sustainable development of the implementation zone (infrastructure,
productive activities, creative jobs, etc.) projects, in which, fixed assets must be purchased.
1. THE DEFINITION OF FIXED ASSETS
The definition of fixed assets, met in IAS 16 “Tangible”, IAS 17 “Leases”, IAS 38 “Fixed
assets”, IAS 40 “Property investments”, is as follows: fixed assets are the controlled resources by
the enterprise and meet several conditions:
a) have a duration of more than 1 year;
b) are used in the operation of institution exploiting, given with a rent (including leases) to
third parties for use and also for financial investments on long term (equity investments of other
financial companies, including claims relating to such investments);
c) are acquired or manufactured to be used in the company (including for rental or for
capital growth) and are not for sale.
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Intangible assets, known as intangible fixed assets or intangible assets include all the
economic value of investment that do not take the physical form of tangible assets.
According to Ministry of Finance Order no. 1752 from 2005, an intangible asset is an
identifiable, non-monetary asset, with no material support and held for use in the supplying
production of goods or services in order to be rented to third parties or for administrative purposes.
Intangible assets are assets without physical form, represented mainly by concessions, patents,
licenses, computer software, costs of research - development etc. All these are an important
economic potential, through which enterprise business develops and diversifies. Intangible assets
are subject to amortization, durations ranging from one intangible element to another. Considering
the heterogeneity of intangible fixed assets, as well as some features that intervene in the financial
behavior of each of component element, it was necessary to ensure accounting for each of the
separate components.
International Accounting Standard IAS 38 “Intangible assets”, which is the accounting
treatment of intangible items, defines intangible assets as a non-monetary asset identifiable without
material support and held for use in the production or goods supplying, services providing for rental
or administrative purposes.
38 International Accounting Standard requires two preconditions in order to account
intangible assets: probability that the entity to obtain future economic benefits from the use of
restraint intangible, probability assets for the entity to obtain future economic benefits from using
intangible restraints, and opportunity to evaluate on a credible manner the cost of a intangible
restraint.
In British accounting provisions on intangible assets are found in the following rules:
 SSAP (Statement of Standard Accounting Practice) 13 (accounting for costs of research
- development);
 SSAP 22 (accounting for goodwill and differences in acquisition);
 SSAP 12 (accounting for depreciation).
Basic features in England accounting are: simplicity and professional judgment freedom,
this being built on the Anglo-Saxon accounting school. Within the intangible (Intangible fixed
assets), according to British standards are included: the costs of development (Development costs),
concessions, patents, licenses, trademarks and other similar rights and assets (Concessions, patents,
licenses, trade - marks and similar rights and assets), goodwill and flow accounts.
Specialists in this field have noted the absence of a general rule regarding intangible assets,
therefore the draft rule FRED (Financial Reporting Exposure Draft) 52 “Intangible Values
Accounting” is aimed to remedy this issue, as will later be applied to standard FRS (Financial
Reporting Standards) 10, which will resolve problems connected to this type of fixed assets,
defining intangible assets as active ones, designed for a sustainable use within the society activities
of non-monetary nature and without physical substance.
To be recognized as intangible assets, an asset must meet the following three conditions: the
historical cost is known with precision, the nature of goodwill and other assets is clearly distinct; an
independent cost can be determined independently of the goodwill and other assets and also from
the profitability of a sector or the society as a whole.
In American accounting, there are rules regarding the intangible assets, the most popular
being APB (Accounting research bulletins) 17 which issued in 1970, being applied until 1995 when
the rule FAS will be issued (Financial Accounting Standard) 121, this one based on at least two
structures that affect the accounting and classification in terms of their start (identified or
unidentified) and in terms of the entry mode (enterprise development or acquired business). The
intangible category may include: patents, trademarks, concessions (identified), goodwill, and
differences from acquisition (unidentified).
As regarding the capitalization of fixed assets, we can notice that the acquired intangible
assets may be capitalized whether identified or unidentified, whereas those developed by the same
enterprise are not recorded in the profit and loss account and only sometimes the identified ones can
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be capitalized. As regards depreciation linear method is preferred on this issue we will be back in
the next chapter.
Tangible assets, known as material or tangible fixed assets are material tangible property to
use on long in an enterprise.
Accordingly to OMF 1752/2005, a tangible asset is an active owned by an entity to be used
in the production of goods or services, to be rented to third parties, or be used for administrative
purposes, being used for a period of more than one year.
They are in the form of land and fixed assets (buildings and constructions, hard machinery
and energy equipment, machinery, equipment and facilities, equipment and installations for
measuring, control and regulation, transport, animal work, plantings, production tools and inventory
household accessories). When the purchased or made material assets are not completed, they are
included in the fixed or ongoing investments in progress.
International Accounting Standard IAS 16 “Tangible assets”, the one which describes the
accounting treatment applicable to tangible assets, defines them as those assets which:
 are held by an enterprise for use in goods production or services, to be rented to
third parties, or to be used for administrative purposes;
 it is possible to use them several times.
Te generically term for tangible assets (also known as tangible actives) is used generally to
identify those assets generally used especially in productive activity from which the company will
benefit over a period of more than one year. The term “body” or “tangible” is distinguished from
intangible assets which are assets without physical substance, or whose value can not be completely
specified by their physical existence.
As regarding the exceptions and situations where this standard is not applicable, we can
remember existing approaches within the standard IAS 17 “Leases”, which provides that the
tangible assets recognition that are lease taken is to be made based on the principle of risks transfer
and benefits of the user. Leasing contracts have become an extremely sought method for assets
acquisition (mainly fixed assets), even in grant funding projects the budgets have an item designed
for expenditure categories, generally eligible, because they allow the beneficiary to use throughout
entire project lifetime without obliging him to fully pay (financial leasing) or to take risks
(operational leasing). IAS 17 requires the accounting treatments applicable to all leasing contacts
classifying them as:
 financial leasing contracts, through which risks and benefits within the property goods
are mainly transferred; title of ownership can be finally transferred or not;
 operational leasing contracts are outside the first category, the asset being shown in the
tenant’s accounts, which he amortized throughout the entire useful life accordingly to the specific
principles and the tenant as recording periodically the costs for lease payments/lease rates.
A new generation of leasing contracts are the “leaseback” by which the owner of the
property sells it while it leases it from a third party. Therefore, this contract type, has two reference
points: the sale of property to a third party (ownership transfer) and rental property to former owner.
This last stage may take the form of financial or operational leasing.
Another exception is found in the case of a real estate investment, where an enterprise
applies IAS 40 “Investment property” upon completion of built or developed properties for use as
future real estate investments. Property investments are defined as those real estate (land or
buildings - or parts of buildings - or both) held by the owner (or the tenant under a contract of lease)
to rent or to benefit from the growth of their value and not to be used in the goods production,
services or for administrative purposes or to be sold during the normal conduct of business.
According to British approach, in case of tangible assets (Tangible fixed assets), should be
emphasized that the property criterion is not retained to define them, those encompassing goods
owned (used) by company (tenant) within the location contracts – financing, from this category are:
land and buildings, plant and machinery, installations, equipment and furniture and payments on
account and assets in course of construction.
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In American accounting, there is no specific rule for keeping account for this category of
assets notions on tangible assets are met in several texts. Analyzing these texts we can see the
different conception from the concept of heritage property, whether in the French system the
heritage concept is based on legal ownership of goods in the American system is based on the
concept of economic control, which leads to the fact that goods entered by contact location –
financing to appear in fixed asset.
2. EVALUATION OF FIXED ASSETS
Next we will underline two very important aspects, namely, evaluation and depreciation of
fixed assets.
In continental vision on assessment is deemed that restraint in order to be recognized firstly
must me be evaluated. The entrance of tangible assets in an enterprise can be done through many
ways: classic acquisition, own production, leasing contracts, subsidies, trades with other assets,
share capital or donation. The most common way of entering of tangible assets is the acquisition in
this case the cost is the amount by which the asset that will be recorded in accounting (IAS 16 “an
element of tangible assets which is recognized as asset must be measured initially at its cost”). On
which concerns the intangible assets some discussion may take place, it should be evaluated at cost,
which is done as it follows:
 the intangible assets if it is purchased separately, its cost is the purchase price plus direct
associated costs (with interest costs may be capitalized according to IAS 32 - Cost indebtedness);
 if an asset is freely received through a government subsidy, it will be valued at fair value
or nominal value (according to IAS 20 - Accounting government subsidies) to which it is added any
expenditure that is directly attributable to the asset for its use;
 if an asset is acquired through a combination of enterprises, it is assessed at fair value at
the date of acquisition under IFRS 3 - Combining enterprises;
 if an intangible asset is acquired in exchange for other different intangible assets, the
asset is assessed at fair value, which is equivalent to the fair value of assigned asset, adjusted by any
amount of money transferred.
In order to specify whether a generated intangible asset by their own resources meets the
criteria for recognition, a company must separate the generation asset process into two phases: the
phase of research and the phase of development.
In British approach, important provisions on intangible assets and not only are found in
Firms Law (CA 85) which retains the historical cost as the main assessment method.
In fixed assets case is forfeited:
Provision for
The amount of input Depreciation (Provision Net book value
- - depreciation (Provision =
restraint for depreciation) (Net book value)
for diminution in value)
Tangible assets are booked as a general rule at historical cost, but the British companies can
quantify them at their real value, usually only lands are registered at their fair value because
constructions must be redeemed at their book value. On what concerns the lands and buildings a
distinction is made between “freehold” property and “leasehold property”. The first construction
category (made on land owned) is amortized over the lifetime of 40-50 years.
For other tangible assets (machinery, equipment, technical equipment, means of transport),
the depreciation calculated on the basis of economic life applied to the difference between cost and
the residual value, most common method depreciation method is the linear method, on this issue we
will be back in the next chapter.
Costs of establishment occur very rarely as an item in British stock companies, which are
included in the profit and loss account when they appear as costs of establishment, or to charge over
the premiums on issuing, in case of expenditure growth of capital. Under the Firms Law, such
expenditure must be listed in the expenses charged to the first year or the premiums of issuing,
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unlike the French system adopted by Romania, where under the IVth Directive, the establishment
expenses are amortized.
Within the intangible assets is a separate “Development expenditure” item which under
SSAP 13, are not necessarily included in the profit and loss account. Such expenses may be
capitalized only if are related to a project clearly defined, are identifiable, income project is
estimated with reasonable reliability and revenue estimated size is greater than the total
development costs engaged or to be engaged in connection with this project.
As regarding intangible assets assessment in the American vision, the basic rule is that fixed
assets are valued at acquisition cost. Price return (production cost) of intangible assets developed by
the company or expenses incurred in order to maintain them must be estimated based on the income
they generate. The methods used for determining the cost are: purchase price, fair value, the actual
value of the expenditure incurred for the purchase of intangible asses and the fair value of the goods
offered in exchange for the assets received.
Fixed assets should be reported at historical cost which is the amount of money (or cash
equivalent) paid for their acquisition. This value is then adjusted by depreciation. Under U.S.
GAAP, the cost of a fixed asset (less any residual value) is the cushion during the estimated
economic life so as to obtain an allocation of this close to the rate at which benefits are obtained
resulted from the use of that asset. A modification of the depreciation method for a class of
identifiable assets represents a change of an accounting principle and requires an adjustment for the
cumulative effect of change in the respective results.
Some aspects should be underlined concerning the tangible assets, namely that all
expenditure incurred during the entry, put into service of restraint or incorporated into its cost, and
its evaluation is at historical cost. The cost of demolition and arranging the purchased land for
execution of constructions, are part of the cost of land, land not being subject to depreciation.
Intangible assets acquired must be recorded at purchase cost, whether they are acquired
independently, as part of a group of assets or as part of a purchased company. Their cost is
estimated at the size of the amount of money paid or at the amounts up to date to be paid in
exchange for buying those assets. The cost of non-identifiable intangible assets is evaluated as the
difference between the cost of all identifiable assets (tangible and intangible), less assumed
liabilities.
Goodwill is recorded only when it is purchased as part of a group of assets and is
represented by the cost of non-identifiable assets acquired. If a purchase results in the appearance of
negative goodwill, it must reduce proportionally the value of acquired assets (including identifiable
intangible assets value). The general costs of producing a software system designed for sale must be
registered as expenses, until the technological feasibility of the program is established. Subsequent
costs of establishing technological feasibility should be capitalized until the moment product is
available to be sold. Until the 1st of January 2002, the acquired goodwill and the identifiable
intangible assets were capitalized and amortized over the useful lifetime. Under FAS 142,
intangible assets that have finite lifetime are amortized during the useful lifetime. The goodwill and
identifiable intangible assets that do not have a finite lifetime are not amortized but are annually
tested for impairment.
3. THE DEPRECIATION OF FIXED ASSETS
As regarding depreciation, international standard IAS 16 “Tangible assets” argues that

depreciation is a method of passing on the costs of initial purchase cost of fixed assets, over their
useful lifetime. It is neither a mean of adjusting the asset value to fair market value nor a mean of
providing funds to replace assets subject to depreciation.
There are different methods in accounting practices to liquidate an asset of tangible nature.
The standard regulates that: the depreciation method used should reflect how the economic benefits
brought by these assets are consumed by enterprise and that the depreciation value for each period
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should be recognized as an expense (depreciation expense), unless it is included the value of

another asset.
The method of depreciation applied to tangible assets should be periodically reviewed and if
changes in the expected rate of economic benefits arise from these assets, the method should be
amended to reflect the rhythm changes. Where such a change in depreciation method is necessary,
this must be accounted for as a change in accounting estimate and the depreciation expenses on the
year and future years must be adjusted.
Economic agents amortized intangible assets using the following schemes in Standard
depreciation: straight-line method, sum total years of useful lifetime method, digressive method.
In the British approach, depreciation finds the loss accounting value suffered by assets as a
result of depreciation over time by lowering the level of economic benefits expected to be obtain
from use, proceeding to correction of to the value of the assets in order to restore them to a value
closer to reality. As the basis for depreciation is considered the cost from which is deducted the
residual value, but according to regulations on this matter, tangible assets can be accounted in the
balance sheet at a higher value than historical cost, and that without tax incidence.
In British accounting are found alternative treatments or current cost accounting, based on
what the company can choose between two methods: you can use the market price valorising for
each asset at the end of the year, or if not possible you can appeal to current price.
Most British companies assess the tangible assets at their historical cost. Exceptions are a
big part of large enterprises, which from time to time, have to revalue the asset using the market
value. Especially land and buildings are subject to periodic revaluations. Also an annual revaluation
of some tangible assets can be done, or a revaluation of all tangible assets, based on replacement
costs.
Generally, the British companies reassess, usually land, but not the buildings and technical
installations (because they must amortize them based on the amount of their accounts value). For
fixed assets outlined in market value, subsequent amortization will be calculated based on the new
assessed values and of the economic lifetime remaining.
In addition, although in accounting practice is considered at the level of principle that a
restraint can not be charged at an amount above fair value, in the United Kingdom, no inventory is
performed annually for this category of assets. Therefore, a British company can keep a restraint on
asset at a value higher than fair value, even if it devalues over the year, under the condition that
such impairment is temporary.
As methods of depreciation that can be used we can remember: linear method (straight
method), digressive method with fixed quota (reducing balance method); proportional damping to
the numerical order of reverse years (SYDM) and method of production units (unit of production
method). The depreciation method used in UK practice is the straight method.
According to American approach accounting rules do not have specifically a text devoted
only to tangible assets, treatment of those structures involves the usage of the following regulations:
ARB 43 - Depreciation and inflation; APB 6 - Depreciation and revaluation of assets (digressive
depreciation method) APB 12 - Explanatory notes and annexes regarding asset depreciation and
corresponding depreciations FAS 121 - Impairment of long-term assets, FAS 66 - Sale of fixed
assets.
Northern American accounting practice respects the principle of historical cost, so that both
in the United States and Canada the value of fixed assets is not likely to be subject of review in
most cases. The basic rule of assessing the assets is historical cost rule; however ARB 43 states that
in the past, restraints could be subject to reassessments or revaluations and in these circumstances
the depreciation base is given to the depreciation of value and not to the historical cost.
For the Americans Donald E Kieso, Terry D Warfield, depreciation is not a problem of
evaluation, but a way of allocating the cost, which is defined as the process of allocating on
expenses of tangible assets costs in a systematic and rational manner over those periods in which
benefits are expected from the use of that asset. From the cost of assets, in order to account the
depreciation the residual value is deducted (salvage value) in order to sharing systematically the
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depreciation expenses over the useful lifetime. No principle set the lifetime of the intangible assets
as long as this policy is the result of repairs and maintenance carried out by each company.
Although there are several methods accepted for depreciation, methods such as straight
method, unit of production method, SOFTY method, the most common method is still the straight
method. The difference between the accounting depreciation and that recognized by financial point
of view which uses shorter lifetime periods for intangible, neglecting the residual value in
calculating of depreciation methods and prefer the digressive methods. American literature
recognizes that inflation is a complex of phenomenon that motivates the choice of a method of
accelerated depreciation companies being clearly tempted that by increasing depreciation expenses
to reduce profits and to avoid such lack of capitalize phenomenon.
FASB states clearly that, for accounting evidence, a society should not make reference to
the envisaged financial rules; if amortize tax differ from those accounts, adjustments are required to
be made under the tax retreating form.
The two methods of tax depreciation introduced by the Congress - ACRS (Accelerated Cost
Recovery System) in 1981 modified in 1986 by MACRS (Modified Accelerated Cost Recovery
System) stimulate enterprises to invest in new fixed assets in, enabling them to quickly recover the
cost of these assets using the following correctives: to renounce the concepts of duration of use and
estimated residual value by replacing with the calculation of a provision for cost recovery based on
the adjusted cost of asset for a period fixed by law for all types of assets.
For the calculation of depreciation five methods may be used, namely straight method,
method of production and regressive methods (with fixed rates, method of decreasing quotas,
constant quota method (fixed rate applies to the remainder value).
As a result of a study done by the American Institute of Certified Public Accountants,
Accounting Trends & Techniques, where they interviewed 600 large U.S. companies on the
depreciation method used, they could conclude that the most used method is the straight one,
followed at a great distance by the digressive method with fixed rates, the production method, the
constant rates method, and on the last place is the method of decreasing rates. By changing the
federal tax law, many U.S. companies have begun to choose more regressive methods.
Instead of conclusion regarding the similarities and differences between the American and
continental previsions, we use an example to calculate the depreciation: The Alfa Company has a
fixed cost of acquisition of 30.000 u.m., accumulated depreciation is 5.000 u.m. The present value
of fixed asset is 60.000 u.m. Under the U.S. GAAP, revaluation of assets is prohibited and shall
remain recorded in the financial statements at net book value of 25.000 u.m. In IFRS, if the base
treatment is applied the resolution is identical, and if the alternative treatment is applied, the asset
may be recorded in the balance sheet at reassessed amount.
As regarding the depreciation, there are two methods: the proportional increase of this or the
initial annual depreciation.
A. Proportional depreciation increasing method
The value of gross assets: 30.000 x 2,4 = 72.000
Depreciation: 5.000 x 2,4 = 12.000
Net accounting value = 60.000
The Coefficient of 2,4 was calculated as follows: 60.000 / 25,000 = 2,4.
Revaluation generates the following accounting entry:

Fixed Assets 42.000 (72.000 – 30.000)
Depreciation 7.000 (12.000 – 5.000)
Revaluation differences 35.000
B. Method of cancellation initial depreciation

Applying this method generates the following accounting entries:
Accumulated depreciation 5.000
Fixed Assets 5.000
Fixed Assets 35.000
250
Revaluation differences 35.000
4. THE ACCOUNTING RECORDS FOR EXTERNAL GRANT FUNDS
Because this work has as starting point, the acquisition of fixed assets in the grant projects, I
consider appropriate to present the accounting records for external grant funds:
 Evidencing the value of the received loan subsidy grant for investment:
4452 = 132
“grants loans with grants subsidy” “grants loans with grants for
investments”
 Receiving the subsidy in the current account:

5121 = 4452
“bank accounts in lei” “grants loans with grants”
 Reception equipment suppliers (supplier invoice):

% = 404
231 “suppliers of fixed assets”
“property assets in progress”
4426
“deductible VAT”
 Invoice payment:
404 = 5121
“suppliers of fixed assets” „bank accounts in lei”
 Due value for assembly equipment:

2132 = 722
“equipments and installations for measuring, “revenues from the production of
control and regulation” tangible assets”
 Putting into service:
212 = 231
„constructions” “tangible assets in progress”
 Refund unused subsidy:

132 = 5121
“grants loans with grants for investments” „bank accounts in lei”
 Depreciation of investment in N year of use:

6811 = 2813
“operating expenses for depreciation on fixed “depreciation of installations, vehicles,
assets” animals and plantations”
 Concurrently, there is a transfer rate of the subsidy for the year N attached to the
investment income:
132 = 7584
“grants loans with grants for investments” “incomes from investment grants”
Repayment of received grants, when they do not have fulfilled the requirements for funding
under IAS 20 and the Ministry of Public Finance Order no. 1752/2005.
251
A situation may occur when an entity is forced to repay a grant from the infringement of
obligations for which it was granted. In this case an accounting estimation is done in order to
modify only the results of the current financial year and future years.
 Reimbursement the received grant:

% = 5121
472 „bank accounts in lei”
“revenue recorded in advance”
6582
“grants and donations”
 Evidence of loan subsidy grant received for direct investment in the bank account in lei:
5121 = 132
„bank accounts in lei” “grants loans with grants for
investments”
In the Structural Funds case should be noted that transfer of funds will be made only after
the expenses were done from own funds, on the basis of documents certifying these expenses (only
for the proportion considered to be eligible), so that passage of loans to grants subsidies in the 5121
“bank accounts in lei” will record during remitting amounts to the Payment Authority within the
Ministry of Finance.
It should also be noted that if the accounts of projects financed by European funds have
performed analysis for each account that keeps track of an item patrimony (an economic good)
purchased under the project. For example, for property acquired by ERDF (European Regional
Development Fund) through SOP HRD (Human Resources Development Sectoral Operational
Program) will create the following analysis:
 208.POS HRD “Other intangible assets” is used to record other acquired intangible
assets (for example, licensed operating system, antivirus license, License Office, server operating
system license, license antivirus server);
 2131. POS HRD “Equipment (machinery and equipment work)” is used to account for
all technological equipment purchased for the project implementation (for example, servers,
laptops);
 214. POS HRD “Furniture, office equipment and other property” is used to track office
automation equipment purchased under the project (for example, printer, multifunctional switches,
rack);
 2808. POS HRD “Amortization of other intangible assets” is used to record the
amortization of other intangible assets (for example software licenses) acquired under the project;
 2813. POS HRD “Depreciation of technological equipment, vehicles, animals and
plantations” is used to record depreciation of equipment (for example servers, laptops) purchased
under the project;
 2814. POS HRD “Depreciation of other tangible assets” is used to record depreciation of
other tangible assets (for example printer, multifunctional switches, rack) purchased under the
project;
CONCLUSION
Instead of conclusions, I consider it appropriate to present comparative regulation between

continental and American provisions on assets, while stressing the need to harmonize the provisions
thereof.
Generally, both in continental regulations (IAS 38) and the American regulations (U.S.
GAAP) the recognition of intangible assets created internally is barely allowed. In the case of
252
software, GAAP requires the demonstration of technological feasibility, aiming to capitalize further
costs, and IFRS distinguishes between research phase and development phase, capitalization being
allowed only for the cost of the second phase.
Both U.S. GAAP and basic treatment provided in IAS 38 (intangible assets) and IAS 16
(tangible assets) do not allow the revaluation of fixed assets, while under the alternative treatment,
fixed assets may be reassessed if certain criteria are met. Typically, these criteria can be met very
rarely. Thus, U.S. GAAP requires that land and fixed assets to be valued at depreciated historical
cost, taking account of possible depreciation. Basic treatment of IAS 16 is identical, but the
application of IAS allows an alternative treatment in accordance with the land and fixed assets may
be reassessed.
Along with IAS 38 and U.S. standard SOP 98-5, the capitalization costs of establishment
can be done only in certain circumstances. Depreciation of intangible assets is identical in both
referential, meaning that only amortization intangible assets which have a finite lifetime are
amortized. Both intangible assets which have a finite lifetime and those that have an indefinite life
are subject to annual impairment test. Another difference relates to the costs of repairs of capital
assets that can be capitalized under IFRS, but which must be reported as expenses under U.S.
GAAP. The various components of a different active lifetime can be depreciated separately under
IFRS (with durations and different methods of depreciation), whereas under U.S. GAAP this
possibility is not allowed.
We conducted this review because of these differences are problems facing accounting in
general, but affects the accounts of various European projects, in which a high share of eligible
expenditures related to procurement of ERDF type, that the acquisition of assets.
BIBLIOGRAPHY:
1. Feleagă, N., Malciu, L., „Contabilitate consolidată. O abordarea europeană şi

internaţională”, Editura Economică, Bucharest, 2007;
2. Feleagă, N., „Sisteme contabile comparate”, vol. I, II, III, Ed. Economică, Bucharest,
2000 ;
3. Stăiculescu Camelia, Mogoş Gabriela, „Solicitarea cu succes a fondurilor europene”,
Editura Forum, Bucharest, 2007;
4. *** Acte normative (Legea contabilităţii nr. 82/1991 republicată; Ordinul 1752/2005 pentru
aprobarea reglementărilor contabile conforme cu directivele europene; Ordonanţa 19/2008
de modificare şi completare a Ordonanţei 29/2007 şi Ordonanţa 29/2007 privind modul de
alocare a instrumentelor structurale, a prefinanţării şi a cofinanţării alocate de la bugetul de
stat, inclusiv din Fondul Naţional de Dezvoltare, în bugetul instituţiilor implicate în
gestionarea instrumentelor structurale; Hotărâre nr. 491 din 14/05/2008 pentru modificarea
şi completarea Hotărârii Guvernului nr. 759/2007 şi Hotărâre nr. 759 din 11/07/2007 privind
regulile de eligibilitate a cheltuielilor efectuate în cadrul operaţiunilor finanţate prin
programele operaţionale.
5. *** „Diagrama Fondurilor Structurale”, 2006;
253
THEORIES REGARDING FINANCIAL INTERMEDIATION AND FINANCIAL

INTERMEDIARIES – A SURVEY
Research Assistant PhD Student Alin Marius ANDRIEŞ

„Alexandru Ioan Cuza” University of Iaşi, Romania
andries.alin@yahoo.com
Abstract
In this paper we propose to make a presentation of the main theories on financial intermediation and financial
intermediaries. Modern theory of financial intermediation examine the main functions of financial intermediation, how
the financial intermediation affect the economy as a whole and the effects of government policies on financial
intermediaries. We will focus on issues of function of financial intermediaries, such as reduction of transaction costs,
liquidity provision, information provision, debt renegotiation.
Key words: financial intermediation, financial intermediaries, informational asymmetry, transaction cost, asset
transformation
JEL Classification: G20
1. INTRODUCTION
In this paper, we survey the results of recent academic research on financial intermediation
and financial intermediaries.
The goal of intermediation theory is to explain why these financial intermediaries exist. The
savings/investment process in capitalist economies is organized around financial intermediation,
making them a central institution of economic growth. Financial intermediaries and financial
markets are two important institutions, which contribute to the optimal allocation of resources in an
economy. Financial intermediaries are firms that borrow from consumer/savers and lend to
companies that need resources for investment.
2. FINANCIAL INTERMEDIATION
The modern theory of financial intermediation analyzes, mainly, the functions of financial
intermediation, the way in which the financial intermediation influences the economy on the whole
and the effects of government policies on the financial intermediaries. The financial intermediation
theory highlights the role of financial intermediaries in economy, most of the studies performed
highlight their role in achieving a durable economic growth, and the impact of regulations on
financial intermediation, accentuating the role of the central bank in the regulation, supervision and
control of financial intermediaries.
The theory regarding financial intermediation was developed starting with the 60’s in the
XX century, the starting point being the work of Gurley and Shaw (1960). The financial
intermediation theory is based on the theory of informational asymmetry and the agency theory. In
principle, the existence of financial intermediaries is explained by the existence of the following
categories of factors: high cost of transaction, lack of complete information in useful time; and the
method of regulation.
The main and most used factor in the studies regarding financial intermediation is
constituted by the argument regarding informational asymmetry. This asymmetry can be of type: ex
ante generating the o called problem of adverse selection; concomitant generating the moral hazard;
or ex post leading to the need of applying some costly verification and auditing procedures or even
the forced execution of the debtor. The informational asymmetry generates imperfections of the
market, deviations from the theory of perfect markets in an Arrow-Debreu sense.
According to the model of perfect financial markets in the neo-classical theory, they fulfill
the following conditions: no one participant can influence the prices; the placement/borrowing
conditions are identical for all participants; there are no discriminatory fees; the lack of competitive
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advantages at the level of participants; all financial securities are homogeneous, dividable and
transactional; there are no transaction costs for obtaining information or of insolvency; all
participants have immediate aces to the complete information regarding the factors and elements
that can influence the current or future value of the financial instruments.
Many of these imperfections generated by informational asymmetry lead to the emergence
of some specific forms of transaction costs. The financial intermediaries have emerged exactly to
eliminate, at least partially, these costs. For example, Diamond and Dybvig (1983) consider banks
as being a coalition of the depositors that ensures those who save up against the risks that could
affect their state of liquidity. Leland and Pyle (1977) define financial intermediaries as a coalition
that deals with the distribution of information. Diamond (1984) shows that these financial
intermediaries action as authorized agents of those who save up and that they can achieve scale
economies. Thus those who save up trust their available funds to these intermediaries in order to be
invested in whichever projects they consider viable, the depositors having the possibility to
withdraw their funds at any time under the pre-established conditions.
The studies regarding informational asymmetry approach especially the problematic of
relationships between bank and creditors, respectively bank and debtors. In the relationship between
bank and borrower the main aspect analyzed is the function of the selection bank and the tracking of
the granted loans, as well as the problematic of adverse selection and moral hazard. In the
relationship between bank and depositors (creditors) a special attention is given to the factors that
determine depositors to withdraw their money before due date.
The second approach for the financial intermediation is founded on the argument of
transaction cost. This approach was developed by Benston and Smith Jr. (1976) and by Fama
(1980). Unlike the first approach this one does not contradicts the theory of perfect markets. This
approach is based on the differences between the technologies used by the participant. Thus
intermediaries are perceived as being a coalition of individual creditors or debtors who exploit the
scale economy at the level of transaction technologies. The notion of transaction cost does not
comprise just the costs regarding the transfer costs for the amounts or of foreign exchange, but also
those for research, evaluation and monitoring thus the role of financial intermediaries is to
transform the characteristics (due date, liquidity, etc.) of assets, the so called qualitative
transformation of financial assets, offering liquidity and opportunities for diversification of
placements.
The third approach of financial intermediaries is based on the method of regulation of the
monetary creation, of saving and financing of economy. This approach was developed by
Guttentag, and Lindsay (1968) and by Merton (1995). The method of regulation influences the
liquidity and solvability of intermediaries. Diamond and Rajan (2000) show that the regulations
regarding the capital of intermediaries influence their “health”, the ability for refinancing and the
method for recovering debts.
3. FINANCIAL INTERMEDIARIES
Financial intermediaries are financial institutions specialized in the activity of buying and
selling (at the same time) assets and financial cotracts [1]. As their name suggests, financial
intermediaries mediate between the providers and users of financial capital[2]. The transfer of funds
from agencies with surplus to agencies with deficit through financial intermediaries is also called
financial intermediation.
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Financial markets
Creditors Securitization of assets Debtors
Financial
intermediaries
Fig. 1 Process of financial intermediation
The analysis of financial institutions that achieve the financial intermediation can be made
from two perspectives: as firms or as intermediaries.
3.1. FINANCIAL INTERMEDIARIES – COMMERCIAL COMPANIES
The financial intermediaries are commercial companies, firms, whose behavior can be
analyzed in the same way as the economists analyze any other type of firm [1]. Thus financial
intermediaries can be regarded as commercial companies that produce different types of loaning
products for the individuals who wish to borrow. The main finished products of financial
intermediaries are the loans granted to clients, and the main variable inputs are the deposits
attracted from the depositors. Furthermore we can regard financial intermediaries as companies that
have as sole purpose the maximization of profit, profit that occurs as a result of the difference
between the interest perceived for the granted loans and the interest abated for the attracted
deposits. The maximization of profit is made when the difference between the total incomes minus
the total costs is maximum, that is when the marginal income is equal to the marginal cost. In order
to attract more resources necessary for the increase of the volume of granted loans the financial
intermediary must increase the abated interest of the depositors which is transposed into the
increase of costs, thus the cost of resources for short term is increasing. Financial firms are large in
size and this is owed to the scale economy which is manifested in the production of financial
products. In this analysis we must consider that financial intermediaries do not activate on a market
characterized by a perfect competition but rather on one with an imperfect competition, oligopoly-
type, dominated by a few large firms. The main characteristic of the oligopoly-type market
structures is the interdependency of the actions of different participants [3]. The competition
between financial intermediaries is manifested both on a price level and on a product differentiation
level. The financial intermediaries often give up the profit maximization objective and have as
objective the increase of the market share.
In the analysis of financial intermediaries as commercial companies we must consider the
similarities with other firms but also the numerous differences: the characteristics of the products
and the motivation of the clients in purchasing the products of financial intermediaries.
3.2. FINANCIAL INTERMEDIARIES – “INTERMEDIARIES"
Financial intermediaries have the role to create assets for creditors and liabilities for debtors
which are much more attractive for each of them than if the transfer of funds from creditor to debtor
were to be made directly between the two parties [4].
The analysis of financial institutions as intermediaries implies the analysis of the services
they offer to clients.
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Fig. 2 Services offered by Financial Intermediaries

*Processing after Greenbaum, S., Thakor, A. – Contemporary Financial Intermediation, page 50
The brokerage activity of financial intermediaries entails the bringing together of the two
parties with complementary needs, the elimination of informational asymmetry and the performing
of the transaction; in order to achieve brokerage activities information is needed. The financial
intermediary achieves these activities better than other participants because he has the necessary
information, information that is obtained because of his abilities in the interpreting of market
signals, unnoticeable for other participants, and of the reuse of the previously obtained information.
The financial intermediary presents two competitive advantages: he has special abilities in the
interpretation of the signals unnoticeable for other participants and an advantage of the reuse of the
information obtained from several clients over a long period of time. The broker is most times
reimbursed for the reuse of these services with a certain commission.
The brokerage activity does not imply that the financial intermediary becomes a party in the
agreement signed between his clients, but he merely facilitates the meeting of the two parties.
The activity of transforming the quality of the assets made by financial intermediaries
implies the adjusting of the different characteristics of financial assets depending on the needs of
the two parties. If in the brokerage activity the intermediary did not become a party in the
agreement signed between the 2 parties, in the activity of transformation of the quality of assets the
intermediary is interposed between the two parties. This interposition entails the purchasing of an
asset from a client and the reselling of the same asset identical or modified, to another client.
The characteristics of the assets that are more often transformed by the intermediary are: due
date (intermediaries grant long term financings based on the short term resources), the nominal
value, liquidity, credit risk, interest rates and measurement unit (the currency the respective asset is
in).
This activity implies the undertaking of certain risks by the financial intermediary, the gain
of the financial intermediary is made from the difference between the price for which he resells the
financial asset and the price for which he purchases it.
4. FUNCTIONS OF FINANCIAL INTERMEDIARIES
The theory distinguishes between the following functions of financial intermediaries: (i) the
reduction of transaction costs; (ii) the reduction of liquidity risk; (iii) the information provision; and
(iv) the debt renegotiation. The first of these functions concerns the problem of accessibility of
financial markets for households/individuals and for firms. The second and the third functions
concern the services the banks offer to savers, which cannot be obtained from financial markets.
257
The last function is discussed in the literature starting in the late 1990s and concerns the services a
bank offers to its borrowers rather than to depositors.
4.1. REDUCTION OF TRANSACTION COSTS
Financial intermediaries transform the credit portfolio demanded by borrowers into a deposit
portfolio desired by lenders[5]. This transformation is twofold:
(1) First, financial intermediaries engage in the transformation of terms: firms prefer to
finance their projects with long-term credits, and households prefer short-term deposit for liquidity
reasons. Financial intermediaries are able to accomplish this transformation, though non-financial
firms could themselves issue instruments like demand deposits or short-term savings contracts.
However, it would be costly for small creditors to write debt contracts with firms (these are
complex agreements with restrictive clauses on firm activities). Moreover, small creditors typically
like to diversify their risks, which implies greater number of contracts and thus greater transaction
costs. An intermediary is able to exploit economy on scale considerations by writing and enforcing
debt contracts with firms.
(2) Second, financial intermediaries reduce transaction costs through the payment system.
Centralizing this process at the level of financial intermediaries avoids wasteful duplication of
verification costs. As Dewatripont and Tirole (1994) note, the vision of banking activities in terms
of transaction costs reduction, although relevant, is only incomplete (especially if the issues of
control and regulation are concerned), which has stimulated the development of other views
regarding bank function.
For example, in his famous model of banks as delegated monitors, Diamond (1984) shows
that the existence of banks help to avoid the duplication of audit costs on the part of all creditors.
The reduction of monitoring costs, though related to the transaction costs, unveils the information
provision function performed by banks.
The examples above show the reduction of transaction costs on the side of
depositors/creditors. On the side of borrowers/firms, the transaction costs reduction can be seen in
the example of financial instrument such as loan commitment. A loan commitment may be
considered a financial option, which enables a borrower to obtain a loan at predetermined
conditions, and may or may not be exercised. Loan commitments may reduce borrowing rates and
eliminate the associated moral hazard problems on the borrower’s side. Therefore, the loan
commitments provide a possibility for the reduction in transaction costs. At the same time, loan
commitments are an example of lending relationships, which provide a basis for debt renegotiation.
4.2. LIQUIDITY PROVISION
Depositors (acting as creditors in their relations with financial intermediaries) face liquidity
risk in sense of possibility needing liquid funds. The trade-off between liquidity and return forces
them to hold their wealth (at least partially) in form of bank deposits. Therefore, models of banks as
liquidity providers focus rather on bank liabilities than on bank assets. In the famous Diamond-
Dybvig model, depositors do not know a priori whether they will face liquidity needs in the future.
In order to provide depositors, who withdraw their deposits, with liquid assets, banks need to sell
less liquid but more profitable assets thereby reducing their profit opportunities. If many depositors
withdraw, others are pushed to imitate this behavior, which produces a phenomenon known as bank
runs.
Consequently, banks face a dilemma: either to invest in short-term (liquid) assets and not to
perform their term-transformation function or to invest (at least partially) in long-term assets and
thus face the possibility of bank runs. A solution to this problem is an insured deposit contract,
which guarantees the depositors that they get their money back. This prevents the bank runs and
suggests an allocation of resources, which is superior to the one without insurance. At the same
time, the need of deposit insurance illustrates the necessity of regulatory intervention.
258
4.3. INFORMATION PROVISION
A firm that looks for debt financing typically has a choice between being indebted to the
general public or to financial intermediaries. The public debt is inefficient since it forces each
lender to assess firm’s solvency, or at least to continuously update rating information provided by
specialized agencies. This results either in an increase in monitoring costs, or in subnormal
monitoring due to free-riding. Gorton and Penacchi (1990) suggest that debt is a less information
intensive asset than equity and thus attracts relatively less informed creditors. Given the natural
monopoly aspect of information provision, it is logical to presume that the bank debt is more
desirable for such creditors than the public debt. A natural monopoly aspect arises here not only
because of economies of scale in information provision, but also because of economies of scope
since information about a borrower may be obtained by the bank through that borrower’s bank
account flows.
The information provision function of financial intermediaries is broadly discussed in the
literature on information asymmetry, especially when issues of moral hazard and adverse selection
are addressed.
Diamond (1984) introduced moral hazard in his model to study how crucial information
asymmetry is for the bank. In extension of the transaction costs approach, delegated monitoring not
only presumes economies of scale (it is socially optimal when the bank monitors the creditors/firms
on behalf of depositors), but also answers the question, why the depositors do not need to monitor
the bank itself (to monitor the monitor). The model shows that the moral hazard problem within the
bank decreases when the size of the bank increases, and even completely disappears when the bank
holds a fully diversified portfolio of assets.
Hence, if the bank holds a fully diversified portfolio of assets, the depositors hold risk-free
debt contracts and do not need to monitor the bank (at least, they do not need to monitor the bank
continuously).
4.4. DEBT RENEGOTIATION
If financial markets were frictionless, solvent firms would always have access to funds to
raise their capital for new investment opportunities. Microeconomics of asymmetric information
suggest some plausible explanations into why friction in the market, such as moral hazard, adverse
selection, and/or agency costs create barriers for the flow of capital to firms with profitable
investment opportunities. The role of financial intermediaries as information producers, discussed
above, provides a solution of this problem. If capital can flow from creditors (depositors) to the
borrowers (firms) through the system of financial intermediation, credit contracts between banks
and firms should resemble the debt contracts in the market without financial intermediaries.
However, empirical work strongly suggests that bank loans are different from corporate bonds in
domestic as well as international capital markets [6].
Theoretically, in a reputation-lending framework, private creditors deny the future access of
sovereign defaulters to capital markets. If a firm defaults on its bonds, it cannot raise additional
capital with a new issue of bonds. If such funds can be obtained from banks, firms in financial
distress may prefer bank debt to the public debt (bonds).
Diamond (1991) continues to develop his concept of banks as delegated monitors to show
why banks can offer loans to firms who can potentially default. Since banks can monitor firms, and
the bondholder cannot, the firms can acquire good reputation through borrowing from banks.
The firms, who have acquired good reputation can then switch to the bond market to finance
their investment.
Bolton and Freixas(2000) stress the relationship aspect of the intermediation. This
relationship acts as another kind of commitment: firms know that the banks provide better loan
conditions than markets in the times of financial distress. Therefore, firms prefer banks to markets.
259
Hence, there are at least three reasons, which demonstrate advantages of financial
intermediaries in debt renegotiation (compared to markets): (1) the monitoring advantage of the
bank, which acts as a punishment instrument, and therefore allows banks to create better provisions
for the reputation creation by firms (2) reputation of the financial intermediary as a reliable creditor,
which acts as an informal commitment, and (3) the relationship aspect, which also acts as a
commitment instrument.
5. CONCLUSION
The modern theory of financial intermediation analyzes, mainly, the functions of financial
intermediation, the way in which the financial intermediation influences the economy on the whole
and the effects of government policies on the financial intermediaries. The financial intermediation
theory highlights the role of financial intermediaries in economy, most of the studies performed
highlight their role in achieving a durable economic growth, and the impact of regulations on
financial intermediation, accentuating the role of the central bank in the regulation, supervision and
control of financial intermediaries.
Financial intermediaries are define by the fact that they mobilize funds (financial assets)
from the money holders (savers), registering a debt (liability) towards them, and they issue their
own assets towards fund users. For example, a commercial bank attracts deposits (indebting itself
towards depositors) and grants loans (creating debts in relation to their clients – the fund users).
In other words, financial intermediaries do not resell the assets they buy, but create new assets,
which they sell on the market; they are debts of clients to the banking institutions and not to the savers
who initially owned the assets bought by the intermediary. So intermediaries change the nature of
financial assets which are distributed on the market, issuing their own assets.
NOTES:
[1] Freixas, X., Rochet, J.C. – “Microeconomics of banking”, 2nd ed. The MIT Press, 2008, p.15
[2] Greenbaum, S., Thakor, A. – “Contemporary Financial Intermediation”, 2nd ed. Elsevier Academic Press,
2007, p. 43
[3] Ignat, I., Pohoaţă, I. ş.a. – “Economie Politică”, Ed. Economică, 1998, p. 220
[4] Howells, P., Bain, K. – “Financial markets and institutions”, 5th ed', Pearson Education, 2007, p. 6,
[5] GURLEY, J.G., E.S. SHAW "Money in a theory of finance", Brookings, 1960, p.23
[6] HALLAK, I. – “Bank Loans Non-Linear Structure of Pricing: Empirical Evidence from Sovereign Debts”,
Center for Financial StudiesWorking Paper 2003/33, Frankfurt University
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260
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13. HOWELLS, P., BAIN, K. (2007) „Financial markets and institutions”, 5th ed', Pearson
Education
14. LELAND H., AND D. PYLE (1977) "Informational Asymmetries, Financial Structure
and Financial Intermediation", Journal of Finance, Vol. 32, pp. 371 – 387
15. MERTON, R.C. (1995), "Financial Innovation and the Management and Regulation of
Financial Institutions," Journal of Banking and Finance (July), 461-482
261
ACCOUNTING POLICIES APPLIED IN DETERMINING CASH FLOW
PhD Student Florin HOSTIUC

Alexandru Ioan Cuza University of Iasi, Romania
flovashos@yahoo.com
Lecturer student PhD Ciprian Dan COSTEA
Vasile Goldis West University of Arad, Satu Mare branch, Romania
costea_cd@yahoo.com
Abstract
The internationalized economy must have a common language. The first step is the implementation and
acceptance of the International Accounting Standards. A healthy economical entity always determines exacly and based
on serious and largely accepted accounting policies its cash flow. Why? Because everibody knows that cash means the
difference between going ahead with the business or staying back out of stage. This is why this study tries to show some
largely agreed accounting policies in determining the cash flow and some methods such as the direct method, the
indirect method and a banking method.
Keywords: accounting policy, cash flow, cash flow table, direct method, indirect method
JEL clasification: M 41, M 51
INTRODUCTION
The explanatory dictionary of the Romanian language defines the word politics depending
on its many meanings: (a) the governance science and practice of a state; (b) the social historic
activity field that contains the relationships, the orientations and the manifestations that appear in
the parties, between categories and social groups, between peoples, etc. related to the promotion of
their interests, in the fight for power; (c) orientation, activity, the action of one party, of some social
groups, of the state power, etc. In the domain of the management of internal and external business;
(d) ideology that reflects this orientation, activity, action; tactics, habile behaviour used by someone
for a purpose; (e) a totality of purposes and objectives owned by the social groups and classes in the
fight for their interests as well as the methods and means which help to achieve their goals; (f)
means to understand and action in a certain field of the public affairs.
WHAT ARE THE ACCOUNTING POLICIES AND THE TREASURY FLOWS
The accounting policies represent, the according to the OMFP 1752/2005 for applying the
accounting regulations in conformity with the European Regulations, the principles, the basis, the
conventions, the rules and specific practices applied to an entity for drawing and presenting the
annual financial statements. Examples of accounting policies: the depreciation of the assets
(choosing the method of the depreciation duration), re evaluation of the tangible assets or keeping
their historic cost, the capitalization of the interest or the recognition of it as expenditure, choosing
the evaluation method of the stocks etc. We have to note that this approach of the expression
“accounting policies” is in concordance with the International Standards of Accountancy. [14]
The management of each entity must establish accounting policies for the operations that
take place. These policies must be elaborated taking into account the specific of the activity, by the
specialists in the economic and technical area, who know the activity that is developed and the
strategy adopted by the entity. When elaborating these accounting policies it is necessary to respect
the general accounting principles that are stipulated by the regulations applicable. The accounting
policies must be elaborated in such manner that it would ensure the supply, through the annual
financial statements, of some information which must be:
a) relevant for the needs of the users in the decision making process and
b) reliable so that:
- they represent faithfully the assets, the financial position and the profit or loss of the
entity:
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- they are neutral;

- they are cautious;
- They are complete under all their significant aspects.
The modification of the accounting policies is allowed only if it is requested by the law or it
results in more relevant information or more reliable referring to the operations of the entity. The
entities must mention in the explanatory notes any modification made to the accounting policies, so
that the users can appreciate if the new accounting policy has been chosen adequately, the effect of
the modification on the reported results of that period and the real tendency of the results of the
activity of that particular entity. The following are not considered modifications of the accounting
policies:
a) adopting an accounting policy for the events or transactions that are different from
the events or transactions produced previously;
b) adopting an accounting policy for the events or transactions that have not taken place
previously or that have been insignificant.
In the national and international specialty literature, in different legal references, The
International Accounting Standards, or in different working procedures at the level of firms and
organisms, the treasury flows (treasury, the cash flow) are defined differently.
Univ. Prof. Dr. Mates Dorel (Dorel Mates, Dumitru Matis, Dumitru Cotlet and collaborators,
Financial Accounting of the Economic Entities, Ed. Mirton, Timisoara, 2006) consider that the
Treasury of the company ensures the evidence of the existence and the movement of the short term
financial investments, of the available cash in the banking accounts, of the short term banking
accounts, of the credentials, of the treasury advances, of the internal transfers, and of other similar
values and the administration of the treasury has the role to ensure at an optimum level the cash and
its equivalents, of the volume of the financial resources existing in the banking accounts, of the
short term credits, of the values to cash, of the short term investments considered advantageous for
the firm for ensuring the optimum level of liquidity.[3] – [4] – [5] – [6]
In the same paper we find also a definition of the Treasury Flows, which reflect the available
cash that are successively in different stages, starting from liquidities, stocks, claims, which
ultimately will be transformed in cash.
Univ. Prof. Dr. Petru Stefea from the West University in Timisoara considers that during the
classes in the Doctor School of the discipline “The analysis of the Position and of the Financial
Performances of the Economic Entities” as “the cash flow is one of the most important management
weapon, in the fight for avoiding risks and for ensuring the performance of the firms. This point of
view can be justified by a simple question such as: “Why do we sell?” and the answer is very simple
“To make money” in other words to generate a plus of cash.”[7]- [8]
Prof. Univ. Dr. Ion Stancu understand by cash flow (in the paper Finance, The Economic
Publishing House, Bucuresti, 2002), the increase of the net treasury during the financial year, or in
other words, the variation of the net treasury from the start to the end of the financial exercise. In the
same time professor Stancu underlines the two trends of explaining the treasury flow: the French
one, according to which the cash variation appears as a sequence of the interaction between the long
term balance and the short term balance, respectively based on the variation of the trading capital
and of the necessary trading capital. The Anglo-Saxon approach sees the problem of the treasury
flows through the cash variations caused by the operational activity, investments and financial
activity.[9]
The American Professor Robert Higgins (in his book Analysis for Financial Management,
Irwin Homewood, Boston, M.A., U.S.A., 1992), considers that the cash flow is a process of
continuous transformation in a period of time of the money in stocks, and then again in liquidity and
which represents the blood of any company. If this circuit is slowed down determinately, the
insolvency can occur. [1]
University professors Roman L. Weil, Clyde P. Stickney and Sidney Davidson (in his book
Accounting, the Language of Business, Thomas Harton and Doughters, Arizona, U.S.A., 1990),
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considers that through cash flow we understand the difference between “the receivable cash and the
payments for the goods sold or purchased in a certain period of time.” [10]
The International Accounting Standard IAS 7 “The Statement of the cash flows” defines the
treasury flows (also known as cash flows or cash-flow in some papers) as inputs and outputs of cash
and cash equivalents. The cash has the cash availabilities and the deposits at sight and the cash
Equivalents are the short term financial investments and extremely liquid which are easily
convertible in amounts of cash and which have a risk of changing the value insignificant. The
equivalences of the cash are kept more for the purpose of respecting the short term investments,
than for investments or other purposes. [12]
In order to qualify an investment as a cash equivalent, this must be easily convertible in a
pre established amount of cash, and the risk of changing the value must be insignificant. That is why
an investment is normally qualified as equivalent of the cash only when it has a short due term, let
us say three months or less from the date of the acquisition, The general frame for drawing up and
presenting the financial statements where the “statement of the cash flow ” is included stipulates
that their purpose is “to supply information about the financial position, the performances and the
modifications of the financial position of the company, which are useful to a large sphere of users in
economic decision making.”[2]
The users of financial statements include the present and potential investors, the employed
personnel, the creditors, the suppliers and other commercial creditors, the government and its
institutions, as well as the audience. Regarding the “statement of the treasury flows”, IAS 7
considers that this offers useful information for the evaluation of the company capacity to generate
cash, as well as the necessities of the company to use the cash flows, respective of the moment and
security of their generation. [13]
Within the treasury flows statement, according to the functional approach of the activities of
the company, the flows are grouped in three categories:
- Cash flows that come from the exploitation activities (operational): the activities of exploitation
are the main activities that produce investments and financing. The value of the cash flows that
come from exploitation activities is the key indicator of the measure in which the activity of the
company has generated enough cash flow to reimburse the loans, in order to maintain the
functioning capacity of the company, in order to pay the dividends and to make the new
investments, without going to external financing sources. The cash flows that come from the
exploitation activities are mainly derived from the main activities that produce the income for the
company. That is why they generally result from the transactions and other events that enter in
determination of the net profit and loss. Examples of cash flows that come from exploitation
activities are: the cash from the sale of goods and services; cash that come from redevences, fees,
and other incomes; cash payments to the suppliers of goods and services; cash payments to and in
the name of the employees: the cash and payments of a insurance company for bonuses and
payments; the cash and payments in cash from the insurance policies, cash payments and profit tax
reimbursements unless they cannot be identified specifically with the activities of investments and
financing; and the cash and payments that come from contracts closed in investments and
transactions.
- flows that come form investment activities: the investment activities consist of purchase and sale
of long term assets, as well as other investments that are not included in the cash equivalents. The
separate presentation of the cash flows that come form investment activities is important because
the cash flows represent the measure in which the expenses have been made for the resources meant
to generate income and cash flows in the future. Examples of cash flows that come form the
investment activities are: the cash payments for purchasing land and tangible assets, intangible
assets and other such long term assets.
These payments include those that refer to the costs of development capitalised and to the
tangible assets realized in own the cash from the sale of land and buildings, installations and
equipments, intangible assets and other such assets on long term; cash payments for the acquisition
of instruments of capital and claim of other companies and the interests in associating the
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participation (others than the payments for these instruments considered to be equivalent with the
cash or that kept in purposes of investment and transaction): the cash from the sale of social capital
and claims of other companies and the interests in association in participation others than the
payments for these instruments considered to be equivalent with the cash or that kept in purposes of
investment and transaction; the advances in cash and the loans made to other parties (others than the
advances and the loans made by a financial institution); the cash from the reimbursement of the
advances and the loans made by other parties (others than the advances and the loans of a financial
institution); payments in cash for the contracts futures forward, the options contract and the swap
contracts, except the case when the contracts are made in purpose of investment or transaction or
when the parties are classified as financing activities; and the cash from the futures contracts
forward, options or swap contracts, except the case when the contracts are made for investment and
transaction or when the cash are classified as financing activities. - - - Flows that come from
financing activities: financing activities are the activities that consist of changes of the dimension
and the composition of the social capital and the debts of a company. The separate presentation of
the cash flows that come from financing activities is important because it is useful in estimating the
future demands of cash flows on the side of the company financing. Examples of cash flow that
come form financing activities are: the cash income from the obligations emissions, and other
instruments of social capital; the payments in cash towards the shareholders in order to purchase
and buy the shares of the company; the cash income from the treasury bonds, obligations, credits,
mortgages, and other short or long term loans; the cash reimbursements of some borrowed amounts;
and the payments in cash of the habitant for the reduction of the obligations connected to the
reduction of the obligations connected to a financial leasing operation.
Making a synthesis, my conclusion is that the accounting policies regarding the analysis and
the observance of the cash flows, represent the principles, the basis, the conventions, the rules and
practices specific applied by an entity when making and presenting the treasury tables, as well as
the observance of the existence and movement but also of transformation of the treasury structure
that is of the cash and cash equivalents.
METHODS REGARDING THE DETERMINATION OF THE TREASURY FLOWS
The analysis of the treasury flows on the three types of activities is useful for: the
correlation of the profit (loss) with the cash; the separation of the activities that imply cash from
those that do not, the evaluation of the capacity of the company to meet its obligations of cash
payments; the evaluation of the cash flows for the future activities (cash-flow strategic).
The utility of the analysis is given by the fact that the global variation of the treasury is seen
in the treasury balance, resulted from the administration of its real assets (from the exploitation
activity) and through that result from the capital operations, which regard the investments and
financing. When the real flows and the money flows are not the same, as it also happens, the
treasury, the treasury is ensured through payments intervals associated to those flows.
Each of the three flows categories has the impact on a source or on a liquidity use..
There are two methods known for the determination of the treasury flows (generated from
the exploitation activities, of investment and financing.)
- the direct method ;
- the indirect method.
There are of course in the economic practice other different variants that do not follow the
International Accounting Standards, being consecrated various other methods used especially by the
banks, the main characteristic being the detail of every month of the treasury flows and the format
that the cash floe tables have from the point of view of the cash and cash equivalents recognized as
being part of the cash flows.
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THE DIRECT METHOD
The companies are encouraged to report the cash flows obtained from exploitation activities
using the direct method. The direct method supplies information that are used in estimating the
future cash flows and which are no available through the indirect method. Through the indirect
method the information regarding the major classes of payments and cash can be obtained as
follows: from the accounting registrations of the company; through the adjustments of sales, their
costs (interest and other similar income and expenses with the interest and other similar expenses
for the financial institutions) and other elements in the profit and loss account with the
modifications during the stocks period and the claims and debts from exploitation, other elements
than the cash; and other elements for which the effects of the cash are the cash flow and from
investments or financing.
According to this method there are cash and payments in cash
a) the cash flow come from exploitation activities:
- the cash from the good and services sales;
- Cash that come from dues, fees, commissions and other income (which can be estimated
based on the size of the turnover made, corrected with the modification of the balance of
commercial claims from the financial year.)
b) Payments in cash to the good and services suppliers (raw materials and consumables; other
material expenses, other exterior expenses, such as energy and water; expenses regarding the
merchandises, expenses regarding the external services.) Their size is adjusted with the variation of
the balance of the stocks of raw materials, the consumables and merchandises by adding the
difference between the final stock and the initial one, respective with the variation of the balance of
the commercial debts through the decrease of the difference between the final and initial balance of
the financial year;
- Payments in cash to and in the name of the employees (expenses with the personnel
adjusted with the variation of the balances in the uncorresponding accounts)
- Payments in cash or reimbursements of profit tax, only if they cannot be identified
especially with the investment and financing activities (it refers to the expenses regarding
the profit tax, if it supposes that the whole profit tax corresponds to the exploitation
activity.)
c) The cash flows that come from the investment activities: payments in cash for the purchase of
land and tangible assets, intangible assets and other long term assets. They can be determined based
on the increase of tangible assets presented in note 1 in the financial statements and they are
adjusted with the variation of the company debts towards the assets suppliers;payments in cash for
the purchase of equity capital and claims of other companies;cashing from the sale of land and
buildings, installations and equipments, intangible assets and other long term assets;cashing from
the sale of equity capital and claims of other companies;advance cashing and loans made to other
parties;cashing from the reimbursement of advances and loans made to other parties.
d) Cash flows that come from the financing activities: cash income from the share emission and
other instruments of equity capital. It is determined based on the increase of the social capital,
including the capital premium and it is adjusted with the variation of the claims regarding the
subscribed capital unpaid;payments in cash to the shareholders for purchasing or buying the shares
of the company. They are to be found when eliminating the equity capital and the reserves;cash
income from the debentures, credits, mortgage and other loans.
They are constituted from the increase of loans and assimilated debts, registered by the
company in the corresponding accounts, the interests income and other financial expenses that
are visible in the profit and loss account;
- Cash payments of the lodger for the reduction of the obligations related to an operation of
financial leasing. It is determined based on the analysis of the leasing contracts.
Cash flows- total
- Cash at the beginning of the period
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- Cash at the end of the period.

The result of the cash flows from the exploitation activities, investment and financing
represent the net treasury.
THE INDIRECT METHOD
IAS 7 presents the indirect method as an alternative to the direct method of determination of
the treasury flows. The singularity of the method consists of the fact that the net prodit (or the net
loss) is adjusted with the effects of the transactions that are not of monetary nature, the delays or the
engagements of payments and cashing from exploitation past or future and the elements of income
and expenses associated to the cash flows from the investment or financing activities.
The situation of the cash flows through the indirect method is presented as follows the cash
flows from the exploitation activities: [15]
- the net result
- the modifications during the period of the working capital
- Adjustments for the non-monetary elements and other elements included in the
investment or financing activities.
a) Cash flows from the investment activities;
– cash payments for the purchase of land and tangible assets, intangible assets and long term
assets, cash from the sale of land and buildings, installations and equipments, intangible assets and
long term assets;cash payments for the purchase of equity capital instruments and claims of other
companies;cash payments for the sale of equity capital instruments and claims of other
companies;cash advances and loans made to other parties;cashing from the reimbursement of the
advances and loans made to othe parties;
b) Cash flows that come form the financing activities :cash income from the debentures and
other equity capital instruments;cash payments to share holders in oerder to purchase or buy the
shares of the company;the cash income from the debentures, credits, mortgages and other
loans;reimbursements in cash of some loans;cash payments of the lodger for the reduction of the
obligations related to a financial leasing operation;
Cash flows- total
– Cash at the beginning of the period;
– Cash at the end of the period.
The result obtained from applying the indirect method is the same as the one obtained
through the direct method but the structure of the cash flows is different related to the exploitation
activities. The cash flows form the investment activities and those from the financing activities are
determined through the direct method.
Through the indirect method, starting from the accounting value of the financial year result,
there are adjustments made for the determination of the cash flow. It must be taken in consideration
the fact that the practice of an engagement accountancy are regidteres the incomes and the expenses
in the moment of their invoicing and not in the moment of the cashing or the payment, and in the
calculation of the profit there are considered some non monetary income and expenses elements,
that do not suppose inputs of outputs of cash in the treasury, which makes the difference between
the size of the accomplished result and the size of the treasury cash.
Through the adjustments the purpose is:
- the elimination of the effects of the engagement accountancy by taking in consideration of
the net working capital. As a result, from the result of the exercise we diminish the variation of the
stocks (raw materials, and consumables, production in course of execution, final products and
merchandises, advances for the stocks purchase), the variation of claims (commercial calims and
other claims) and we add the variation of the exploitation debts (the payments delays favourable to
the company underlined by the variation of balances of the corresponding accounts.)
- the elimination of the income and non monetary expenses (depreciation and provisions constitutes
or taken from the income) by adding the calculated expenses with the depreciation and the
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provisions constituted and the decrease of the income from taking the provisions (practically , all
the adjustments places from the profit and loss account: the adjustments of the value of the tangible
and intangible assets , the adjustments of the circulating assets; adjustments regarding the
provisions for risks and expenses; the adjustnment of the value of the financial investments held as
circulating assets)
- the elimination of these elements of income and expenses which are not related to the exploitation
activity.
Regarding the calaculation method of the treasury flows IAS 7 recommends, I underline
again, the direct method, as this supplies useful information for estimating the future flows of
treasury, and through the indirect method these information is not available. In practice though,
especially in the Anglo-Saxon area, some economic entities prefer the indirect method as it has a
calculation logic that is close to the accounting reporting format.
OTHER METHODS OF DETERMINATION OF THE TREASURY FLOWS
As I have previously specified there are also other methods of recognizing the treasury
flows which are used in the current activity these of course do not exclude the stipulations and the
formats that are requested by the International Accountaing Standards.
In this way I will present below the exemplifying structure of the treasury flows situation
according to the OMFP 1752/2005 stipulations: [14]
a) Treasury flows from the exploitation activities: Cashing from the customers, Payments to
the suppliers and employees, Paid interests, Profit paid tax, Cashing from the ensurance against
the earthquakes, net treasury from exploitation activities
b) Treasury flows form the investments activities: payments for purchase of shares,
payments for the purchase of tangible assets, cashing from the intangible assets sale , cashed
interest, cashed dividends, Net treasury from the investment activities
c) Treasury flows from financing activities: cashing from shares emissions, payments of
the debts corresponding to the financial leasing, Paid dividends, Net treasury from financing
activities, net increase of the treasury and the treasury equivalents.
d) Treasury and treasury equivalents at the beginning of the financial year
e) Treasury and treasury equivalents at the end of the financial year
As we can notice this model is taken according to the recommendations of the International
Accountancy Standards and represent the direct method of determination of treasury flows. For
each element we must present the value corresponding to the previous financial year.If the values
above are not comparable, the absence of comparability must be presented in the explanatory notes,
accompanied by the relevant comments. An elemnt from the treasury flow statements for which
there is no value must not be presented, except the case when there is an element corresponding for
the previous financial year. A very important stipulation in the professional accounting reasoning
from the OMFP 1752/2005 is represented by the enumeration of risks that can influence the future
cash flows from the point of view of the quantity and the quality when the economic entities
develop transactions with the financial instruments (to make a connection with the crisis that has
started in 2008, about which we have mentioned in our introduction to this study and with extremes
by the well known term “toxic effects”):
a) The market risk incorporates not only the loss potential, but also the earning potential
that include the three types of risk:
- The currency risk – the risk
Market risk incorporates not only the potential loss, but the gain and includes three types of
risk:the exchange risk – is the risk that the value of the financial instrument to fluctuate because of
the variations of the currency exchange;the risk of the interest rate at the fair value – is the risk that
the value of a financial instruments to fluctuate because of the variations of the market rates of the
interest; the price risk – is the risk that the value of the financial instrument to fluctuate as result of
the change of the market prices, even if these changes are caused by specific factors of the
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individual instruments or their emitent, or factors that affect all the instruments transactional on the
market.
b) Credit risk – is the risk that one of the parties of the financial instruments not to execute
the obligation assumed, causing the other parties a financial loss.
c) The liquidity risk – (called also the financing risk), is the risk that an entity meet
difficulties in procuring the necessary fonds for can result making the engagements that correspond
the financial instruments. The lisquidity risk can result from the incapacity to sell quickly a
financial asset to a close value at the fair value.
d) The risk of the interest rate at the treasury flow- there is the risk that the future treasury
flows to fluctuate because of the variations of the market rates of the interest. For example, in case
of the loan instrument with variable rate, such fluctuations consist in changing the effective interest
rate of the financial instrument, without a change corresponding to its fair value.An economic entity
must present its objectives and its policies of risk administration, including its covering policies.As
far as the associations of risks with the treasury flow; a responsible management takes in
consideration permanentlt these correlations.
In the following lines I will present the vision that some banks have on the accounting
principles of recognition of the cash and cash equivalents in making the cash flow table
The forecast of the cash flow is a very important instrument in the analysis of a customer,
because the result obtained proves the capacity of the business financed by the bank to supply the
liquidity necessary for the reimbursement of the credit and payment of the corresponding
interest.(that is the first and the most important objective that is observed by the creditors, in
general, as the reimbursements of credits and rates ensures as a financing institution liquidity,
minimum provisions and of course profitability.)
Unlike the accounting balance sheet, which presents the historic information the cash flow is
mainly a forecast of the future performance. Because of that, it is very important to attach to the
forecast a list of hypothesis from which they start in estimating the evolution of the sources and
exists of cash corresponding to the future activity of the company. For example: what rate of
increase/decrease of the sales is assumed, if they take into consideration the season variations, what
interest rate is taken into consideration, what currency is used, what will be the effects of the new
investment from the point of viewof the inputs/outputs.etc.
The projection of the cash-flow refers only to the cash movements towards and out of the
business. For example, the expenses with the depreciation will not be taken in consideration,
because these do not assume that the cash leaves the business when an asset is paid off.
In order to start filling in the used form (see the cash flow model already filled in), we will
pass from the balance of opening amount between the balances of all the banking accounts held by
the customer at the location of the company. The value of the cash at the end of the period (the
closure balance sheet)- which becomes the starting value of the next period of time (the opening
balance) flows then mathematically from the amount mentioned above function of the other
information that will be included in the form.
The main elements that compose the forecasted liquidity flow are: [16]
INPUTS/ENTRANCES
- Sales with cash payment on spot – it represents the cash that enters in the business from the
main sources of financing: the existing sales, without considering the effect of new investments.
- It represents the cash that enters in the business from the main financing sources: the
existing sales, without considering the effect of the new investment, as well as the cash from the
planned to obtain as a consequence of the new project. In case of a spectacular increase of the sales,
the account managers will request to the customers to justify this forecast (the economic contracts
that sustain this increase)
- To cash from the debtors- the credit periods offered to the customers will be taken in
consideration- when do the money effectively enter in the account of the company after the sale has
269
been made? The numbers that have been obtained by the sales will be explained, those existent, as
though the business would continue without the project of development considered, as well as those
projected- the direct result of the project financed by credit.The season effects will be taken into
consideration.
- The approved credits – represent credits for which there is also approval but there have
been taken totally.
- The entrances from the long term financial debts (credits) do not influence the liquidity
flow as the issuance of the credit is made by the bank in the measure in which there are acquisitions
of fixed tangible acquisitions and/or intangible of the respective modernisations.
- The entrances, repective the exists of the liquidities corresponding to the medium and long
term can take place integrally, one time, or partially, in parts of utilization according to the
creditation contract.
- The cash flow is influenced only by the assets acquisitions, endowments, or
modernisations which represent the contribution of the economic agent at the accomplishment of
the investments.
- Subventions – the given subventions for the investments, as sources of completing the
equity capital, represent liquidity entrances.
- Increase of capital in cash- the increase of the equity capital paid by supplement cash.
- Other entrances – sales of tangible assets, associated credit, VAT reimbursement, etc. In
case of the tangible assets sale, there will be taken in consideration the credit periods offered to the
buyers, and in the form we will write the amount obtained from sale exactly from the month where
the cashing of the value is forecasted, and not in the month of the transaction closure.
Payments
- Cash payment acquisitions – ex. Raw materials. The season character of the business will
be taken into account. Is it necessary to constitute some big stocks for satisfying the season
demand? The correspondence will be kept between the numbers of the monthly stocks and the
number of the stocks from the accounting balance sheet.
- Payment for the acquisitions on creditthat falling due- the exact moment of making the
payment to the supplier will be taken into consideration.
- Personnel expenses – the tax corresponding to the salaries will be added. Also it is
necessary to take into consideration the need to hire personnel supplementary or possible raises of
the salaries for the personnel already employed. The premises in estimating the numbers referring to
this category corresponding to this category will be detailed in the cash- flow annex.
- Rent, ensurances- the payments corresponding to the leasing contract for the industrial
space. You must include also the payments of the supplementary rent for the new buildings when it
is the case. For the payments that correspond to the insurances, you will put the amounts
corresponding to the contracts of insurance for the buildings/equipments/vehicles etc., at the
moment of the due term of the premiums (monthly, trimestrial, semestrial, and annual.)
- Marketing and advertising expenses – the character of the expenses ofr advertising will be
taken in consideration – they appear only in the case of new products launch, it is for seasons, etc.
- Credit instalments payment- the long or short term credit reimbursements refer to all the
credits that the economic agent benefit of, including those employed by other banking societies.
There will not be taken in consideration the credits that are given and reimbursed in the same
month. In the case of the credit lines there will be taken in consideration only the positive or
negative difference between the credit and debit turnover, which will be registered in payments and
cashing, depending on the case.
In the end, I recall the rules that must be taken in view for the elaboration and the analysis of
the liquidity flow projection: (a) the forecasted cash flow will include all the revenues that will be
cashed and the payments that will be made in the prognosis period, (b) the cashing and the
payments are calculated for the month in which there certain perspectives that will be cashed or
paid effectively. The value of each prognosis is determined by the manner of fundamenting of the
hypothesis presented.
270
CONCLUSIONS:
During the life of the economic entities the management of the treasury flows is extremely
important, as having or not having cash is finally the difference between functioning in optimum
conditions and being in a deadlock regarding the economic activity deployed. The adoption of some
healthy accounting policies in the management of the treasury flows is a fundamental pillar in
exercising the functions of the administrators and managers and it is a request of the relationships in
business. The assimilation of the stipulations of the Accounting International Standards and their
application does not represent a simple imitation and mechanic application of some requests and
indications but, an attribute of the normality in the international accounting and financial field,
whose vectors, the standardization, the harmonization, and the convergence, will help the economic
actors on various continents to have a language which, even if it is not commun, it is at least close.
In the same time, these stipulations must not eliminate other formats of presentation of the treasury
flows, such as the banking ones because these do not eclude each other, they are complementary.
BIBLIOGRAPHY
1. Higgins Robert, Analysis for Financial Management, Irwin Homewood, Boston, M.A., U.S.A.,
1992
2. Ilies Ciprian, Fluxurile de trezorerie-expresie a modalitatilor de finantare a intreprinderii pe
termen scurt si foarte scurt, Studia Universitatis seria Stiinte Economice, Universitatea de Vest
Vasile Goldis Arad, nr. 16, 2006, vol. III,
3. Mates Dorel, Costea Ciprian Dan, Delia David, Mihaela Stet, Laurentiu Mariut, Alin
Dumitrescu, Luminita Paiusan,Contabilitatea Intreprinderii- aplicatii practice, Editura Mirton,
Timisoara, 2004
4. Mates Dorel,Contabilitatea financiara a intreprinderii, volI si vol.II, Editura Mirton,Timisoara,
2004
5. Mates Dorel, Matis Dumitru, Cotlet Dumitru si colectiv, Contabilitate financiara a entitatilor
economice, editura Mirton, Timisoara, 2006
6. Mates Dorel, Peres Ion, Peres Cristian, Bazele Contabilitatii, editura Mirton, Timisoara, 2005
7. Stefea Petru – note de curs, modulul Analiza Pozitiei si Performantei Financiare a Entitatilor
Economice, ciclul de studii doctorale, Facultatea de Economie si Administrarea Afacerilor,
Universitatea de Vest Timisoara, 2008
8. Stefea Petru, Analiza rezultatelor întreprinderii, Editura Mirton, Timişoara, 2002
9. Stancu Ion, Finante, Editura Economica, Bucuresti, 2002
10. Weil Roman L., Clyde P. Stickney si Sidney Davidson, Accounting, the Language of Business,
Thomas Harton and Doughters, Arizona, U.S.A., 1990
11. ***Legea Contabilitatii nr. 82/2001 republicata in 2005, Monitorul Oficial nr. 48/2005
12. ***Standardele Internationale de Raportare Financiara, Editura Ceccar, 2006
13 ***Ghid de aplicare al Standardelor Internationale de Contabilitate, Editura Economica 2001
14. ***OMFP 1752/2005 pentru aplicarea reglementarilor contabile conforme cu Directivele
Europene, Monitorul Oficial 1080 bis/2006
15. ***Norme de analiza financiara si de creditare de la banci comerciale
16. ***Norme de gestionare a lichiditatii de la banci comerciale
17. ***www.dexonline.ro, www.ceccar.ro
271
SECTION 4
STATISTICS, DATA PROCESSING

(INFORMATICS) AND MATHEMATICS
272
A STATISTICAL ANALYSIS OF THE NORTH-EAST REGION OF ROMANIA

COMPARED TO THE OTHERS IN TERMS OF TOURIST ACTIVITY
Assistant PhD. Student Ioana CIOTIR

ioana.ciotir@feaa.uaic.ro
Assistant PhD. Student Adrian Liviu SCUTARIU
livius@seap.usv.ro
Abstract:
The present paper aims to achieve a comparative analysis of the North–East development region of Romania
with the other regions from the perspective of some economic and tourist relevant indicators. The analysis is preceded
by a short presentation of the regional development frame in which it will take place. For the study, we will use the
statistical method of the variance analysis of some quantitative numeric variables, which in our case are the economic
indicators from the tourism field, under the influence of a qualitative variable (the region), that allows the sharing of
the population in categories. The analysis is made using the SPSS program, and during the study we will feature the
conclusive aspects that occur.
Key words: regional development, regions, tourism, analysis of variances
JEL Classification: L83, C10
1. INTRODUCTION
This paper intends to reveal some differences betwen the tourist activity of the North-East
region of Romania and the others, based on some tourist indicators. The statistic analysis method of
data is did with the help of Levene test, Bonferroni test and Tamhane test. In this study, we will
consider at a time, the relevant tourism indicators as dependent variables.
The structure of this work has a theoretical part, which includes general concepts regarding
regional development and tourism, as well as, a short description of the mathematic system we use,
and a practical part that includes an empirical part on the influence of the region factor on some
tourism indicators, finishing with some conclusions based on the research results.
2. THE TOURISM IN THE CONTEXT OF THE REGIONAL DEVELOPMENT
The necessity of analysing the tourism in regional profile appeared as a result of

development regions creation in the E.U., of decision decentralization and incresing the role of
structural founds that follows the lines of the Social and Economic Cohesion European Policies –
especially The Regional Development European Found; in this conditions, the tourism is a chance
for the development of some regions insufficiently developed.
We will shortly present some aspects regarding the region, regional development and the
role of tourism in the regional development policy, with the purpose of designing the frame in
which our research will take place – the regional one.
There is no definition to contain all the aspects that characterize a region. Common to all
definitions given to the region is the idea of space as entity, so the most significant statement that
can be made about it, is that it represents a unit, which includes a limited number of zones, of
medium size and territorially adjacent.
Regarding the context in which the regions appeared in the E.U., it must be mentioned that
Nomenclature of Territorial Units for Statistics (NUTS) was created by Eurostat (The E.U.
Statistics Office) in 1981 with the purpose of having a unique and coherent scheme of the territorial
273
repartitions for the unification of the regional statistics and for the application of the E.U. regional
policies (including the efficient absorbtion of founds for regional development). These aspects are
at the basis of the medium territorial units, called regions, creation in the E.U. In the same time, the
actual tendency in the E.U. is the one of decission decentralization.
Regionalization became in this way a common tendency of the territorial organization of
European states evolution, besides the one of decisions decentralization, the regions being the
responsible structures for institutional convergence ensuring of the E.U. member states. Although
the regions apparition is not necessarily a consequence of the E.U. regional development policy, the
high level of founds for the achievement of its general objective (obtaining economical and social
cohesion) had an important contribution on regionalization.
Although, in some E.U. member states, the regions have also an administrative role, in
Romania the 8 development regions, created in 1998 by the reunion of several counties, are not
adminstrative territorial units, they have not juridical personality, being the result of a free
agreement between the councils of the counties and the local ones, having the same function as in
the other E.U. coutries.
The regional development (1) means not only the boost and the diversification of the
economic activities, the private sector investments boost, the contribution at unemployment
decrease and living improvement, but a whole environment of supporting and adaptation of the
durable actions that converge with the competence domains of the region.
The regional development policy strengthens the role and the responsibilities of the local
public administration and of the regional organisms in the economical and social development of
each settlement and of the development regions, in the same time with the reduction of government
institutions involvement in such activities. One of the objectives is the reduction of the economical
and social disparities existing among diverse E.U. regions, focusing on the balanced development
stimulation and the disadvantaged zones revitalization; is stimulates the economic growth and the
SME sector development acting on some significant fields for development such as: transports,
agriculture, urban development, environment protection, employment and professional training,
education, chance equality, etc.
One of the ways which E.U. uses for the achievement of these objectives is the creation of
The Structural and Cohesion Founds (especially The European Found Regional Development),
which are the financial instruments that E.U. uses to eliminate the economical and social disparities
among regions, with the goal of economical and social cohesion achievement.
The policies and plans of regional development in the last years take into account more and
more the tourist sector, as a strategic sector for providing a dynamic and durable economic growth,
of certain regions with an important tourist potential.
The Regional Development Agencies existent in every development region have an
important role in the implementation of the Regional Operational Program 2007-2013 (Regio),
which is one of the Romanian Operational Programs agreed with the E.U., financed by The
European Regional Development Found (ERDF), constituting itself as an important instrument to
implement The National Development Strategy and policies for regional development. Programul
este accesibil tuturor celor 8 regiuni de dezvoltare ale României. It is structurated in 6 priority axes,
and the presence of tourism in the frame of the Priority Axis 5 of Regio, reveals the fact that
tourism has an important place and must know a better development in every region.
The tourism development causes the development of some other fields related to it. The
benefic effects will observe don the population incomes level and on some other fields, extern from
tourism. The tourism multiplier (2) is represented by the fact that an initial expenditure made by a
tourist, in an area or country, is successively converted into revenue for other areas of the economy
(agriculture, manufacturing industry of consumer goods, construction and materials of construction
industry, trade, services), directly or indirectly related to tourism, until the funds in question leave
the country, the zone or the economic sphere, in general by the payment of taxes, savings
(hoarding), imports, etc. called leaks from the system.
274
After this presentation of the context inwhich we develop our research, we will reveal and
analize, next, with the help of some specific means the diferences between the North-East region
and the other regions from the tourist activity point of view.
3. THE STATISTICAL METHOD
The statistical analysis is done in two steps. In the first step we apply the statistical Levene
test to study the homogeneity of the variance. If the significance level less or equal then 0,05,
meaning that the probability of the null hypothesis is less then 5%, we have to reject the null
hypothesis, meaning that the variance is not homogeneous.
In this situation we need to use the Tamhane statistical test to determine the presence of
significant differences between the average values of the variables in the North-East region
compeered to the others regions.
If, we have the opposite situation, that is the significance of the Levene statistical test is
greater then 0,05, we have the homogeneity of variances and in this case we use the Bonferroni
statistical test to compare the avearge value of the variables from the North-East region and the
other regions.
4. STATISTICAL REASARCH CONCERNING THE INFLUENCE OF THE

REGION ON SOME BASIC INDICATORS IN TOURISM
The scientific research on the tourism activity assumes the use of an appropriate
methodology that assures the quantification. In the present paper we shall consider the following
economical indicators from the tourism area: the GDP (gross domestic product), the turnover (for
hotels and restaurants), the investments in tourism, the accommodation capacity, the tourism
capacity utilization index and the number of overnight stays in hotels.
The general hypothesis of the research is that there are significant differences between the
North-East region and the others regarding the level of the indicators presented above.
4.1. THE INFLUENCE OF THE REGION ON THE VARIABLE GDP (GROSS

DOMESTIC PRODUCT)
Before observing the differences between the North-East region and the other regions from
the perspective of the tourism activity, we shall analyze if there are differences from the point of
view of general development. The GDP is an indicator essential in the study of the level of social
economical development of and it is expressed in RON/ habitant/ year for each region. In the
present paper we shall study this for the period 2000-2005.
We consider that the level of development of the North-East region is different from the
level of the others regions if, from a statistical point of view, there is a significant difference
between the average values of the GDP in the six years considered in the study.
After using the Levene statistical test with the SPSS we have obtained the significance Sig =
0,08 > 0,05 proving that the variances of the 8 regions are homogenous.
Table no. 1 Test of homogenity of dispersions for the GDP

Levene
Statistic df1 df2 Sig.
1,991 7 40 ,080
In consequence we shall use the Bonferroni statistical test to compare the North-East region
to the others.
275
Table no. 2 Bonferroni test for the GDP
*The average value is considered significant if the level of significance is < 0,05.
As we can easily see in the table above, from the Bonferroni test we can conclude that the
average value of the GDP in the North-East region is significantly different from the average value
in the region Bucharest-Ilfov, but, compared to the other regions, there are not statistically
significant differences.
4.2. THE INFLUENCE OF THE REGION ON THE TURNOVER IN TOURISM
In this paper the turnover is calculated for hotels and restaurants for the period 2000 – 2005
and it is expressed in RON.
We shall consider that the level of the variable is significantly different for the North-East
region compared to the others regions if there are differences statistically significant between the
average values of the variable for the six years we have considered.
After applying the Levene test using SPSS we have obtained the significance Sig = 0,007 <
0,05 proving that the variances of the 8 regions are not homogeneous.
Table no. 3 Test of homogenity of dispersions for the turnover
Levene
3,329 7 40 ,007
Table no. 4 Tamhane test for the turnover in tourism
276
As we can see in the table above there are not statistically significant differences of the
turnover in tourism, between the North-East region and the others.
4.3. THE INFLUENCE OF THE REGION ON THE INVESTMENTS IN TOURISM
The variable investment in tourism is expressed in RON and will be considered in the
present paper for the period 2000 – 2005. We shall consider that there is a difference on the level of
investments if the difference between the average values for the six years is statistically significant.
Applying the Levene statistical test with SPSS we obtained the significance Sig = 0,34 >
0,05 proving that the variance of the 8 regions are homogeneous.
Table no. 5 Test of homogenity of dispersions for the investments in tourism
Levene
1,172 7 40 ,340
In consequence we shall use the Bonferroni statistical test to compare the North-East
region to the othrs.
Table no. 6 Bonferroni test for the investment in tourism
As we can see in the table above there are not statistically significant differences of the
investments in tourism, between the North-East region and the others.
4.4. THE INFLUENCE OF THE REGION ON THE ACCOMMODATION

CAPACITY
The variable accommodation capacity is expressed in number of accommodation places and

it will be analyzed for the period 1991 – 2005, the average value being consequently calculated for
15 years. Applying the Levene statistical test of homogenity with SPSS we obtain the significance
Sig = 0 < 0,05 proving that the variances corresponding to the eight regions are not homogeneous.
Table no. 7 Test of homogenity of dispersions for the accomodation capacity in tourism
Levene
5,076 7 112 ,000
277
Applying the Tamhane statistical test with we have obtained that we have the following
differences between the average value of the accommodation capacity of the North-East region and
the accommodation capacity of the others regions.
Table no. 8 Tamhane test for the accomodation capacity
According to the table above we have the following conclusions:

- The North-East region has an accommodation capacity which is significantly greater
then that of the South-West and Bucharest-Ilfov regions.
- On the other hand, the North-East region has an accommodation capacity significantly
smaller then one of the regions South, South – East, West, North – West and Center.
4.5. THE INFLUENCE OF THE REGION ON THE TOURISM CAPACITY

UTILIZATION INDEX
We have to say at the beagining that the variable tourism capacity utilization index refers to
the the period 1991 – 2005. We shall consider that there is a difference on the level of investments
if the difference between the average values for the six years is statistically significant. Applying
the Levene statistical test of homogenity with SPSS we obtain the significance Sig = 0 < 0,05
proving that the variances corresponding to the eight regions are not homogeneous.
Table no. 9 Test of homogenity of dispersions for the accomodation tourism capacity
utilization index
Levene
9,128 7 112 ,000
differences between the average value of the accomodation tourism capacity utilization index for
the North-East region and the accomodation tourism capacity utilization index of the others regions.
278
Table no. 10 Tamhane test for the accomodation tourism capacity utilization index
According to the table above we can formulate the conclusion that the North – East region
has the accommodation tourism capacity utilization index significantly smaller then the South –
East and the South – West regions. There are not significant differences comparing to the other
regions.
4.6. THE INFLUENCE OF THE REGION ON THE NUMBER OF OVERNIGHT

STAYS IN HOTELS
Applying the Levene statistical test of homogenity with SPSS we obtain the significance Sig
= 0 < 0,05 proving that the variances corresponding to the eight regions are not homogeneous.
Table no. 11 Test of homogenity of dispersions for the number of overnight stays in hotels
Levene
22,724 8 126 ,000
differences between the average values of the number of overnight stays in hotels.
Table no. 12 Tamhane Test for overnight stays
279
According to the table above the North – East region has the average values of the number
of overnight stays in hotels significantly smaller then the South – East and Center regions.
5. CONCLUSIONS
From our study, we can feature some conclusions that we present next.
Although there are some differnces between the North-East region and the others from the
tourist activity point of view, concerning the GDP, only the Bucharest-Ilfov region has a
signifiantly higher value than North-East.
Concerning the turnover, there are no signifiant differences between the North-East region
and the others, and about the investments, we can notice that only in Bucharst-Ilfov the value is
signifiantly higher than in North-East.
Regarding the accommodation capacity we can observe that, the region we focused on,
registers signifiantly lower values than the majority of regions, only South-West and Bucharest-
Ilfov having lower values.
The net using index of accommodation capacity in the North-East region is signifiantly
lower in the North-East region than in the South-East (which includes the Black Sea season) and
South-West one.
Regarding the stayings over night, the North-East region has much lower values than South-
East and Center, which can be considered touristic zones par excellence.
So, we can conclude that the North-East region is not among the regions that outstands by
an intense tourist activity, that’s why we consider as necessary and welcomed any measures that
can stimulate the increase of this field of activity in the region, as a premise for the general
development of the zone.
NOTES
(1) Violeta Puscaşu – Dezvoltarea regională, Editura Economică, Bucureşti, 2000, p. 87
(2) Rodica Minciu - Economia turismului, Editura Uranus, Bucureşti, 2001, p. 303
BIBLIOGRAPHY
1. Asandului L. - Statistica turismului. Aplicatii, Editura Junimea Iasi, 2002
2. Avramescu Tiberiu Cristian - Direcţiile implicării autorităţilor publice centrale şi locale în
dezvoltarea turismului durabil, teză de doctorat, ASE, 2005
3. Bodnăraş Emil– Finanţarea locală: practici comparate România- U.E., Seria Probleme
Economice, vol. 245-246, Centrul de Informare şi Documentare Economică, Bucureşti, 2007
4. Constantin D.L. – Introducere în teoria şi practica dezvoltării regionale, Editura
Economică, Bucureşti, 2000
5. Puşcaşu Violeta – Dezvoltarea regională, Editura Economică, Bucureşti, 2000
6. Ivan Ungureanu Clementina – Dezvoltarea regională – prezent şi perspective, în volumul
Dezvoltarea regională în contextul integrării în Uniunea Europeană, Coordonator Roşca
E.R., Editura Economică, Bucureşti, 2006
7. Jaba E., Grama A. - Analiza statistica cu SPSS sub Windows, Editura Polirom, Iasi, 2004
8. Platon Victor, Turdeanu Andreea - Dezvoltarea durabilă în U.E. şi România: Analiză
comparativă, Revista Română de Economie, Anul XVI, Vol. 23, Nr. 2/2006
9. * * * Programul Operational Regional 2007-2013, Ministerul Dezvoltării, Lucrărilor
Publice şi Locuinţelor
10. Anuarul Statistic al României Institutul Naţional de Statistică, Bucureşti, 2002, 2003, 2004,
2005, 2006, 2007,
11. www.adrnordest.ro
12. www.inforegionordest.ro
13. www.insse.ro
280
DATABASE ACCESS THROUGH JAVA TECHNOLOGIES
Professor PhD. Ion LUNGU

Academy of Economic Studies, Faculty of Cybernetics, Statistics and Economic Informatics,
Bucharest, Romania, Ion.lungu@ie.ase.ro
Inf. PhD. Student Nicolae MERCIOIU
Academy of Economic Studies, Doctoral School,
Bucharest, Romania, nicu.mercioiu@gmail.com
Inf. PhD. Student Victor VLĂDUCU
Academy of Economic Studies, Doctoral School,
Bucharest, Romania, vladucuvictor@yahoo.com
Abstract
As a high level development environment, the Java technologies offer support to the development of distributed
applications, independent of the platform, providing a robust set of methods to access the databases, used to create
software components on the server side, as well as on the client side.
Analyzing the evolution of Java tools to access data, we notice that these tools evolved from simple methods
that permitted the queries, the insertion, the update and the deletion of the data to advanced implementations such as
distributed transactions, cursors and batch files.
The client-server architectures allows through JDBC (the Java Database Connectivity) the execution of SQL
(Structured Query Language) instructions and the manipulation of the results in an independent and consistent manner.
The JDBC API (Application Programming Interface) creates the level of abstractization needed to allow the call of
SQL queries to any DBMS (Database Management System). In JDBC the native driver and the ODBC (Open Database
Connectivity)-JDBC bridge and the classes and interfaces of the JDBC API will be described.
The four steps needed to build a JDBC driven application are presented briefly, emphasizing on the way each
step has to be accomplished and the expected results. In each step there are evaluations on the characteristics of the
database systems and the way the JDBC programming interface adapts to each one.
The data types provided by SQL2 and SQL3 standards are analyzed by comparison with the Java data types,
emphasizing on the discrepancies between those and the SQL types, but also the methods that allow the conversion
between different types of data through the methods of the ResultSet object.
Starting from the metadata role and studying the Java programming interfaces that allow the query of result
sets, we will describe the advanced features of the data mining with JDBC.
As alternative to result sets, the Rowsets add new functionalities that enhance the flexibility of the applications.
These are analyzed and the approach is described.
Next, we will describe Java Data Objects (JDO) Application Programming Interface, which is a way to store
persistent data in databases, using plain old Java objects (POJO) to represent persistent data. The approach makes
possible separation between data manipulation and database manipulation.
Keywords: Java, JDBC, database access, SQL, JDO
JEL classification: C88
INTRODUCTION
Java plays a dominant role in client-server programming, in the presentation layer of the
websites, but also in the business logic on the applications servers. A large contributor to this
success is attributed to the ability to interact with data. Starting from these advantages, a description
of the JDBC (Java Database Connectivity) was needed, also the way these instruments can be used,
emphasizing on the new features the latest version have to offer.
The standardization of SQL (Structured Query Language) did not block several DBMS
creators to develop proprietary extensions to SQL, rezulting in the creation of different interfaces
for data manipulation. However, JDBC technology offers a consistent interface for manipulating
data, regardless of the format in which the data is stored (fig. no. 1).
281
Figure no. 1. The role of Java technologies to access data at enterprise level.
Derived from [4] , pag. 7
1. THE EVOLUTION OF DATA ACCESS JAVA INSTRUMENTS
When Sun Microsystems released the first JDBC API 1.0 (Application Programming
Interface) in 1997, it had several shortcomings, for instance the interface to access SQL databases.
JDBC 2.0 arrived with new features such as cursors and batch files. Also, the Optional Package,
javax.sql as well as other advanced features such as distributed transactions or the RowSet interface
arrived.
JDBC 3.0 brought transactional intermediate saving points and support for SQL99 types of
data. The optional packages have been included in the Java 1.4 distribution. JDBC 4.0 provides
support for SQL 2003 but also extended support for CLOB (Character Large OBject) and BLOB
(Binary Large OBject).
Currently, the Java API includes a JDBC-ODBC driver (Open Database Connectivity-Java
Database Connectivity) that allows the JDBC driver access to a native system database, when an
ODBC native system driver exists for that database. The Java API does not include drivers for all
databases. The existence of a common programming interface brings several benefits. Otherwise, if
any database creator would built its own API, that would lead to thousands of ways of
programming databases, so any interface would have to be known. About new JDO technology, the
original JDO 1.0 is Java Specification Request 12 (JSR 12), and the current JDO 2.0 is Java
Specification Request 243 (JSR 243). Beginning with version 2.0, the development of the API and
the Technology Compatibility Kit (TCK) takes place within the Apache JDO open-source project.
The Apache JDO project is focused on building the JDO API and the TCK. Commercial and
open-source implementations of JDO, providing the APIs - witch is used by application developers
-, are available for relational databases, object databases, and for file systems.
2. THE ARCHITECTURE
In a client-server architecture the databases reside on the same or on a different machine on

which the client connects to the intranet or Internet. JDBC allows to use SQL instructions and to
process results of the queries in an independent and consistent manner. Using a high level of
282
abstractization represented by the JDBC API, the situation of the programmer to handle different
SQL calls to a certain DBMS (Database Management System) is avoided. (figure no. 2).
Figure no. 2. The role of JDBC in accessing data –

In order to be able to connect to a certain DBMS we only need to switch the driver,
operation that can be done dynamically, even when the application runs, without the recompilation
of the application.
The way those drivers are built is standardized through the JDBC specifications which
describes the standard interfaces that are to be implemented. During time an evolution of those
specifications occured, and the functionalities have been enhanced without compromising the
compatibility with previous versions of the specifications. Generally, the JDBC specifications
describe a series of interfaces that the people who develop the drivers should implement. Some
databases do not allow stored procedures or other functionalities due to non-standard development
of databases in general. Therefore, the JDBC specifications that have emerged from time forced the
drivers creators to implement a reduced set of interfaces, other things remaining optional, without
restricting the real posibilities of existing databases.
JDBC provides object-oriented access to databases through the definition of classes and
interfaces that cover several abstract concepts. Also, the JDBC standard defines a series of
interfaces that are to be implemented by the drivers creators in order to give the developers
informations about the queried database, the DBMS used and so on. Those intels are also known as
metadata, which means „data about data”.
JDBC programming covers many aspects: client-server communication, drivers, APIs, data
types and SQL instructions. The JDBC API releaves much of the burden needed to create
applications with databases. It comprises many simple and intuitive components that can work for
the programmer. In order to create an application one just need to assemble these components.
Programming JDBC is also a very methodical way. 90% of the JDBC application uses the same
objects and methods.
The first step is to obtain, install and configure the JDBC driver. Afterwards the needed
component can be utilized in all the JDBC applications. After that compiling takes place, running
the application and solving the eventual issues.
JDBC is an API that encapsulates calls on two levels needed to access database data and
interacts through a common interface. JDK (Java Development Kit) and JRE (Java Runtime
Environment) both contain the standard API, the interfaces and classes being contained in two
major packages java.sql and javax.sql. The first package includes standard components, whilst the
second includes enterprise level components.
The entire communication with the database occurs through the JDBC drivers. This driver
converts the SQL instructions into a database server comprehensible format, using the correct
networking protocols. JDBC abstracts the specific communication with the database. (fig. no. 3).
283
Fig. no. 3. The relationship between the application-JDBC-database

The Java SDK includes the ODBC-JDBC driver, thus allowing the access to ODBC drivers
to database. Instead of accessing directly the database, JDBC “talks” to the ODBC drivers, which,
in its turn communicates with the database.
Figure no. 4. The relationship application-JDBC-ODBC-database

Installing the JDBC driver is similar to installing any other Java API. You only have to add
the path of the driver in the CLASSPATH variable when compiling and running the application.
When using the ODBC-JDBC bridge driver, this step is not required, however other additional
settings have to be done.
First of all, the application should be able to communicate with the database. Afterwards,
the application has to be able to establish connections with the database to create a communcation
channel in order to send SQL commands and retrieve results. Finallz, the application has to have a
mechanism to deal with the errors. In order to accomplish all these things, the JDBC API provides
the following interfaces and classes:
- Driver – this interface controls the communication with the database server. Rarely one
should need to interact with objects of the Driver type. Given this, the DriverManager objects can
be used instead. These have an abstract representation of the details associated to the work with
Driver objects.
- Connection – instantiating objects of this interface represents the physical connection to
the database. The result set and tranzactions can be controlled using Connection objects.
- Statement – objects created with this interface in order to send SQL commands to the
database. Some derived interfaces accept supplemental parameters in order to execute stored
procedures.
- ResultSet – these objects contain the retrieved data from the database after the query has
been performed using Statement object. These objects allow the browsing of the data like an
iterator.
- SQLException – a class that traps any error that is encountered in the application
Any Java application that uses databases works directly or indirectly with those four
components described earlier.
3. STEPS IN WRITING A JDBC APPLICATION
Practically, the steps that are to be followed when writing a JDBC applications are:
1. The registration of the JDBC driver with Class.forName().newInstance().
2. The connection to the database is open with DriverManager.getConnection().
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3. A Statement type object is created in order to send SQL commands using the method
Connection.createStatement() and afterwards execute(), executeUpdate() or executeQuery()
4. The connection is closed using the method close().
The first step that is to be made in order to use a JDBC driver is the exact determination of
the class for the driver provided by the creator. Usually, the producers respect the naming
conventions of the packages when naming the drivers. The java.sql.Driver interface and the
java.sql.DriverManager class are the tools to work with drivers. Registering a driver means the
registration with a DriverManager object. There are several techniques to register JDBC drivers:
- Class.forName(String driverName).newInstance()
- DriverManager.registerDriver(Driver driverName)
- jdbc.drivers property
In JDBC, an instance object of the type Connection represents a physical connection to the
database. The method Driver.connect() can be used, being prefered though the getConnection()
method of the DriverManager class because it allows the choose of the right driver. Also, the
method can be overriden in order to allow opening of different menas o open connections. JDBC
needs a special name system to be used when connecting to a database. The general format is
jdbc:<subprotocol>:<subname> where <subprotocol> represents the specific protocol of the
producer and <subname> is the source of the data (the logical name of the database we’re trying to
connect to).
To open connections, the getConnection() from the DriverManager class returns a valid
Connection type object. If the method fails, DriverManger throws a SQLException containing the
specific database error.
Closing the connection means the mandatory usage of the close() method. The method
Connection.isClosed() does not check whether the connection is stil open or closed, but returns
true if the method close() has been used. The best way to check a connection is to try a JDBC
operation and the trap of the exception to determine whether the connection is still valid.
For the beginning we must be sure that the client’s session has been closed on the database
server. Some databases cleanse the remains if the sessions terminate unexpectadely. Then, the
database sees that the user’s session failed and executes a rollback to all the changes between the
execution of the programme (for instance sessions that ended in the middle of the tranzaction).
Explicitly closing the connections ensures that the client-server medium has been cleansed
completely and makes the database administrator happier, conserving the resources used by the
DBMS, for instance free licenses used on open sessions. Also RAM and CPU is spared on the
server on which the database resides.
We can interact with the database in two ways. This way we can send a SQL query to obtain
data about the database schema or to “learn” the values stored in some database fields, all these
taking place at runtime. In that case we would need to create parametric JDBC or stored procedures.
In this case we need to create. Regardless of what we want to do, the Statement, PreparedStatement
and CallableStatement object provides the sufficient tools in order to attain our goals.
The corresponding interfaces define models and properties that allow sending commands
and receiving data from and to the data database, as well as methods that help creating a bridge
between different types of data defined in Java and specific to each type of SQL database types. For
instance, the data types that have NULL values in the database in contrast with the int type in Java,
or the different representation of date and time data between Java and SQL-92. There are methods
that allow conversion of data from Java into JDBC. Statement objects offer DBMS interaction.
They allow all the types of DML (Data Manipulation Language), DDL (Data Definition Language)
commands to be executed, as well as other specific commands, batches and tranzaction
management commands.
The three methods of the Statement objects are execute(), executeUpdate() and
executeQuery() that allow sending commands to the database and retrieving results. Execute()
processes DML instructuions, or DML or other specific database commands. It can return one or
more ResultSet type objects. The method has flexibility, but the processing of the results is a little
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bit difficult. executeUpdate() is used for INSERT, UPDATE, DELETE or DDL instructions and
returns the number of records affected by the sent command. executeQuery() queries the database
and returns a result set (a ResultSet object).
A ResultSet type object contains data returned by the SQL queries, run with one of the
methods: executeQuery() sau execute().
Given the fact that many databases use a query language that have supplemental commands
other than the DML or DDL, Java has support for a special type of commands format– JDBC SQL
escape that allows access to specific functions of the database. When used this feature, the driver
translates the commands in the specific format of the database. The execute() method is the most
flexible way to interact with the database because it cas process result sets or number of records.
The disadvantage here is that when used you cannot anticipate the type of the results returned – sets
of results, number of records, or both.
The next figure shows the way the results returned by the execute() method are processed.
Figure no. 5. The process of returning results from the execute() method -
[4] , pag. 68
The interface set Statement can be used to process batches, i.e. sending multiple DML
instructions (executed as one command) in a single call, that allows using a tranzactional control
over the database. This control allows, for instance, the return to the initial state of all changes if
one of the change failed, and by that insuring integrity and database consistency.
The tranzactions allow control of whether and when the changes are applied to the database.
They allow the representation of a single instruction or a group of SQL instructions to be treated as
a single logical unit, and if just one instruction within fails, the whole tranzaction fails. Tranzactions
present both advantages and disadvantages. One advantage is that they allow consistency and
integrity of the data. The disadvantage is that the blocking system for each database is different
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from database to database and the effect of initial blocking of the data initiated by the tranzaction
can be sometimes surprising.
With JDBC tranzactions can be administered through the Connection type objects; for
instance using the auto-commit module and the usage of rollback() method. A saving point is
actually a logical tranzaction rollback point within the tranzaction. If an error occurs between the
last saving point, the rollback method can be used to restablish the state of the data at that saving
point.
The PreparedStatement interface offers some advantages over the classic Statement
especially because of the feature of adding parameters dynamically. Still, not all the databases
support this feature. Also, all the commands of this type remain in memory in this open session or
until the PreparedStatement object is closed. This PreparedStatement allows input and output
stream, allowing us to store files in the database as values.
The CallableStatement objects allows us to execute stored procedures in the database from
the application. These objects utilize parameters as OUT or INOUT
The result sets are nothing more than rows and columns obtained from the ResultSet objects,
creating a logical view of the data from the database. JDBC provides a class that implements the
ResultSet interface that offers method to allow data interactivity.
Although a result set contains multiple records, at a time it is possible to get access to only
one record, the “active” record. Accessing this record means moving the cursor with specific
methods. There are several types of results:
The predefined type Standard that allows only sequential and forward browse of the set. The
data cannot be updated. It is useable to populate a simple list or other simple operations.
The second type would be Scrollable, which allows the browsing of the results forth and
back and jumping to a specific records. This one reflects the changes in the database, so it can be
used in real-time applications.
The third type would be Updateable that allows the update of the result set without
additional SQL instructions.
The Scrollable and Updateable must be used only when really needed as they can affect the
application’s performance.
4. MAIN TYPES OF DATA
Generally, the database support a limited types of data. If SQL2 (SQL92) offered support
for a limited standard types, SQL3 allows customized built types, the dimension of data that can be
accomodated in a column is now bigger than 1GB of binary or character data. Also, SQL offers
complex object support in business modelling and multimedia applications as well as object
identifiers, abstract data and inheritance. However, not all the databases support SQL3 standard.
There are discrepancies between Java types and known database types, that requires the
conversion of those Java types into SQL types and viceversa. These conversions are made through
the getXXX(), setXXX() and updateXXX() methods that belong to the ResultSet object. It is
important to know that every JDBC data type has a corresponding recommended Java type. Still,
these methods are not very strict, they allow conversions from more precise into more loose types
of data and even into other types (for instance: getString()).
Given the fact that primite Java types do not have to be defined, they store directly
information, remaining constant from one application to another and from one virtual machine to
another. Because primitive objects cannot be instantiated, Java offers the wrapper classes that
allows treating the primitive values as objects.
In SQL, NULL represents a data with unknown or undefined value. In Java, this NULL can
present a problem, especially for numeric data types. For instance, the integer type from Java
cannot have NULL values. Using the ResultSet.getInt() method JDBC will translate this NULL
value into 0, which untreated can lead to an erroneous interpretation of the data. Objects, on the
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other hand, can have NULL values in Java. The ResultSet.wasNull() methods determines whether
the last column read from the database returned a NULL value.
Data returned from SQL queries must be formatted as JDBC types. The conversion to Java
types must be made before assignation to variables.
SQL UDTs (User-Defined Types) allows the developers to create their own definition of
data types in the database. These are exlusively defined with SQL instructions, but JDBC offers
support for UDT in Java applications. The custom types are materialized on the client, so the access
is not directly to the value, but through an intermediate LOCATOR that references a value in the
database. The UDTs allow the usage of large data and the way those can be used will be presented
later on.
The DISTINCT data type allows the assignation of the new custom data type with another
type of data, in a similar manner classes are extended in Java.
STRUCT is a data type built that has several members, named attributes, each of them
carrying different types of data. A Java class without methods is an analogical representation of a
STRUCT. In SQL3 STRUCT types of data can be constructed, each being able to hold any type of
data, including other STRUCT.
Example: Declaring a STRUCT:
CREATE TYPE Sal_DATA(
CNP Number(9),
Nume VARCHAR(20),
Prenume VARCHAR(20),
Salariu NUMBER(9,2) )
JDBC allows the creation of Java classes to mirror UDTs on the database servers. The
process of creation and usage of a Java class is called mapping of types. The advantages are: control
of access through classes, data protection, the possibility to add new methods and attributes.
5. DATA MINING WITH JDBC
Understanding the concept of data mining implies the knowledge of the role of the metadata.
These are data about data. In databases, metadata represents information about data and
structure and applications that deal with data. An example would be tables and attributes of the
columns.
The JDBC API allows the descovery of the metadate about a database through the query of
the result set using the DatabaseMetaData and ResultSetMetaData interfaces. The first one allows
gathering information about the database attributes and allows taking decision at runtime upon these
information. The second interface allows gathering the attributes such as number of columns, name
and type of data of the result set. This information can be used, for instance, to populate a report
with the name of the column and to determine which kind of getXXX() method should be used.
A ResultSetMetaData object can be used to create a generic method for processing result
sets. This way, the types of the data from the column of the result set and the correct version of
getXXX() methods to obtain data. DatabaseMetaData allows the creation of tools which database
administrators can use to inspect databases, the structure of the tables and the users schemas.
JDBC 3.0 defines a new interface for metadata - ParameterMetaData. This one describes
the number, type and properties of the parameters used in prepared statements.
The ResultSetMetaData provides information about the columns in the result set, such as
number and type. The interface does not provide information about the number of records in the set
of results.
The DatabaseMetaData interface is useful when inspecting the structure of the database.
Creating a DatabaseMetaData object can be done by using the getMetaData() method of the
Connection object. A DatabaseMetaData object has many methods and properties, all those can be
grouped in two categories: refering to the characteristics of the database, or refering to the structure
of the database.
The first category of methods and properties answers to questions such as:
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- Does the database support batches?

- What is the user which I am connected to the database?
- What kind of SQL data types does the database support?
- What are the SQL keywords supported by the database?
The methods from this category refer to information about the database return String results,
the ones that offer information about database limitations return int.
The methods from the second category return a ResultSet object which depends on the
method used to query the database. The majority of the methods are simple and allow the usage of
replacement wildcards: “_” is used to replace a single character, while “%” can be used to replace
zero, one or more characters.
6. ROWSETS
Rowsets represent an alternative to result sets. The RowSet interface extends the ResultSet
offering the same functionalities for viewing and manipulating data, but adds among features,
functionalities that enhance the flexibility and the power of the application. Rowsets implement the
JavaBean architecture, can operate without a coninuous connection to the data source and can offer
tabulary data about any data source being in constrast with result sets that can only work with
databases.
Extending the ResultSet interface, the RowSet allows access to the same methods and
properties. A RowSet object can obtain data from a source in many other ways. The main
differences betwessn these two interfaces are:
-The RowSet interface supports the JavaBean component model, allowing the developers to
use the visual tools for Beans. RowSet can inform the “listeners” about events that appear.
-The row sets can operate connected or disconnected. The first way is similar to the result
sets, but the disconnected stores the rows and the columns in memory, allowing the manipulaton of
data in this manner.
Because the RowSet is in the javax.sql package, Sun Microsystems does not provide a
standard implementation. Still, in JDBC 2.0 there are some implementations like: JdbcRowSet,
CachedRowSet and WebRowSet.
The development of RowSet object based applications implies a different technique than the
one with standard components. Mainly we need a single object to implement the RowSet interface.
The steps to be pursuit when using a row set are:
1. Registering the JDBC driver.
2. Setting the connection parameters.
3. Populating the row set.
Because the RowSet object supports the JavaBean model it is impossible to access the
properties of the object directly, which requires the usage of the methods get and set to configure
the properties of the class that implements the RowSet interface.
RowSet objects can generate JavaBean events and allow the notification of other
components the events that appear in the RowSet object. A row set, acts differently than a result set,
because it automatically connects to the data source when it has to retrieve or update data.
Both DDL and DML commands can be used with RowSet objects but the execution is
different than in standard JDBC. First of all, it is not necessary to instantiate Statement,
PreparedStatement or CallableStatement objects to execute SQL instructions. The object
determines if there is a parametrized query or a stored procedure to be executed.
The retrieve of the data from the row sets is done with the getXXX() methods, where XXX
refers to the Java type of data in which we store the value.
Since the RowSet interface extends the ResultSet interface, for browsing the rows the same
methods exposed by the ResultSet can be used. Also, the properties can be controlled with
scrollable and updateable by the setType() method.
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After usage, the RowSet object must be closed in order to free the database resources used.
The RowSet.close() method frees all the resources of the database. Closing the object is critical
when this is of JdbcRowSet type, because this object maintains an open connection to the server
once the execute() method is called. Objects of type CachedRowSet and WebRowSet connect to the
data source when needed. However to eliminate the possibility of unwanted closing by the garbage
collector, they must be explicitly closed.
Using a JdbcRowSet object is simple because it is a JavaBean component. Once the row set
is populated, the methods inherited from ResultSet can be used to work on data. This object does
not require a JDBC driver, or an open connection to the database.
The CachedRowSet object provides a disconnected and serializable implementation of the
RowSet interface. Once the object is populated, it can be made serialized so we can share
information with other users. It is not recommended for large amounts of data since it can exhaust
the system memory.
The WebRowSet can work independent and is able to serialize data. This object is able to
generate an XML (eXtensible Markup Language) file which can be used as it is or use an XML file
to repopulate itself. Having a row set represented as an XML file, the data can be presented on
various devices and browsers.
7. JAVA DATA OBJECTS (JDO)
We start with benefits of using JDO for Application Programming. This benefits are:
- Ease of use: Application programmers can focus on their domain object model and leave
the details of persistence (field-by-field storage of objects) to the JDO implementation;
- Portability: Applications written with the JDO API can be run on multiple
implementations without recompiling or changing source code. Metadata, which describes
persistence behavior external to the Java source code, is highly portable;
- Database independence: Applications written with the JDO API are independent of the
underlying database. JDO implementations support many different kinds of transactional data
stores, including relational and object databases, XML, flat files, and others;
- High performance: Application programmers delegate the details of persistence to the JDO
implementation, which can optimize data access patterns for optimal performance.
JDO helps the programmer to write data access programs with less programming and thus
increasing the productivity of the programmers. JDO operates at a higher level, transparently
transferring data between in-memory Java objects and your database.
The steps that are to be followed when writing a JDO applications are:
1. Data Object: Create an Object that we wish to persist in the database;
2. Persist: Create an Object that will take care of persisting, reading, and updating the
datastore;
3. JDOEnhancer: Create an JDO descriptor to tell the JDOEnhancer what we are doing;
4. Build: Go through the steps to build and run the system.
First step: We'll start creation of the Object that we wish to persist in database. This object
follows the standard JavaBean conventions of get and set on the attributes. Notice that although we
are persisting this class, there is nothing special about it. It doesn't have to inherit or implement any
persistent interface/base class. The requirements for a class that can be persisted are:
-Fields must be accessible to the JDO classes (public, or set methods);
-The field's data type must be permitted in accordance with the JDO specification;
-Certain fields can not be supported (unserializable ones like Thread, File, Socket).
Second step: Now we need to create tasks that will manage the persistence.
-Initialize the JDO Persistence Manager;
-Persist the Objects to the database;
-Display the Object from the database;
-Change the properties of the Object;
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-Delete the Object;

-Run through these things in the main() method.
Third step: The JDO architecture is built with the idea that a JDO implementation can
take the bytecode for your classes and manipulate them to add needed functionality. For example,
the JDOEnhancer will make the class implement the PersistanceCapable interface (so you don't
have to), and may implement some of the methods in that interface. So we will see that after we
compile our code, we will have to run the JDOEnhancer to do the bytecode manipulation (this is
something that Thought Inc. doesn't like about JDO). We need to create a descriptor file that gives
information about the classes that we wish to persist.
Step four: There are only a couple of steps to build the system that we have created:
-Compile the code;
-Run the JDOEnhancer;
-Set up the database (using output from the JDOEnhancer);
-Run the application
-Here is an example of running the JDOEnhancer for application:
% java com.prismt.j2ee.jdo.enhancer.JDOEnhancer -oc . -pd

person.jdo -db oracle -od db -cp .
CONCLUSIONS
The designers of IT systems choose the combination of Java, JDBC and JDO because it
allows the disemination of the information contained within databases in a simple and economic
way. The operations within the organization can go on by utilizing existing databases even if these
are used on different operating systems. The time used to develop new applications is shorter and
the installation and versioning control is simplified. All these advantages determined us to try to
describe in a non-exhaustive manner the concepts, the methods and the techniques related to JDBC
and JDO technology to access databases, offered by the Java platform from Sun Microsystems.
REFERENCE:
[1] – Leţia T., Programare avansată în Java, Editura Albastră, 2002;
[2] – Patel P., Java Database Programming with JDBC, The Coriolis Group, 1996;
[3] – Tanasă Ş., Olaru C., Andrei Ş., Java de la 0 la expert, Polirom, 2003;
[4] – Thomas T., Java Data Access JDBC, JNDI, and JAXP, M&T Books, 2002;
[5] –Văduva C., Programare în Java, Editura Albastră, 2002;
[6] – Sun Microsystems, JDBC Data Access API, http://java.sun.com/products/jdbc;
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MATHEMATICAL MODELING OF THE

DISSEMINATION PHENOMENON CONCERNING
THE CURRENCY CRISIS OF SUOTH-EASY ASIA
Lecturer PhD. Student Tudor COLOMEISCHI
Univeristy „Ştefan cel Mare” of Suceava, Faculty of Economics and Public Administraion, Romania,
tudorc@seap.usv.ro
Lecturer PhD. Student Anamaria G. MACOVEI
Univeristy „Ştefan cel Mare” of Suceava, Faculty of Economics and Public Administraion, Romania,
anamariam@seap.usv.ro
Abstract:
The coincidence of speculative crisis within more developing economies has become more and more an
emphasizing phenomenon, being analyzed by specialty literature. The way of inflationary tensions taken over the
Thailand’s baht currency in 1997, which has lead fast to theoretical tensions over some other currencies, by using a
basic mathematical model of the currency’s crisis, is analyzed within this paper.
Keywords: mathematical model, inflationary , the currency crisis, probability, inflationary
Jel classification: C02, C20
1. INTRODUCTION
The currency crisis that occurred in Mexico (1994–1995) and expanded towards other
countries of Latin America, but considering also the crisis of Thailand (1997–1998), which
extended to neighbor countries (Indonesia, Malaysia, Philippines and even towards countries having
strong economies, as Hong Kong, Singapore and Korea) have determined the occurrence of a new
concept within specialty literature: the contagion. The models of contagion accomplished during
time have based upon certain currency’s crisis model, built by Masson (1998). These currency crisis
have generated powerful tensions over the exchange rates and prices of assets concerning other
developing countries’ markets.
The model includes two states in progress of development. The external environment
(particularly represented by the rate of interest on industrialized countries r*) is assumed to be
known. Firstly, the model takes into consideration the first country. An external debt „D”,
expressed by national currency, is assumed of existing and for this, a variable interest is paid; but
for its facilitating, it is considered that no other net capital flows exist. A crisis is started at a certain
moment of time, with authorities financing any shorts (or overs) of present account, determining in
this way several changes at the reserves level. The uncertainty source is represented by the
breakdowns over the trading balance „T”. If these are strong enough in order to determine a
decrease “t” of Rt reserves under the critical level R to certain moment of time, then depreciation
will take place. If St represents the spot rate of exchange at „t” moment of time (the price of
currency), and Std1 its value within the following duration of potential depreciation (otherwise, one
might meet St = St+1), then as concerns the bonds of national currency, the ex-ante profit per asset
will be calculated according to relation:
  
  1 r   Sd 
M t  ln  t
  rt   t ln  t 1   1   t  ln 1     rt   t ln 1    rt   t ,
S
  t 1   St 
  St 


where  t represents the probability of depreciation occurrence, „δ” the percentage size of expected
depreciation.
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Forwards, the probability of a crisis occurrence might be noticed as being influenced by

those expectations that lead towards multiple equilibria, also.
The changes arisen at reserves level will be therefore calculated in accordance to relation:
Rt + 1 – Rt = Tt + 1 – ( r* +  t δ )D, (1)
where r* signifies the rate of exchange without risk

At the moment t + 1, a crisis will occur, if:
Rt + 1 – R < 0. (2)
Considering the relations (1) and (2), it results that probability, calculated at moment „t”, of
a currency crisis at moment t + 1, will therefore become:
 t = Pt[Tt + 1 – ( r* +  t δ )D + Rt - R < 0 ]. (3)
Using the notations
bt = Tt - r*D + Rt – 1 - R , α = δD şi Φt = Mt( bt + 1 ),
and replacing them in relation (3), it results:
 t = Pt(Tt + 1 – r*D + Rt - R <  t δD ) = Pt( bt + 1 < α  t ). (4)
The existence of multiple equilibria depends upon the values of variables α and Φt. It is
assumed that the variation of bt variable given by εt = bt - Φt – 1 has a normal distribution, with zero
average and variance σ2. Expressing the probability  t by considering the cumulative distribution
terms and depending upon variation of bt, the following can be written:
 t = Fσ( α  t - Φt ), (5)
where Fσ represents the cumulative distribution function of a normal distribution of variance σ2. The
relation (5) defines the forming of expectations by the investors. A necessary condition for multiple
equilibria existence would be as:

z 1.
2
This can be considered as an imposed condition over the external debt level, and also over
increasing the indebtness in case of a crisis.
The interval for multiple equilibria is defined of two tangency conditions between the 45°
line and the function of cumulative distribution; these conditions are obtained when essential data
are high, respectively, weak. If one take into consideration w  2 log z , then the two tangency
conditions will define the next interval for Φt, where multiple equilibria are possible:
αF1( - w ) + σw < Φt < αF1( w ) – σw. (6)
The double inequality (6) mainly represents a condition over the reserves. If these exceed a
certain value, then a crisis will become thinly probable; if they decrease under a certain minimal
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value, occurring a crisis will become almost surely. Between these two values, Φmin and Φmax,
multiple equilibria might take place.
The situations met in Mexico and Thailand prove an attack, followed by an essential
depreciation, which might provoke several effects over the confidence and “health” of financial and
non-financial corporations, having important debts on foreign currency.
2. DISSEMINATION OF CURRENCY CRISIS OF THAILAND TOWARDS OTHER

STATES OF SOUTH-EAST ASIA
The currency crisis started in June 1997 in Thailand has expanded straight away towards
other states of South-East Asia, producing negative effects over the economies of these countries.
These crisis effects have been emphasized by an amazing similarity as concerns the exchange rates
evolution, related to American dollar of Indonesia, Malaysia, Philippines and Thailand, after a long
time of relative stability, as can be seen in Figure 1.
Figure 1. US dDollar per Domestic Currency Unit
The coincidence of speculative attacks over many currencies discovers one of its causes on
the economical development of the states based upon the industry, by means of monsoonal effects,
which have involved the rates of interest and capital flows. The trading connections with the
industrialized countries can contribute towards the existence of certain monsoonal effects over the
developing markets. In this way, it become interesting to analyze the characteristics of commerce
related to these states. The crisis affecting the states of South-East Asia has seemed to be in
accordance to the impact produced by exchange rates fluctuations yen/dollar, considering the high
volume of these countries’ trade, carried out both with United States and Japan, as can be seen in
Table nr.1.
Table nr.1 Selected Southeast Asia Countries:

Exports to Various Countries (in millions of US Dollars)
Other Southeast Asia

Country All
USA JapAn Of which*: counties
Thailand
Indonesia 7,948 13,839 5,539 854 48,059
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(16.5%) (28.8%) (11.5%) (1.8%) (100%)
14,245 10,484 21,377 3,207 78,246

Malaysia
(18.2%) (13.4%) (27.3%) (4.1%) (100%)
6,966 3,668 2,791 780 20,543
Philippines
(33.9%) (17.9%) (13.6%) (3.8%) (100%)
23,062 10,254 31,908 7,069 125,118
Singapore
(18.4%) (8.2%) (25.5%) (5.7%) (100%)
10,026 9,373 10,240 55,789
Thailand
(18.0%) (16.8%) (18.4%) -- (100%)
Source: Direction of Trade Statistics Yearbook: 1990-1996 (IMF, 1997)
*
Indonezia, Malaezia, Filipine, Singapore, Tailanda
Starting from this point of view, the high weight of dollar within these trading connections
has lead to a powerful effective nominal appreciation as concerns the currencies of these states,
when dollar has been appreciated by relating towards yen, during April 1995-July 1997, fact
described in Figure 2.
Figure 2. Effective Exchange Rates and the Japanese yen per U.S. Dollar Rate
Nevertheless, the moment of dollar’s maximal appreciation related to yen is foregoing with
at least one year the crisis of exchange rates of South-East Asia; taking into consideration the
essential differences between the trading characteristics of the region’s states has become necessary.
The spillover effects represent another potential explanation of overlapping in time of those
speculative attacks. Notwithstanding, the data presented in Table nr.1 shows the fact that exports
towards Thailand represent a very small percentage of the exports done towards other states from
region, fact that leads to conclusion that, as concerns the Asiatic crisis, the effects of overflowing
had an unassertive part. As crisis have been disseminated within region, the effects of regional
competitiveness have been naturally amplified. As seen in Table nr.2, several estimations of losses
in competitiveness, related to each of the five countries more affected by crisis, are presented.
295
Table nr.2 Real Effective Exchange Rates of some

Asian Economies (January 1997 = 100)
Korea Indonesia Malaysia Philippines Thailand
1997 100.0 100.0 100.0 100.0 100.0
Jan
Feb 100.2 102.5 102.2 101.8 101.6
Mar 97.1 102.8 103.3 103.0 102.6
Apr 98.0 102.9 102.6 103.4 102.6
May 96.8 101.1 101.2 102.0 101.9
Jun 96.8 100.1 99.8 101.7 101.3
Jul 97.9 98.8 99.0 98.6 87.5
Aug 99.5 91.4 95.0 93.8 85.1
Sep 99.4 85.7 87.5 85.7 77.1
Oct 99.2 74.1 81.0 81.4 75.8
Nov 90.5 79.7 80.2 83.6 74.1
Dec 66.0 60.7 75.6 81.0 67.4
1998 60.6 33.5 67.7 72.6 59.1
Jan
Feb 63.6 39.6 77.1 75.3 68.1
Mar 71.3 38.1 77.5 80.0 75.7
Taking into account the previous table, one might notice that until November, when the
Korean won has started to significantly depreciate as related to very small changes occurred until
that time, the overflowing regional effects of competitiveness were significantly weak. Moreover,
there was no doubt that, by means of this channel, a crisis might have been started in South Korea.
The analysis previously presented over different types of basic effects, towards
disseminating the currency crisis of South-East Asia, has proved to be quit approximately. This
suggest that an essential part of these crisis was taken by the effects of pure contagion.
The part of contagion effects is described by simultaneous manifestations of the crisis
produced, without having connections occurred over the fundamental macro-economical data.
Forwards, several simple calculations will be presented, in order to analyze if fundamental
data of the states affected by the crisis were favorable towards multiple equilibria existence and
according to payments balance model proposed by Masson. In order to appreciate the potential
relevance of the model, the following issue has to be solved: the debt value of a country has to be
limited to the debt represented by the internal currency owned by foreigners or it should include all
the external debt (which would be natural, if we take into account that risk of not paying and the
risk of depreciation are almost similar). One have chosen the second situation as concerns this main
analysis done over the Asiatic crisis; its aim consists in achieving the highest image towards
potential contribution of different types of effects. This approach is also justified by the fact that
Asiatic crisis had at least an essential external size, and a great part of the external debt included the
foreign currency.
Table nr.3 External Debt, Reserves, Trade Balance and Criteria for Multiple Equilibria, 1994
and 1996 (in percent of GDP)
Country(  ) Date Dt Rt Tt zt  tmin  tmax t
India (0.46) 1994 33.3 6.7 -0.7 7.22 1.11 7.22 3.50*
296
1996 27.2 5.8 -1.6 5.90 1.07 5.73 2.80*
Indonesia 1994 55.5 6.9 2.3 4.54 2.71 11.29 4.72*

(1.23)
1996 46.9 8.1 1.3 3.81 2.61 9.14 7.46*
Korea 1994 14.9 6.7 -0.7 0.62 -- -- 5.43

(2.38)
1996 21.2 7.0 -4.0 0.88 -- -- 3.20
Malaysia 1994 39.5 35.1 -1.6 1.12 4.85 5.15 31.97

(3.53)
1996 38.6 27.0 0.7 1.46 4.77 4.98 26.30
Philippines 1994 57.9 9.4 -6.3 2.10 4.98 9.52 -

(2.76) 0.72**
1996 51.1 12.0 -9.8 1.84 4.77 7.98
0.44**
Thailand 1994 46.2 20.9 -4.3 1.86 4.28 7.22 13.57

(2.47)
1996 50.1 20.9 -5.7 2.02 4.40 8.10 13.47
* Inside the region of multiple equilibria
** Fundamental is below multiple equilibria region, that means in crisis region
Table nr.3 presents several relevant data at the end of 1994 and 1996, which preceded the
crisis of South-East Asia. One will use the simplest version of the model, so as to notice the
potential existence of multiple equilibria (by using relation (3) of the above paragraph). The model
suggests that a fundamental component, noted Φt, has to take certain values, so that the multiple
equilibria might take place. This fundamental component is an increasing function related to the
level of reserves and the expected trading balance, and a decreasing function related to the value of
debt and the rate of external debt. The calculation assumes that critical level of reserves, R , is zero
(meaning that depreciation is not produced until the reserves are completely exhausted). This
assuming is tough non-realistic, and a positive value for this minimal threshold might have an effect
consisting in reducing the values of Φt, previously calculated. The probability of multiple equilibria
also depends upon the value of debt, upon the size of a potential depreciation and upon the variation
of trading balance. In the view of implementing these parameters, a self-regressive process was
estimated for each country, process of first order over the trading balance (as percentage of GDP),
and the standard error of estimating this regression (during 1980-1996) was considered an
approximation for σ. As rate of foreign debt, the yearly rate of American treasury effects was used.
The data concerning reserves level, of debts and trading balances, all regarded as parts of GDP are
presented in Table nr.3. Although difficult on appreciating over “ex-ante” expectations related to
depreciations, a depreciation δ of 25 % was assumed. This is significantly smaller than the real level
registered in several Asian countries, but it can be considered as an approximation od initial
currency adjustments. A higher value of δ would bring towards the increasing of „z” values and of
interval size (Φmin, Φmax ).
Interesting on emphasize is the fact that in most situations (but not necessarily for all of
them), there is an interval of values of Φt, for which multiple equilibria might take place: it is about
improper values of zt, as result of an essential external debt. The exception was represented by
South Korea, which had an indebtness level relatively weak, but leading towards values of zt that
didn’t allow multiple equilibria.
Although, the value of fundamental data Φt, which reflects among others the reserves level,
hasn’t been always within the internal part of multiple equilibria region. For instance, Malaysia,
297
even if registering multiple equilibria, had a level of fundamental data over that maximum allowed,
where they were mainly provided to occur, since its reserves were high.
The results achieved have shown that effects of contagion were possible in situation of crisis
of 1994 – 1995 and 1997, although these crisis haven’t corresponded to general models of
contagion, by considering all points of view. As certain consideration, one might say that countries
avoided by the worst effects of crisis seemed to be in a quite good situation, as concerns the level of
fundamental data, on which this model of payments balance is based upon. This observation was
valid only for certain countries (for instance, Brazil, Chile or Columbia). Instead, Korea and
Malaysia, considered apart, should have been immune to multiple equilibria, fact that brings us to
the following conclusion: other factors have also played an essential part on disseminating the
currency values over these states.
3. CONCLUSIONS
The results achieved showed that effects of contagion have been possible in situation of
crisis since 1994-1995 and 1997, although these crisis haven’t corresponded to general models of
contagion by considering all points of view. According to certain consideration, one might say that
countries avoided by the worst effects of crisis seemed to be in a quite good situation, as concerns
the level of fundamental data, on which this model of payments balance is based upon. This
observation was valid only for certain countries (for instance, Brazil, Chile or Columbia). Instead,
Korea and Malaysia, considered apart, should have been immune to multiple equilibria, fact that
brings us to the following conclusion: other factors have also played an essential part on
disseminating the currency values over these states.
BIBLIOGRAPHY
1. Ahluwalia, P.: Discriminating Contagion, Explanation of Contagious Currency Crises in

Emerging Markets, IMF Working Paper, WP / 00 / 14, 2000;
2. [2] Eichengreen, B., A. Rose and C. Wyplosz: Speculative Attacks on Pegged Exchange
Rates: an Empirical Exploration with Special Reference to the European Monetary System,
The New Transatlantic Economy, Cambridge University Press, New York and Melbourne,
1996
3. [3] Flood, R. and N. Marion : Self-Fulfilling Risk Predictions: an Application to Speculative
Attacks, IMF Working Paper WP / 98 / 124, 1998:
4. [4] Glick, R. and A. Rose: Contagion and Trade: Why Are Currency Crises Regional?,
NBER Working Paper no. 6806, 1998;
5. [5] Jeanne, O.): Are Currency Crises Self-Fulfilling?, Journal of International Economics,
vol. 43, no. 3 / 49, pp. 263 – 286, 1997
6. [6] Masson, P.: Contagion: Monsoonal Effects, Spillovers, and Jumps Between Multiple
Equilibria, IMF Working Paper, WP / 98 / 142,1998
7. [7] Van Rijckeghem, C. and B. Weder: Sources of Contagion: Is It Finance or Trade?, IMF
Working Paper, WP / 99 / 146, 1999.
298
SECTION 5
LAW AND PUBLIC ADMINISTRATION
299
ROMANIA AND BULGARIA IN THE EUROPEAN UNION: A SPATIAL ANALYSIS OF

COUNCIL VOTING
Adjunct Professor PhD. Diego VARELA
University of A Coruña, Spain
dvarela@udc.es
Abstract:
In this paper I investigate the voting behaviour in the Council of the European Union between January 2006
and February 2009, i.e. immediately before and after the accesion of Romania and Bulgaria. In order to do so I have
coded the results of the 339 codecision votes that took place during the period of reference and applied various
multidimensional scaling methods that commonly used for the analysis of voting behaviour in legislatures: metric
scaling, W-Nominate, Heckman-Snyder, and optimal classification. The results of the analysis tell us about the relative
viability of the different methods in the EU context and provide us with a preliminary ideological map that represents
the ideological positions of Romania and Bulgaria vis-a-vis the other member states of the EU.
Keywords: European Union, Council, voting, preferences, scaling
JEL Classification: D 72
INTRODUCTION
On 1 January 2007 Romania and Bulgaria joined the European Union, which, since then is
composed by 27 member states. In this paper I investigate how the two new member states have
behaved in the main legislative institution of the Union, the Council.
There have been a number of empirical studies that have tried to extract member state
ideologies from empirical evidence of Council voting (Mattila and Lane, 2001; Thomson et al.,
2004; Hagemann, 2007). All these studies suffer from the scarcity of data available about an
institution that leaves much to be desired in what regards transparency. Most voting is undertaken
informally, so that we end up with a very reduced sample of explicit votes (Hayes-Renshaw et al.,
2006). Yet the studies have been able to process that limited evidence and produce ideological maps
of member states, usually on a two-dimensional space (Mattila and Lane, 2001; Thomson et al.,
2004; Hagemann, 2007).
The results of these studies allow us to learn about the main dimensions of conflict in the
Council, as well as the positions of particular member states along those dimensions relative to
other member states. They allow us to see whether a member state has extreme or central
preferences, and who are its main allies and opponents as far as Council voting is concerned.
But all of these studies cover periods in which Romania and Bulgaria were not members of
the European Union, so I know very little about the ideological position of these countries. That is
the reason why I have decided to analyze the Council votes that took place during 2007, 2008 and
the first two months of 2009, after the accession of the two countries. I have also included the data
from 2006 in order to increase the sample size and improve the realiability of the results, at least in
what regards the dimensions of conflict and the relative positions of the other 25 member states.
The rest of the paper is divided in four sections. In the first section I will present the data
used in the analysis. In the second section I will present the four different unfolding methods
applied. In the third section I will present the main results of the analysis. In the final sections I will
present some conclusions.
THE SAMPLE
One of the main difficulties when one wants to study the Council is its lack of transparency.
Until recently, even the most important legislative decisions were taken behind closed doors.
Recently there has been a numer of steps aiming at increasing the transparency of the institution
when it acts in a legislative capacity.
300
The Council's rules of procedure as amended following the Seville European Council of
June 2002 state that the Council's deliberations on acts to be adopted in accordance with the
codecision procedure shall be open to the public. Council sessions are also public when the
Commission presents its most important legislative proposals and during the ensuing debate in the
Council. In addition, it is laid down that the vote on legislative acts adopted by codecision shall be
open to the public. In such cases, Council deliberations are made public through transmission of
the Council meeting by audiovisual means, notably in an overflow room. The outcome of voting is
indicated by visual means in real time in the Council's meeting room and on a television screen
which relays the voting to the Press Centre. The results of voting in Council deliberations on acts
adopted by codecision since 2006 may be found on the Council’s website.
Table 1. Public votes on codecision acts from 2006 to February 2009

2006 2007 2008 2009 (2 2006-09
months)
Votes 81 86 150 22 339
Contested votes 18 26 26 8 78
Table 1 presents the distribution of the sample. From the total of 339 votes, the great
majority were taken unanimously, and only 78 were contested by at least one member state. This
reduces the sample size considerably.
THE TREATMENT OF ABSTENTIONS AND NON PARTICIPATION
The scaling methods applied in this paper need a binary input (yes or no) whereas member
states also have two other options (abstaining or being absent from the vote). It is common to
assume that abstentions are purposeful acts, and yet in applied analysis of roll-call votes the
information provided by the mere fact of not seeing a vote is commonly thrown away, by coding
abstentions as missing variables. Thus, the failure to model the process that leads to abstentions
deprives scholars of information that they could use to improve inferences about ideal points (Rosas
and Shomer, 2008).
In this paper I have coded abstention and absence from the votes differently depending on
the voting rule applicable. When the rule was qualified majority both abstentions and absences were
coded as negative votes, because they do not contribute to the number of votes required for
adopting the decision (see Hix, 2001: 669). Conversely, I have coded both abstentions and absences
as positive votes when the voting rule was unanimity, because this rule just requires that no member
states votes against the decision. Curiously enough, it is easier sometimes to adopt a decision by
unanimuty than by qualified majority (Nugent). Only the absences of Romania and Bulgaria during
2006 were coded as a missing votes.
FOUR MULTIDIMENSIONAL SCALING METHODS
In this paper I apply four different unfolding techniques in order to summarize the
information from 339 votes into a simple ideological map of the member states. The unfolding
model is a geometric model for preference and choice. It locates individuals and alternatives as
points in a joint space, and it says that an individual will pick the alternative in the choice set closest
to its ideal point. Unfolding originated in the work of Coombs (1964) and his students. It is perhaps
the dominant model in both scaling of preferential choice and attitude scaling (Everitt and Howell,
2005).
The four alternative unfolding techniques that I have applied are metric scaling, W-
NOMINATE, Heckman-Snyder, and optimal classification. All of these routines estimate ideal
points within a multi-dimensional policy space to predict legislators’ votes. I have estimated the
member state coordinates for two dimensions because they are easily represented into an
301
ideological map and because that is common practice among models of voting both in the European
Parliament and the Council of the EU.
The first simple metric scaling method is described in Poole (1984; 1990; Poole and
Rosenthal, 1997). The procedure is very robust and converges very rapidly to a minimum from a
random or non random starting configuration. It is particularly useful for the analysis of large data
sets with missing entries (in our case, the voting records for Romania and Bulgaria during 2006).
The second method is NOMINATE, Poole and Rosenthal’s (1997) multidimensional metric
unfolding technique. I use the static version of this algorithm, W-NOMINATE, which is designed
to run in personal computers. It differs from the dynamic version D-NOMINATE in that it uses a
slightly different deterministic utility function and that it constrains legislators and roll call
midpoins to an n-dimensional hypersphere of radius one.
W-NOMINATE is a scaling procedure that performs parametric unfolding of binary choice
data. Given a matrix of binary choices by individuals (for example, Yes or No) over a series of
Parliamentary votes, W-NOMINATE produces a configuration of legislators and outcome points
for the Yea and Nay alternatives for each roll call using a probabilistic model of choice. It is
discussed in detail in Poole (2005), Poole and Rosenthal (1997; 1991; 1985).
The third measure comes from Heckman and Snyder (1997) who analyze roll call data using
a statistical method similar to NOMINATE. The main differences between Heckman-Snyder and
NOMINATE are the parameterizations of the error terms and the utility functions of the legislators.
NOMINATE assumes that error terms follow a logistic function while Heckman and Snyder
assume a uniform distribution. NOMINATE uses normally distributed utility functions while
Heckman and Snyder employ quadratic utility functions.
The fourth technique is optimal classification, developed by Poole (2000b). Optimal
Classification (OC) is a scaling procedure that performs non-parametric unfolding of binary choice
data. Given a matrix of binary choices by individuals (for example, Yes or No) over a series of
Parliamentary votes, OC produces a configuration of legislators and cutting lines/planes that
maximize the correct classification of the choices. It is discussed in detail in Poole (Poole, 2000b).
The geometry of the roll call voting problem upon which Optimal Classification is based is covered
in the first three chapters of Poole (2005).
This is a non-parametric methodology similar in structure to NOMINATE. The scaling

method employs the same spatial model used by Poole and Rosenthal (1997) in their NOMINATE
procedure and the scaling method is “NOMINATE-like” in structure. However, rather than
maximizing the likelihood of the legislators’ choices, the scaling method developed below
maximizes correct classification of the legislators’ choices. The scaling method is nonparametric
because no assumptions are made about the probability distribution of the legislators’ errors in
making choices. The only assumptions made are that the choice space is Euclidean and that
individuals making choices behave as if they utilize symmetric, single-peaked preferences.
RESULTS
The ideological coordinates of the 27 member states are shown in
Table 2 in the appendix. They have been calculated using the W-NOMINATE and the
Optimal Classification computer programmes available at http://voteview.ucsd.edu/dwnl.htm. The
metric scaling and the Heckman-Snider coordinates are automatically rotated to best match the W-
NOMINATE coordinates. The election of two-dimensional model is also common in the analysis of
coalition formation in the European Parliament (Hix and Lord, 1997; Hix, 1999; Noury, 2002;
Gabel and Hix, 2002; Gabel and Hix, 2002; Hix et al., 2006).
302
1
BE
BG
0.8 CZ
UK
DK
DE
0.6
EE
IE
0.4 GR
ES
FR
0.2 IT
Dimension 2
RO CY
BG
LV
0 FR
LT
-0.4 -0.2 0 0.2 0.4 0.6 0.8 1
LU
-0.2 HU
IT
MT
NE
-0.4
AT
DE PL
-0.6 PT
RO
SI
-0.8 SK
FI
-1 SE
UK
Dimension 1
Figure 1. Two-dimensional ideological map of the Council, 2006-09 (Metric scaling)
Figure 1 shows the two-dimensional ideological map of the 27 member states of the EU
applying a metric scaling procedure to the codecision votes taken between January 2006 and
February 2009. Romania and Bulgaria are clearly at the centre of the political spectrum, which is in
line with the fact that both countries have generally voted with the majority. In fact, Bulgaria
always voted with the majority and Romania voted against only in a single occasion, in 2008,
related to pesticides. The positions of other major member states have also been highlighted, with
the UK and Germany on opposed extremes and France and Italy in more central positions.
303
0.12
BE
BG
0.10 CZ
RO DK
0.08 DE
IT EE
IE
0.06
GR
ES
0.04 FR
IT
Dimension 2
0.02 CY
LV
LT
0.00 UK
LU
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5
HU
-0.02 MT
DE FR
NE
-0.04 AT
PL
RO
-0.06
PT
SI
-0.08 SK
BG FI
-0.10 SE
UK
Dimension 1
Figure 2. Two-dimensional ideological map of the Council, 2006-09 (W-NOMINATE
Figure 2 presents the same ideological map calculated usin the W-NOMINATE scaling
technique. The results are not so clear in this case because many member states have coordinates on
the extremes of the first dimension. Recall one of the simplifications of W-NOMINATE with
respect to the dynamic version D-NOMINATE is that the former constrains the coordinates to fall
between -1 and 1. The innacuracy of the resulting coordinates is probably due to the scarcity of
contested votes in the dataset (78) and the lopsided nature of the majority of those votes (even in
contested decisions, very few member states vote against the majority).
304
0.4
BE
BG
CZ
0.3
DK
DE
0.2 EE
IE
GR
0.1 ES
BG
RO FR
IT IT
Dimension 2
0.0 CY
-0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 LV
LT
-0.1 LU
UK HU
MT
-0.2 NE
AT
PL
-0.3
PT
RO
DE
SI
-0.4
SK
FI
-0.5 SE
UK
Dimension 1
Figure 3. Two-dimensional ideological map of the Council, 2006-09 (Heckman-Snyder)
Figure 3 shows the ideological map of the Council when we apply the Heckman-Snyder
model. The results are clearer than in the case of W-NOMINATE because this method is more
compatible with lopsided votes. In fact, it has been applied to a subsample of lopsided votes in the
US Congress in order to control for party power, under the assumption that voting on lopsided votes
will be less influenced by political parties, which are less likely to spend their resources on those
kinds of votes (Snyder Jr and Groseclose, 2000). Again, both Romania and Bulgaria appear at the
centre of the political spectrum.
305
0.5
BE
UK BG
CZ
0.4
DK
DE
0.3 EE
IE
GR
0.2 ES
FR
RO IT
Dimension 2
0.1 CY
LV
LT
0.0 BG, FR, IT LU
-0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 0.4 0.5 0.6 HU
MT
-0.1 NE
AT
PL
-0.2
PT
DE RO
SI
-0.3
SK
FI
-0.4 SE
UK
Dimension 1
Figure 4. Two-dimensional ideological map of the Council, 2006-09 (Optimal classification)
Finally, Figure 4 shows the result of applying the non-parametric optimal classification
method to the same sample of codecision votes. The results are rather clear, showing that this
method is rather robust even when there is a high proportion of lopsided votes. Again, Romania and
Bulgaria appear at the centre of the political spectrum and Germany and the UK on opposing
extremes. France and Italy are also rather centrist, sharing preferences with Bulgaria.
CONCLUSIONS
Scaling method techniques such as NOMINATE and optimal classification have become
increasingly popular for estimating legislators’ ideal points and, subsequently, for making
inferences about the policy space of a given legislative body (Poole and Rosenthal, 1997;
Morgenstern, 2004; Rosenthal and Voeten, 2004; Hix et al., 2007). However, at the same time that
these methods are being applied to more and more empirical data sets, it is also becoming
increasingly apparent that these methods suffer from both statistical and theoretical deficiencies
(Clinton et al., 2004; Lewis and Poole, 2004).
The main criticism is that standard errors are not reported when generating ideal point
estimates in either NOMINATE or optimal classification, which makes it impossible to draw
conclusions about the variance around the estimates (Hagemann, 2007). Consequently, a concern
arises regarding whether the estimates are really consistent and fully reliable (Poole and Rosenthal,
1997; Lewis and Poole, 2004; Jackman, 2001). Thus, strictly speaking, optimal classification is not
a statistical model, although standard errors can be estimated via bootstrapping for the legislator
coordinates (Lewis and Poole, 2004; Poole, 2000a). However, a recently developed Bayesian model
306
seems more attractive because it includes not only estimates for both actors’ ideal points, but also
the standard errors around the estimates (Hagemann, 2007).
In this case, given the reduced size of the dataset (only 78 contested codecision votes
between 2006 and February 2009), it would be virtually impossible to obtain significant differences
in the coordinates that would allow us to make inferences. Still, the scaling method techniques
presented in this paper can provide important insights into the underlying structures and into actors’
preferences in the Council, such as the centrist nature of Romania and Bulgaria during their first
two years of membership in the EU.
We should treat the results in this paper are merely descriptive. But it is not just a matter of time to
obtain more meaningful results. The reason is that explicit votes in the EU understate the extent of
real conflict of intrerest among EU member states. The reason is that most real negotiations and
decisions in the Council are taken informally behind closed doors, just to be rubberstamped by the
Council in public session at a later date. In the explicit votes, governments on the minority side
often prefer to vote with the majority and avoid the shame of being outvoted. Thus, if we want to
obtain a really meaningful dataset, Council transparency shoud go deeper than formal voting. Until
transparency extends to earlier stages of the procedure, EU scholars will suffer from scarcity of
meaningful data vis-a-vis their American counterparts.
APPENDIX
Table 2. Member state metric scaling, W-NOMINATE, Heckman Snyder and optimal
classification coordinates, 2006-2009
Metric scaling W-Nominate Heckman-Snyder Optimal classification
Belgium
-0.098 0.654 -1.000 0.016 -0.030 0.212 -0.140 0.141
Bulgaria
-0.103 0.076 0.123 -0.090 -0.105 0.090 0.054 0.005
Czech Rep.
-0.065 -0.210 -1.000 0.000 -0.164 -0.197 -0.084 -0.205
Denmark
0.802 -0.597 1.000 0.000 0.929 -0.370 0.312 -0.066
Germany
-0.246 -0.510 -1.000 -0.023 -0.224 -0.368 -0.154 -0.245
Estonia
0.008 -0.081 0.998 0.036 -0.067 0.009 0.120 -0.056
Ireland
0.385 0.267 1.000 0.000 0.534 0.021 0.268 0.116
Greece
0.013 0.108 0.576 -0.066 -0.097 0.088 -0.108 0.207
Spain
-0.003 0.217 0.180 0.082 -0.089 0.116 -0.108 0.207
France
-0.039 -0.020 0.763 -0.024 -0.096 -0.005 0.054 0.005
Italy
-0.111 -0.246 -0.997 0.075 -0.091 0.033 0.054 0.005
Cyprus
-0.022 0.123 0.372 -0.053 -0.088 0.107 -0.108 0.207
Latvia
0.007 -0.079 0.998 0.040 -0.067 0.009 0.120 -0.056
Lithuania
-0.237 0.408 -1.000 0.020 -0.112 0.134 -0.160 0.235
Luxembourg
0.044 -0.765 -1.000 0.024 -0.109 -0.369 -0.066 -0.277
Hungary
-0.026 0.342 0.208 0.003 -0.048 0.195 -0.110 0.231
307
Malta
-0.272 0.186 -0.911 -0.004 -0.188 0.013 -0.184 0.000
Netherlands
0.102 -0.430 1.000 0.000 -0.019 0.097 0.054 0.005
Austria
-0.266 -0.175 1.000 0.000 -0.234 -0.272 -0.162 -0.238
Poland
-0.134 0.046 -0.997 0.073 -0.135 0.016 0.054 0.005
Portugal
-0.130 0.478 -0.611 -0.002 -0.059 0.303 -0.147 0.251
Romania
-0.083 0.107 0.648 0.091 -0.057 0.072 0.042 0.124
Slovenia
-0.036 0.000 0.998 0.003 -0.082 0.027 0.042 0.000
Slovakia
-0.100 0.035 0.208 0.056 -0.132 -0.005 0.054 0.005
Finland
0.036 -0.019 1.000 0.000 -0.047 0.018 0.054 0.005
Sweden
-0.031 -0.686 0.181 -0.016 0.005 0.158 0.054 0.005
UK
0.605 0.770 1.000 0.000 0.875 -0.133 0.558 0.445
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309
CONSIDERATIONS ON PRE-EMPLOYMENT STAGE SPECIFIC

PERSONNEL ADMINISTRATION
Lecturer Ph.D. Alunica MORARIU
Faculty of Economic Sciences and Public Administration
alunica.morariu@gmail.com
Professor Ph.D. Grigore BELOSTECINIC
Academy of Economic Studies of Moldova, Chisinau
belostecinic@yahoo.com
Professor Ph.D. Ionel BOSTAN
Faculty of Economic Sciences and Public Administration
ionel_bostan@yahoo.com
Abstract:
Even if we assist to a decrease of the activity volume regarding the recruitment, its importance and the staff
selection, stage specific to the MRU, coming immediately after the recruitment, will increase, so much the more as, the
obtaining of organizational performance in crisis times requires human resources which are capable to integrate
themselves in the strategic activity meant to put an end to the crisis. We are experiencing a period in which, sometimes,
the experience is preferred rather than the diploma or the honesty instead of competence even if the systematic
application of the scientific knowledge to the production of goods enhanced very much the value of the education, of the
economic and technical education, as well as of the training at the workplace because the knowledge increase has been
embodied in people – in scientists, university teachers, technicians, administrators and other persons who contribute to
the production.
Key-words: Human resources; recruitment; selection; education; economic crisis; unemployment
Journal of Economic Literature Classification System: E24 - Employment; Unemployment; Wages;

Intergenerational Income Distribution; Aggregate Human Capital; J24 - Human Capital; Skills; Occupational Choice;
Labor Productivity; R23 - Regional Migration; Regional Labor Markets.
1. INTRODUCTION
The development in the management of human resources in the recent years in Romania, in
concordance with the international practices was inevitable both by the national human resource
development and from the perspective of the organizational performances, especially since the
number companies with foreign capital and know-how increased on the Romanian market. At the
same time with the increasing competition, for achieving sustained organizational performance and
accessing or maintaining the market leadership status is directly required the existence of a team
well managed by a department of human resources both creatively and strategically.
There were remarkable changes in Romania in the recent years, particularly in relation to the
practices and procedures of human resource management (HRM). Progress has been made and they
are important even at the organizational culture level.
The great international companies brought in Romania key concepts for managing and
improving the human resources. The domestic companies are now more open to the practices
already established in developed countries, thus making to a large extent the shift from personnel
management to human resources management (1).
The place of human resources in an organization depends on the specialty, management
experience, perception and perspective of the organization leader regarding the importance of HR
functions (2). Nowadays, we use very often the term strategic partnership between the company and
the human resources function. This phrase is used not to highlight the independent identity of the
division of HR but to highlight the changing role or the increasing importance of the human
resources function in the organization.
The installation of the economic crisis, however, is the opportunity for the specialized
compartments in human resources management and their experts to prove their major role, the level
310
of development in the field but also their creativity and strategic value. From another perspective,
we can see that in this period, the HR department is the victim or the bearer of bad news crisis, as
these attributes are plastically conferred to it.
It could be a victim because it is the first on the list among the departments in which we
operate expense reductions, with direct impact on both staff and on the organization, being already
enshrined as the department with the highest costs. Bearer of bad news because it is the one that
informs the staff on cost reduction as it concerns: wage cuts, elimination of premiums, indemnities,
not paying overtime, reducing or eliminating spending on staff training and until the unfortunate
and inevitable layoffs of the organizational crisis period, this time, under the impact of the global
economic crisis.
2. PREMISES OF THE INCREASE OF THE ROLE IN CURRENT LABOUR

MARKET RECRUITMENT
According to statistics of the National Agency for Employment (NAE) (3), because of the
crisis, the private companies in Romania have fired approximately 200,000 people from September
2008 so far (4) and the state has reduced the staff number by about 2,300 budgetaries, of almost 100
times less, giving rise to a great controversy between public and private. In the same period, the
private sector was marked by reductions in salaries.
On one hand, the private companies have operated in staff restructuring only after they
reduced various company-wide material costs and on the other hand, the existence of sources of
funding in the state, accessible by various means at hand, (5) allowed it to defer and not start
restructuring the state sector. If by mid-2009, personnel costs in the budgetary sector registered an
increase of 12%, in the private sector, the number of unemployed has increased alarmingly
compared to the previous year end when one in three unemployed came from the state (6).
The growing of the unemployment index leads to reduced supply of jobs in the first half of
2009, with up to 50%.
All this contributes to the reduction of the level of activity regarding the recruitment of 40-
50% over the same period last year. (7)
While witnessing the lower volume of recruitment activity, its importance and the staff
selection, stage specific to HRM, immediately consecutive to the recruitment, will increase,
especially since the obtaining of the organizational performance during crisis requires human
resources capable to integrate themselves into business strategy to exit from the impasse.
3. RECRUITMENT AND SELECTION, "KING AND QUEEN" ON THE CHESS

BOARD OF THE LABOUR MARKET IN 2009
The human resources constitute a decisive category of organizational resources, their quality
and giving added value through the effective use of other types of resources: financial, technical,
commercial, etc.
Among the objectives of human resource management also lies the forecast and preparation
of quantitative and qualitative developments affecting the human resources on the medium and long
term, so that they can be tailored to the needs of the organization (8).
Among the recruitment and selection procedures, the organizations can attract, select and
retain the valuable candidates by managing talent, optimizing the multitude of information and
relationships that make up complex recruitment projects, leading these processes effectively and
accurately controlling time planning offered to these activities.
The diminish of the number of vacancies on the Romanian labour market (9) in the context
of market instability and companies efforts to reduce costs, results in the increase of approximately
50 percent of online registration for jobs, according to representatives of the major recruiting sites
in Romania. A good tender points, usually between 100 and 700 resumes, while job competition
records surpasses 1,000 applicants (10).
311
Most viewed jobs during the crisis are in the areas of sales, trading and customer service,
according to the statistics of the most visited sites of careers in the local online (11). Jobs are also
sought in areas such as finance, accounting, management, consulting or engineering. Most
applications are recorded for bids that do not require experience, education or specific skills,
according to a source of Myjob.ro (12).
"Most companies have frozen hiring, for prudential reasons but also for economic reasons.
Firms resort to internal promotion, streamlining and reducing costs for this process. This does not
mean, however, that in this period there are no longer hiring. (13)"
According to a recent study of Myjob.ro, 15.09% of the respondents had recently accepted a
job below their level of training, because of the economic crisis. Moreover, according to eJobs.ro,
the situation on the job market brings among the requirements of candidates, the stability of that
position which is to be occupied, the possibility of the organization to provide a permanent job
contract. (14)
As for recruitment and selection of staff, the recommendation plays a major role. Efficiency
is given precisely by the grounds that the employer who makes a recommendation, knowing that
person, guarantees for the recommended one. The more so because, for most employers, who
interact in the labor market today, there is the dilemma: "What do we employ in time of crisis: the
competence or the honesty?". In developed countries, for a candidate there is a strong emphasis on
what experience and competences he has. In Romania, one of the main concerns of the recruiting, in
view of applying the personalized selection procedures is to find honest people. Thus, in practice,
often are dropped out of the skills expected of candidates, in favor of honesty (15).
Other specialist practitioners see the situation similarly or differently (16):
a) in the recruitment and selection, stays the job description. Criteria for which the selection
is made are: personality, technical skills, competence, professional experience. The most important
role in the final selection decision is occupied by the skills. The main task of the interviewers is to
ensure that they are talking with a professional, whose expertise has been recognized.
b) The job for which the recruitment is organized is in the spotlight of these specific
procedures. For some jobs the experience or a certain training are very necessary, and for others the
potential and the ability to develop the candidate are more important. Whatever the type of job,
”soft skills "and compatibility with values, the organizational culture is considered from the very
beginning.
c) At the basis of selection and recruitment is a system of key-competences specific to each
job. Competence requires, in the opinion of human resource specialists, both theoretical knowledge
and practical skills of the candidate and behaviors that lead to performance: ability and interest in
lifelong learning, initiative, commitment, dynamism, along with team spirit.
From the perspective of employees or potential employees, the applicants at a job, almost
85% of Romanians, in a sampling of myjob.ro, do not think that a diploma of a state university can
help them get a job easier.
At the European level, race, ethnic origin, physical disability, sexual orientation, but also
age, dress and appearance may constitute "weak points" in the CVs of employees, on the old
continent.
According to the latest European Union survey, 63% of employers in the EU Member States
are further influenced by physical appearance of the candidates and over 50% put a great emphasis
on the age of the future employee.
Race, ethnicity and physical disability may be " real problems "for 46% of managers in the
EU. Furthermore, over 20% of employers discriminate when it comes to employment, on gender or
sexual orientation.
In Romania, only 57% of Romanian employers are considering to give minorities equal
opportunities, while other countries such as Cyprus, Greece and Denmark have achieved scores
above 70 percent. (17)
312
In a short case study we present a company which launches a recruitment ad for the position
of Assistant Manager. A recent graduate from a university with an economic profile and a woman
aged 47 years, with experience in a similar position depose their application for this job.
Note that the recruitment ad did not contain any indication on the gender or age. However
specialists of Human Resources Department fully agreed on the fact that these two persons are not
suitable to the vacant job (not communicating it directly to the two „ not suitable” candidates ).
The general opinion of the company is that for the position of Assistant Manager only "fits"
a female person aged less than 35 years. Thus, the commitment is made more according to
stereotypes of the company, than on the candidates' actual skills (18).
4. CONCLUSIONS
The increase, in some cases by over 50% of the number of applicants for the same job
confers to the recruitment and selection an increased role in the labor market or in Romanian
organizations with direct impact on the organizational staff and indirectly on the results of public or
private entities that have effects on the Romanian community, in all or in part. Although leaded by
the desire to make savings, by the desire to produce maximum efficiency and performance,
companies prefer to be guided by internal recruitment, employment based on external recruitment
are continuating.
If according to applicants to a job, almost 85% of the Romanian people do not think that a
diploma of a state university can help them get a job easier, it means that the facility to get a job is
conferred by a diploma which is alternative to state university, by life experience, practical work
experience, technical skills, competence, „soft skills” competences, potential, capacity of
development, compatibility with the organizational culture, etc.?
On the whole, all these can help achieve the objective of getting the best job that someone
may want. You must remember, however, that any further increase in personal income in the last
hundred years and more, is determined by the prosperity of the country, by the increase in physical
capital per worker, by the expansion of scientific and technical knowledge which contribute to the
increase of labour productivity and of other contributions to production. The systematic application
of scientific knowledge in the production of goods has greatly increased the value of education,
economic and technical school-style and the occupational training because the knowledge increase
embodied in people – in scientists, academics, technicians, administrators and other contributors to
the production (19) - (20).
It is desirable to achieve good performance by sizing human resources so that, regardless of
the state of economic environment (which may be normal, slightly inflationary or of galloping
inflation), in the earnings report (earnings + offset) / debt-"total debt" the former to be higher or the
speed of growth rate of return to be higher than the rhythm of the growth rate of total costs (21).
NOTES
(1) The controversy among experts about the differences between personnel management and human resource
management is not a novelty.
(2) Human Resources
(3) http://www.zf.ro/eveniment/unde-a-lovit-criza-firmele-private-au-dat-afara-200-000-de-oameni-statul-doar-2-
300-4726368/ - the 7th of August 2009
(4) We have in view the moment August 2009.
(5) We refer to: international and national loans, adding fees and taxes or reducing or eliminating some expenses
(6) According to the same source, the wage costs of the 1.4 million budgetaries raises to an average net salary of
350 euros, about 11 billion euros.
(7) http://business.rol.ro/content/view/84435/2/ - the 6th of August 2009.
(8) Gavrilă Tatiana, Lefter Viorel – Managementul general al firmei, Editura Economică, Ediţia a II-a, Bucureşti,
2004, p. 190.
(9) There are areas where the number of notices published in the latest period fell by over 50%, especially in: real
estate, banking, finance / accounting, engineering, automotive industry, which are the most affected areas
during this period, according eJobs.ro.
313
(10) According to Myjob.ro and eJobs.ro. the biggest increase was recorded on BestJobs.ro site, where the number
of applications increased by more than 278.5% in the first three months of the year, compared to the same
period of the previous year.
(11) eJobs.ro, BestJobs.ro, Myjob.ro, etc.
(12) http://www.capital.ro/articol/sute-de-concurenti-pe-un-job-pe-site-urile-de-recrutare-118897.html - the 24th
of April 2009
(13) According to one of the largest specialist recruitment companies on the market ,Lugera & Makler.
(14) http://www.capital.ro/articol/stabilitatea-jobului-a-devenit-un-criteriu-esential-118913.html - the 15th of June
2009
(15) http://www.bloombiz.ro/cariere/ce-angajam-pe-timp-de-criza-competenta-sau-onestitatea - the 1st of August
2009
(16) http://www.capital.ro/articol/experienta-bate-diploma-la-recrutarea-candidatilor-123057.html - the 8th of
August 2009
(17) http://www.evz.ro/articole/detalii-articol/861059/Managerii-europeni-fac-discriminari-la-angajare/ - the 28th
of July 2009
(18) Human Resources Magazine - electronic newsletter published by Rentrop & Straton - Group Publishing and
Business Consulting - July 30, 2009.
(19) Relatively low or declining production in Romania in 2009, according to statistical indicators INSSE,
www.insse.ro.
(20) Becker S. Gary, Capitalul uman – o analiză teoretică şi empirică cu referire specială la educaţie, Editura All,
Bucureşti, 1997, p. 25.
(21) Radu Ioan & colectiv, Simulări manageriale – Teorie şi practică. Editura Universitară, Bucureşti, 2005, p.
152-153.
BIBLIOGRAPHY
1. Becker S. Gary (1997). Capitalul uman – o analiză teoretică şi empirică cu referire specială
la educaţie, Editura All, Bucureşti.
2. Bostan Ionel (2006). Managementul recompensei, Editura Universităţii, Suceava.
3. Gavrilă Tatiana, Lefter Viorel (2004). Managementul general al firmei, Editura Economică,
Ediţia a II-a, Bucureşti.
4. Radu Ioan & colectiv (2005). Simulări manageriale – Teorie şi practică. Editura
Universitară, Bucureşti,.
5. Revista de Resurse Umane (30 iulie 2009). newsletter electronic editat de Rentrop & Straton
- Grup de Editură şi Consultanţă în Afaceri.
6. http://www.BestJobs.ro
7. http://www.bloombiz.ro/cariere/ce-angajam-pe-timp-de-criza-competenta-sau-onestitatea
8. http://business.rol.ro/content/view/84435/2/
9. http://www.capital.ro/articol/sute-de-concurenti-pe-un-job-pe-site-urile-de-recrutare-
118897.html
10. http://www.capital.ro/articol/stabilitatea-jobului-a-devenit-un-criteriu-esential-118913.html
11. http://www.capital.ro/articol/experienta-bate-diploma-la-recrutarea-candidatilor-
123057.html
12. http://www.evz.ro/articole/detalii-articol/861059/Managerii-europeni-fac-discriminari-la-
angajare/
13. http://www.insse.ro
14. http://www.eJobs.ro
15. http://www.Myjob.ro
16. http://www.zf.ro/eveniment/unde-a-lovit-criza-firmele-private-au-dat-afara-200-000-de-
oameni-statul-doar-2-300-4726368/
314
THE DISTINCTION BETWEEN DECENTRALIZATION AND DECONCENTRATION OF

PUBLIC SERVICES
Lecturer Ph.D. Student Irina BILOUSEAC

irinab@seap.usv.ro
University Assistant Petronela ZAHARIA
petronelaz@seap.usv.ro
Abstract:
Given the variety and diversity of social needs coming from the whole human community, public administration
aims to ensure the achievement of these needs and requirements of general interest by providing direct public services.
Seen as a way of meeting the practical needs of the public, we can appreciate that public service is the foundation of
government activity, in fact the rationale of the organization and functioning of administrative authorities and public
institutions. Moreover, as the degree of satisfaction of the needs of public interest is reflected in the quality of services
available to the community, it is undoubtedly necessary to give special attention to the way in which public services are
organized either decentralized or deconcentrated.
Therefore, starting from the purpose of organizing public services namely meeting the general interests of the
community, this paper aims to analyze the main elements which are at the base of the distinction between decentralization
and deconcentration, as ways of organizing public services, given that in the absence of clear demarcations of differences
between these two principles, not few times there are many confusions in their implementation.
Keywords: public administration, decentralization, deconcentration, public service, general interest, social needs
JEL Classification: H83
INTRODUCTION
Being called upon to satisfy the needs of society, which suffers frequent changes in time and
space, public administration has created structures which would act concretely to fulfill this
mission. This is about public services that have a unique role in the daily lives of each of us, given
that their organization and functioning decisively influence the living standards of people. The
importance of public services is greater for society as long as the state, as well as its components,
villages, cities and counties appear as indispensable tools [5, p. 358], designed to ensure its citizens
an adequate level of living, to ensure the public good.
The important issue which is of interest for the substance of the problem is the distinction
between decentralization and deconcentration of public services, which are two distinct legal
realities.
Being a very new topic, which leads to extensive discussion, the issue of decentralization
and deconcentration of public services should be subject of debate especially in the context of
which the implementation of these two principles regards the needs of a community, be it national
or local, the fulfillment of their needs being the quintessence of public administration.
The correct understanding and accurate delineation between decentralization and
deconcentration of public services is of special importance especially from a practical point of view,
often appearing uncertainties in applying these two basic principles of public administration in our
country.
In such context, the discussion of the issue of decentralization and deconcentration of public
services allows us to highlight the fact that some public services are the responsibility of the state,
and others are the responsibility of public authorities or local councils, to meet the needs and
general necessities of the administrative-territorial units.
315
CONSTITUTIONAL PROVISIONS APPLICABLE TO PUBLIC SERVICES
Before proceeding to identify the constitutional rules applicable in this matter, it is

necessary to present the content and the importance of the concept of public service as a central
element of public administration.
Seen as a way of achieving human needs of public policy, the concept of public service is of
recent date, the analysis of its content and significance being of actuality in the field of
administrative science, the more so as it is considered as the foundation of public administration
activity, the reason for organizing and functioning of public institutions and administrative
authorities [1, p. 127].
Examining the literature, we note that, in an attempt to define the notion of public service,
two meanings are obvious: a material (functional) one and an organic one.
In a material or functional sense, by the concept of public service we understand any
activity of general interest performed by the administration. Therefore we keep in mind that in this
first sense, the mission of the public service is to satisfy the general interest, common to the entire
community, this being precisely the purpose of public administration.
In the organic sense, public service is a set of agents and means, that a public person or a
private agent authorized by a public person use them to meet the needs of the public. [10, p. 226]
Seeking a unified definition of public service, we can keep in mind that it represents the
activity organized or authorized by an administrative body, which aims to meet the needs and
necessities of the public.
Once the concept of public service is clarified, in the following pages we intend to identify
the constitutional provisions applicable to public services [10, p. 227].
Thus, we distinguish the provisions governing the general principles, which the Basic Law
situates at the basis of the functioning of all public authorities, and hence at the base of those
providing public services. By way of example, we can mention the principle of equality before the
law and public authorities, without privileges and discrimination (art. 16 paragraph 1).
Then, we can identify provisions enshrining the principles underlying the organization and
functioning of public administration and general public services, specifically. In this respect, the
Romanian Constitution states in art. 120 the basic principles in the field, showing that the
administration of the territorial-administrative units is based on the principles of decentralization,
local autonomy, and deconcentration of public services.
In the same order of ideas, there are constitutional provisions which mention the public
authorities which have competence in providing public services or exercising certain reports with
the authorities providing public services. For example, according to art. 122 paragraph 1 of the
Constitution, the county council is the authority of public administration for coordinating
government activity at municipal and town level in order to meet the public needs of the county, or,
according to art. 123 paragraph 1, the prefect is the representative of local government and leads the
deconcentrated public services of ministries and other bodies of central public administration in
territorial-administrative units.
Another category of provisions is contained in Title II, Chapter II of the Constitution which
deals with the fundamental rights and freedoms of citizens, mentioning at the same time the public
services involved. Thus, for example, the right to information, regulated by art. 31, is provided by
the media, public and private, or the right to health, regulated by art. 34, which is provided by
public services of social assistance, etc. We can notice therefore that the implementation of any
right or fundamental freedom is achieved through an appropriate public service.
316
CONCEPTUAL DEMARCATIONS ON DECENTRALIZATION AND

DECONCENTRATION - WAYS OF ORGANIZING PUBLIC ADMINISTRATION
Principles of constitutional order - decentralization and deconcentration - are at the basis of

the organization and functioning of public administration in Romania as a whole and, specifically,
of public services.
Decentralization in public administration is the basis for solving problems which is not done
by officials appointed by the center, but by those elected by the electoral body. More specifically, in
the decentralized administrative system, the administration of the interests of local administration
(municipal, town or county) is conducted by freely elected authorities from and by the mass of
citizens of that community, which have, according to constitutional rules, their financial and
autonomous decision-making power.
In the case of decentralization, the state does not assume the burden of administration alone,
but splits it in certain levels, with other categories of persons such as local communities.
According to legal provisions (art. 2 letter 1 from the framework Law on decentralization
195/2006), decentralization is the transfer of administrative and financial powers from the central
government to the local government or private sector required to meet local interests.
It is necessary to retain that decentralization is a principle of organization and management
of the state based on broad autonomy of the local management of the administrative-territorial units.
According to this principle a limited transfer of power of decision from the central government to
local ones takes place. [11, p. 241]
Today, the literature in the field imposed two forms of decentralization:
- territorial decentralization, which implies that the state is divided into administrative-
territorial units, which enjoy independence from the central authority. The leadership of the
administrative-territorial units thus created belongs to the local government authorities, which enjoy
general physical competence.
In this sense, Paul Negulescu defined the principle of decentralization as an administrative
scheme which recognizes "... the care of local interests or specific to be entrusted to the authorities
whose owners elected by local electoral body may establish rules applicable to the residents of the
town ... " [6, p. 610]
But decentralization does not imply territorial absolute independence of local versus the
state in which they are organized. Consequently, taking into account the dependence to the state, the
central authorities exercise over the activities of local community the right to control called
administrative guardianship control.
The administrative guardianship presupposes both administrative control over people who
are holding positions in local authorities (expressed by the opportunity to dismiss or suspend from
office), and control over the documents adopted or issued by those authorities, which consist of
approval, but in cancellation, suspension or amendment as well. [5, p. 145]
- technical decentralization (in services), whereby one or more public services are removed
from the jurisdiction of central or local authorities and organized autonomously. [12, p. 59]
Therefore, technical decentralization means granting certain autonomy of a publicly determined
service, which is given legal personality.
In other words, the principle of decentralization of public services lies in the transfer of
powers from the center to the local communities, in order to meet the general needs.
Decentralization allows public services to administer themselves, under state control, which confers
them legal personality, enabling the establishment of their own authorities and providing them with
the necessary resources. [3, p. 124]
The decentralization of public services ensures the retrieving of administrative and financial
powers of certain activities by the local government (county councils, local councils) and is one of
the objectives that public administrations have to do in the next period.
Deconcentration is the division of powers and administrative and financial responsibilities
between different levels of central administration.
317
Decentralization law defines deconcentration as redistribution of administrative and

financial powers of the ministries and other bodies of central public administration structures to
their own specialty structures in the territory (art. 2, letter j).
We appreciate that in the deconcentrated administrative system the central power gives up to
a part of its powers, distributing them to the public authorities located at the territorial level. In
other words, the principle of deconcentration may be viewed as a move in the territory of powers,
responsibilities and competences of the central public administration.
Administrative deconcentration is regarded as an intermediary between the centralized and
decentralized organization, being characterized by some independence of the local bodies in the
forefront of which there are local officials who are appointed by the central bodies.
Practically, however, centralization in public administration exists at any time, because on
the one hand, the agents are hierarchically subordinated to the central administrative power, and on
the other hand, their decisions are solely attributable to the state. [4, p. 118]
The close relation between deconcentration and can be noticed from the appointment of
local power holders by the center, as they are not elected by the local electorate. What drives it
closer to decentralization is the fact that the local power holders have the power to solve local
problems themselves without passing them forward to their hierarchic superior from the centre. [7,
p. 345] The decisions are within the jurisdiction of local bodies which have decision-making power,
but remain subject to centralization.
Deconcentration takes in turn two forms: horizontal and vertical. The first form involves the
passing of responsibility of deconcentrated services delivery of various ministries to the sole
representative of the state, namely the prefect, unlike vertical deconcentration which puts these
services in a direct hierarchy in which the head of the service depends only on the minister
concerned. [3, p. 122]
DEFINING GUIDING MARKS IN THE DISTINCTION BETWEEN

DECENTRALIZATION AND DECONCENTRATION OF PUBLIC SERVICES
There are a number of public services which can be organized exclusively or predominantly
only locally (e.g., the transport of people and goods within the towns; streets repairing; city
cleaning) or at county level (e.g., maintenance of communication routes between localities, a supply
of water which may interest the municipalities in the county, etc.). In the case of these services we
can speak of their decentralized organization.
There is another category of public services that can be organized only at the national level,
expressing an interest exclusively national and statal, for example the country's defense against
aggression by a foreign army, national security or foreign policy and others that cannot be
transferred to local and county councils and even though they are undoubtedly concerned to defend
against an external armed aggression. They can only be "deconcentrated" locally, but remaining
within the structure, hierarchy and subordination of the "centre." [7, p. 454]
As far as public services are concerned, we must make it clear that it is not about
decentralization, i.e. transfer, in whole or in part, of competences from the central level to the local
level. We are in the presence of an administrative deconcentration [8, p. 574], which defines a
system in which the agents and local bodies, being on the spot and subject to centralization, have
decision power. Therefore local authorities are not only vested with exclusive powers of execution,
these having also a certain decisional power transferred by the central authority.
Administrative deconcentration is identified by the fact that between the central power and
the one in territory there is a report of hierarchical subordination, the deconcentrated authority being
under the dependence of an hierarchic superior who is entitled to cancel decisions.
Therefore, the deconcentration of public services involves the transfer of competencies held
at the central level to the subordinated entities operating in the territory, because of a reduced form
of administrative centralization.
318
The purpose for which these public services are organized is the implementation of the
strategy of the state in various sectors of activity.
We can say that the kind of services which are organized at national level can be no more
than "deconcentrated” at county level, deconcentration ensuring unity of purpose and action, and
the problem of “decentralization” of public services is raised only in relation to those activities
which can be made at the local level or county, as appropriate, and whether such activities are, at a
certain time, organized as public services at central level. Deconcentration of public services is a
form of centralization and is opposed to technical decentralization.
Examining the views expressed in the doctrine, in an opinion it is claimed that a public
service of national interest, due to its importance for the entire society, cannot be decentralized.
What can and should be decentralized would have been a public service of local interest, hence the
conclusion that the correct wording should be “the decentralization of public services of local
interest.” [2, p. 122]
On the other hand, a critical vision in this matter is expressed by the Apostol Tofan [9, p.
222], who considers that such a point of view shows a lack of understanding of the principle of
decentralization and ignorance towards the principle of administrative deconcentration.
The decentralization in services does not refer to a group of local services, given to the
jurisdiction of local authorities, but to a single public service, which is removed from the central or
local jurisdiction, and being given an autonomous organization. The decentralization in services
signifies a diminution of executive power concentration, giving legal personality to the legal
service, having a heritage and their own bodies somewhat independent from the administrative
jurisdiction of which they were removed.
Deconcentrated public services have, regarding the affirmation of local autonomy, a more
reduced effect and significance than decentralization, this being highlighted by professor Mircea
Preda in the following:
- from an organizational point of view, these services are embedded in the structure of
organic ministries, therefore in the state administration, and they activate not in the centre (as other
sections of the establishment ministry), but in an administrative-territorial unit, therefore
"deconcentratedly";
- the financial means and the material basis of the deconcentrated services are provided by
the ministry of resort (thus not autonomously, decentralized), unlike the decentralization of
services, which is followed by a decentralization of resources, thus ensuring the competence of
local authorities to provide quality to citizens as well as their actual ability to responsibly manage
their public tasks they have undertaken. Moreover, the organizational structure of the
deconcentrated public service, the criteria for the formation of compartments that form it and the
functions of leadership are approved by the order of the minister of resort;
- deconcentrated public services leaders are appointed and dismissed by the ministers and
the documents issued by them may be waived by all ministers whom they are hierarchically
subordinated to. [13, p. 4-5]
CONCLUSIONS
At the end of our scientific work, it is necessary to emphasize that the decentralization does
not regard all public services; the problem of decentralization is only in relation to those that can be
organized locally, as there are public services (such as defense, national security, external relations )
which can be organized only at the national level.
In light of the above, it is necessary to emphasize that the principle of decentralization of
public services does not consist in the transfer of all and any activities from the central level to the
county or local level. Central ministries, departmental, will always exist at this level, because they
express the interest of the state in the field. Thus, the role of central ministries is to design and to
ensure the state strategy in that activity sector, which concrete practical activities are subordinated
to, carried out at lower levels – county, town.
319
In order to satisfy the interests of a community, the public service should be conducted
continuously to ensure the access of all beneficiaries to public services, all persons who are in the
same situation being able to claim the same benefits. Therefore the public service is designed to
solve the needs of society, determining in a good measure the quality of the life of citizens. In this
sense, local public services are regarded as the most concrete ways of expression of the local
autonomy, and, at the same time, one of the strong means by which the administrative authorities
act for the general interest.
Therefore, taking into account the extended nature of decentralization, administrative
deconcentration seeks the creation of an interlocutor for local authorities, strong enough to make
decisions that require the services to operate under its responsibility.
BIBLIOGRAPHY:
1. Emil Bălan, Instituţiii administrative, Editura E.H. Beck, Bucureşti, 2008

2. Dumitru Brezoianu, Drept administrativ. Partea generală, Editura Universităţii Titu
Maiorescu, Bucureşti, 2003
3. Dragoş Dincă, Servicii publice şi dezvoltare locală, Editura Lumina Lex, Bucureşti, 2008
4. Filip Gheorghe, M. Onofrei, Elemente de Ştiinţa administraţiei, Editura Junimea, Iaşi, 2004
5. Corneliu Manda, Drept administativ, Tratat elementar, Ediţia a V-a, revăzută şi adăugită,
Editura Universul Juridic, Bucureşti, 2008
6. Paul Negulescu, Tratat de drept administrativ, vol. I, Bucureşti, 1934
7. Mircea Preda, Drept administrativ, Partea generală, Editura Lumina Lex, Bucureşti, 2004
8. Valentin I. Prisăcaru, Tratat de drept administrativ român, Ediţia a III-a, Editura Lumina
Lex, Bucureşti, 2002
9. Apostol Tofan, Drept administrativ, vol. I, Editura C.H. Beck, Bucureşti, 2008
10. Verginia Vedinaş, Drept administrativ, Ediţia a III-a, revăzută şi actualizată, Editura
Universul Juridic, Bucureşti, 2007
11. *** Vitalie Cuşnir, ,,Unele aspecte ale reformei administrative-teritoriale şi administrării
locale”, în Probleme ale edificării statului de drept în Republica Moldova, Chişinău,
Tipografia centrală, 2004
12. *** Gerard Marcou, ,,Experienţa franceză în regionalizare: descentralizarea regională în
statul unitar”, Revista Altera „Regionalism şi regionalizare”, nr. 9, Târgu - Mureş, 1998
13. *** Mircea Preda, ,,Deconcentrarea serviciilor publice, un concept constituţional nou
pentru administraţia publică”, Buletin de informare legislativã nr. 1/2004
320
BOOK REVIEW
321
BOOK REVIEW FOR

MACROECONOMICS: FUNDAMENTAL CONCEPTS
Carmen NĂSTASE, Mihai POPESCU, Carmen BOGHEAN, Adrian Liviu SCUTARIU
Professor PhD. Gheorghe CÂRSTEA

Dean of the Faculty of Management, ASE Bucharest, Romania
Macroeconomie: concepte fundamentale
The book appeared at the Publishing House “Editura

Didactică şi Pedagogică” from Bucharest; year of publishing:
2008; Field: Macroeconomics; number of pages: 284; Format:
210x170 mm; ISBN: 978-973-30-2437-8
The book „Macroeconomics: Fundamental concepts” approaches a complex subject with

multiple economical implications. Macroeconomics studies the "sum total of economic activity,
dealing with the issues of growth, inflation, and unemployment and with national economic policies
relating to these issues" and the effects of government actions (e.g., changing taxation levels) on
them. Macroeconomics will pretty much be dependent on the regional government which will differ
from one country to another and in some cases even one state to another. This is due to different
forms of government and policies in different parts of the world. Hence this will be a main area of
focus for the smooth running of a global organization.
The main points of debate proposed by the authors in this paper, start from the
macroeconomics bases which have been settled by the famous Britannic economist J. M. Keynes,
who, in his work, ”The General Theory of Employment, Interest and Money” (1936), presented the
necessity of studying all the correlations among the economic phenomena and processes at the
microeconomic level, as well as at the macroeconomic one. In the period 1950 – 1960, in literature,
a rupture between microeconomics and macroeconomics occurred, these being considered two
different disciplines. In contemporary economy, for all the theorists it clearly appears the existence
of some close links between the two levels, a thing that makes the study of these disciplines to be
even more elaborated, having an integrated character. The authors of this book subscribe to this
opinion as well. Macroeconomics is not perceptible directly to the individuals. Separating
macroeconomics of microeconomics is a difficult thing, as they are in a close interdependence:
macroeconomics influences microeconomics, and sometimes starting from a microeconomic
decision, a concatenation of macroeconomic mechanisms, affecting greater aggregates, follows. An
essential characteristic of the contemporary world is represented by the growing interdependences
between the economic activities of the various individual economic agents.
This work was achieved, step by step, as a result of the collective of professors’ team work,
professors that have their major in Economy, Microeconomics, Macroeconomics, Macroeconomics
policies, General Economy, at The Faculty of Economics and Public Administration, Ştefan cel
Mare University of Suceava, Romania. The signatories have developed this work volume, during
several years, while they were graduate students and then doctors of the ASE Bucharest, University
322
Alexandru Ioan Cuza Iaşi or Univeristy from Craiova, which consolidate the knowledge and views
from several prestigious universities in the country. It should be noted that the authors have
beneficiated from multiple stages of documentation from universities or institutions / research
centers in countries like: Austria, France, Italy, Finland, Norway, Slovak, Hungary, leading to the
completion of some comparative research and of some models of good governance and
implementing some European policies at national level, results which are highlighted in this paper.
The book is structured on ten chapters that analyze fundamental macroeconomic aspects
based on the multiple relations between the aggregates and the categories of functional institutional
units.
In the authors’ conception, the macro-economy and the macroeconomic policies allow the
observation of these phenomena on the level of groups, of economic subjects, individuals or firms,
reunited in homogenous categories and out of their individual behavior.
Among the significant macroeconomic problems, we mention:
- The assurance of the equilibrium between global offer and demand, in the material shape
(the state of relative balance between the volume, structure and quality of production, on the one
hand, and the need of production and the final consumption, on the other hand), value (relative
balance between the various value structures of the economic results, between these and the
efforts) and in work units (relative balance between the amount, structure and the quality of the
human factor and the economic necessities of work resources).
- The macroeconomic policy by the consciously action of the public power, through which
tends to influence the global results of the economy. The government charges taxes, engages
expenditures, adjusts the monetary amount, the interest rate, the exchange course, establishes
objectives for the production of the state units, etc.
- The economic growth through the increase of the national economy capacity of supply
increasingly the various economic goods necessary for the population and the economic agents. The
results obtained can be measured through some synthetic indicators, significant for the economic
dynamics appreciation of a country.
- The inflation, as a shape of general economic imbalance, which consists of the over
saturation of monetary circulation channels with an amount of paper and credit money, that is over
the real needs of the merchandise and services circulation. It reflects both in the money depreciation
(the decrease of their purchase power), as well as in the generalized and uncontrolled prices
increase.
- The unemployment, as a result of work resources underemployment, respectively, persons
without jobs and looking for them, became an ordinary fact today, although with different levels
and evolution senses in different countries and periods.
- The economic ciclicity, in the sense that the evolution of the main economic phenomena
takes place in a corrugated shape, passing through some phases, each of them with distinct
characteristics, but which reciprocally inter-condition each other, and by their unity, they assure the
premises of activity flow.
- The knowledge economy, which is considered the main characteristic of the world
economy, the one in which the information means power in the most general sense – whether if we
talk about the political one, the economic one, the financial one - obtaining, owning and superior
capitalization of information, being in this way the key to this society.
Along the last two decades, a series of radical changes occurred in the world economy,
generated intense comments, held many times on the edge the explosive increase of unemployment,
of uncontrolled rhythms of the inflation, of exaggerate interests, extern debt crisis, contradictory
evolution of the economic integration process, budgetary deficits, competition intensification,
natural environment damage, etc., all of them, creating a massive pack of problems whose solving
was not always considered satisfactory. The economists (and not only them) tried various answer
solutions by creating some adequate macroeconomics policies.
Highly recommend this book primarily for students and masters, because this material is
designed as a university manual. The theoretical-methodological and applicative foundations
323
achieved within Macroeconomics are the premises for the high education of students being a base
for the others economic disciplines from the faculties’ educational plans. In this way, one can assure
the formation of some economists with a large profile, with a creative-prospective thinking, able to
occupy with professionalism future jobs and to contribute to the economic problems solving. The
paper also addresses to the specialists from the real economy, economists, lawyers, government
officials, policy makers, on the principle that "any practice is based on theory"(Drucker, 2005). In
this context, one focuses on understanding the opportunities that the individual economic units can
beneficiate from, and their report to the national economy, as well as the economic growth,
economic stability, investment supporting measures and policies.
The review done to the present material allows me to appreciate that we face a valuable
research work, which meets all the requirements to be provided both students and masters and also
professionals.
324
INSTRUCTIUNI UTILE PENTRU AUTORI / AUTHOR GUIDELINES
RO
Revista The Annals of the Stefan cel Mare University of Suceava. Fascicle of The Faculty of
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325
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EN
The Annals of the Stefan cel Mare University of Suceava. Fascicle of The Faculty of Economics
and Public Administration, welcomes theoretical and empirical articles, from all economic fields,
according to the 5 sections:
Economy, trade, services
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ISSN 2066-575X www.seap.usv.

THE ANNALS OF THE

Editura Universităţii Suceava

Editor-in-chief: Carmen NĂSTASE

Angela ALBU, „Ştefan cel Mare” University of Suceava, Romania

DETERMINANTS OF KEY PERFORMANCE INDICATORS (KPIS) OF PRIVATE SECTOR BANKS IN

CONCEPTS, MODELS, TECHNIQUES AND PRACTICES OF ECONOMIC AND FINANCIAL ANALYSIS83

HUMAN RESOURCES MANAGEMENT CONTROL ............................................................................................. 92

EVALUATION AND RECOGNITION OF INTANGIBLE FIXED ASSETS IN ACCORDANCE WITH

ACCOUNTING POLICIES APPLIED IN DETERMINING CASH FLOW ......................................................... 262

A STATISTICAL ANALYSIS OF THE NORTH-EAST REGION OF ROMANIA COMPARED TO THE

ROMANIA AND BULGARIA IN THE EUROPEAN UNION: A SPATIAL ANALYSIS OF COUNCIL

BOOK REVIEW .......................................................................................................................................................... 321

BOOK REVIEW FOR MACROECONOMICS: FUNDAMENTAL CONCEPTS, Carmen NĂSTASE, Mihai

INSTRUCTIUNI UTILE PENTRU AUTORI / AUTHOR GUIDELINES ............................................................. 325

ECONOMY, TRADE, SERVICES

DETERMINANTS OF KEY PERFORMANCE INDICATORS (KPIS) OF PRIVATE

Keywords: Key Performance Indicators; Banking; Measurement; Efficiency

JEL Classifications: M1, M4

The present study has the following objectives

MATERIAL AND METHODS

Statistical Tools Used

Results and Discussion

Table no 1. KMO and Bartlett's Test

Bartlett's Test of Sphericity Approx. Chi-Square 574.740

Table no 2. Total Variance Explained

Figure no 1. Scree Plot

Table no 3. Principal Component Analysis – Varimax Rotation Indicators of Performance

Indicator 1 Indicator 2 Indicator 3 Indicator 4 Indicator 5 Indicator 6 Indicator 7 Indicator 8

Proportion of 16.182% 11.927% 9.871% 8.685% 8.237% 6.800% 6.404% 5.675%

Table no.4 Ranking of Indicators according to their importance

Code Descriptions of the Indicators

DPCD Deliver Performance to Customer – by Date

DPCQ Deliver Performance to Customer – by Quality

NOA Number of Activities

OSR Opportunity Success Rate

OEE Overall Equipment Effectiveness

IWE Internal Working Environment

IlR Illeness Rate

ROI Return on investment

ROCE Return On Capital Employed

ROE Return on Equity

CO-OPERATION STRATEGIES ENHANCING THE INNOVATION IN NATURE-BASED

JEL Classification: L83, O32

2.1 INNOVATION RESEARCH AND REGIONAL GOVERNANCE - PROVIDING

2.2. THE ROLE OF STAKEHOLDERS IN FORMING SUCCESSFUL CO-

3. MATERIAL AND METHODS

The data was analysed by using analyst-constructing typologies, in which patterns,

3.1. CASE STUDIES AND THEIR INNOVATIVENESS

Dorna Adventure, Romania

Austria Canopy walkway Firms involved in construction of the canopy walkway,

4. ANALYSIS AND RESULTS

1. Asheim, B. (1996). "Industrial districts as "learning regions": A condition for prosperity?"

7. Bryson, J. M. 2003 What To Do When Stakeholders Matter?. Public Management Review,

THE EUROPEAN EXPERIENCE CONCERNING REGIONAL

Associate Professor PhD. Irina-Maria DRĂGAN

Key words: regional development, decentralization, sectorial strategies, regional authorities

JEL Classification: O18, R58

3. REGIONALIZATION AND DECENTRALIZATION

 Insufficient specification regarding the legal and constitutional guarantees related to

ECONOMIC GROWTH IN RUSSIA REGIONS: KEY FACTORS

Ph.D. Vitaly ALESCHENKO

JEL Classification: R11