Mandakh 2017

GENERAL ORGANIZER: CO-ORGANIZER:
MANDAKH BURTGEL MONGOLIAN INSTITUTE OF

UNIVERSITY CERTIFIED PUBLIC
ACCOUNTANTS
3rd INTERNATIONAL CONFERENCE

MANDAKH-2017
1
Ulaanbaatar city
2017
MANDAKH UNIVERSITY
3rd INTERNATIONAL CONFERENCE

MANDAKH-2017
Ulaanbaatar city
i
EDITED BY: ENKH-AMGALAN. L /Doctor (Ph.D), Associate Professor /
TURBADRAKH.CH /Doctor (Ph.D), Associate Professor /
PREPARED BY: BAATARTSOGT.B
MUNKHBAT.B
ii
ORGANIZING COMMITTEE
Chairman: Enkh-Amgalam. L Doctor (Ph.D), Vice-director of Foreign relations and

Associate Professor Academic research, Member of
Governing and Academic board
Vice- Turbadrakh. Ch Doctor (Ph.D), Vice-director of Academic affairs,
Chairman: Associate Professor Member of Governing and Academic
board
Secretary: Baatartsogt. B MBA Lecturer, Department of Accounting
and Finance
Members: Enkhtuvshin. S MBA Vice-director of Finance and

Development policy, Member of
Governing board
Erdenee. G MBA Chief Accountant, Member of
Governing board
Natsagdorj. B Doctor (Ph.D), Scientific secretary of Governing

Professor board, Department of Economics and
Business
Gantsetseg. S Doctor (Ph.D), Department of Foreign Language
Associate Professor
Onon. E Ph.D Candidate Lecturer, Department of Foreign

Language
Sainzaya. S MBA Lecturer, Department of Foreign

Language
Namuun. S MBA Lecturer, Department of Foreign

Language
Munkhtsetseg. G MBA Administrative Manager
Munkhtuya. B MBA Marketing Manager
Munkhbat. B MBA Program Committee Officer,

Photoghapher, IT
iii
THE CONFERENCE PROGRAM
Time: 09:00-17:00, 26 May, 2017
Venue: Level 3, Ulaanbaatar Hall, Corporate Hotel and Convention Centre
09:00-09:30 Registration
09:30-09:50 OPENING CEREMONY President, Professor NANJID.G
MORNING SESSION
Chair: Doctor, Prof. Enkh-Amgalan. L
Dansranbavuu Lkhagvaa,
Dutch disease symptoms in Mongolian economy
09:50-10:00 Tsolmon Sodnomdavaa
and ways to reduce its negative effects
Mandakh University
Sumiya Tuvdennyam
10:00-10:10 Metaphor in economy
Mandakh University
Pornlapas Suwannarat, Warawut
Ascertaining the Competitiveness of Thai and Waranantakul,
10:10-10:25
Malaysian Products Exporting to the United States Mahasarakham University,
Tailand
Current Management Accounting Practices among Susumu Ueno,
10:25-10:40
Large Japanese Manufacturing Companies Konan University, Japan
Analysis of Current situation of Mongolian Naranchimeg. L, Sainjargal. B,
10:40-10:50
business entity Mongolian National University
Altantsetseg. S, Odonchimeg. B
Evaluating Accounting Skills of Mongolian
10:50-11:00 Mongolian University of Life
Farming and Agricultural Enterprises
Sciences
11:00-11:30 Coffee Break
Ernest Nweke, Enkhtuya
Changing trend in ownership of Mongolian
Bavuudorj
11:30-11:40 companies: The correlation with governance
Mongolian University of Science
mechanism
& Technology
Saruultugs Natsagdorj, Purevdorj
Human resource value measurement: Possibility Otgonbayar,
11:40-11:50
to adopt international experience in Mongolia The Business School of National
University of Mongolia
12:00-13:00 DISCUSSION
13:00-14:00 LUNCH TIME, PHOTO SESSION
iv
THE CONFERENCE PROGRAM
Time: 09:00-17:00, 26 May, 2017
Venue: Level 3, Ulaanbaatar Hall, Corporate Hotel and Convention Centre
AFTERNOON SESSION
Chair: Doctor, Asso Prof. Gantsetseg. S
Bolormaa. B, Accounting Policy
Current status of compliance to IFRS and some
14:00-14:10 Department, Ministry of Finance
other issues
Mongolia
Naranhuu. L, Yumaajav
Types grain manufacturing threatens and it's Byambaara,
14:10-14:20
management Мongolian National Defense
University
Industrial parks as a mechanism of attracting Gennady Sakharov,
14:20-14:35 investments: experience and problems of Kaluga State University named.
implementation in the regions of Russia K. E. Tsiolkovsky, Russia
Masaaki Aoki,
An Implication of Patent As a Non-financial
14:35-14:50 Accounting School, Tohoku
Indicator
University, Japan
Gotovdorj Chuluuntsetseg,
14:50-15:00 Some Issues on Salary and Remuneration Analysis Mongolian University of Life
Sciences
Munkhtsetseg. Sandagsuren,
A study of the factors affecting the government
15:00-15:10 Gantulga Jargalsaikhan,
treasury bill yield
Mandakh University
Key Elements and Assessment Strategy to
Tugsuu Jargal,
15:10-15:20 Motivate Students Learning in Business English
Mandakh University
Course-ESP
Sainjargal Bayarsaikhan,
Consumer and employee‘s value, features of
15:20-15:30 Nasanjargal Purevsukh,
behavior impact to service quality
Mandakh University
A quality Measurement Study for the Korean Kyung H. Nam,
15:30-15:45
ODA Records Statistics Kyonggi University, Korea
15:45-16:15 DISCUSSION
16:15-16:45 CLOSING CEREMONY Executive Director, Doctor Prof. Ulziibat. S
v
CONTENT
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vi
PREFACE
We are pleased to organize 3rd International Conference ―Mandakh-2017‖ on the occasion of

25th anniversary of Mandakh University contributing to developments of the fields of Mongolian
Higher Education and Accounting and Finance.
Since its establishment in 1992, Mandakh University has been offering Bachelor and Master
programs in Business Administration, Accounting and Information Technology. In addition, it is
noticed that our programs were accredited by National and International organizations.
On behalf of the authorities and colleagues of the University, I would like to express our
sincere gratitude to co-organizer ―Mongolian Institute of Certified Public Accountants‖ and
Ministry of Education, Culture, Science and Sports, Business School of National University of
Mongolia, School of Economics and Business of Mongolian University of Life Sciences, School of
Business Administration and Humanities of Mongolian University of Science and Technology as
well as Mongolian National Defense University for supporting us to organize the conference.
Furthermore, I would like to express our appreciation to scholars, professors, lecturers and
researchers who came to present a paper. In addition to this, we are grateful that collaborators such
as Universities and Institutes of Russia, Korea, Thailand and Japan are expanding the conference by
presenting a paper. We would like to extend a very warm welcome to all of you to Mongolia.
In the conference ―Mandakh-2017‖, we believe presenting papers and sharing research
experiences in the frame of Accounting, Economics, Business, Statistics, Management, Humanities
and Linguistics. We hope that recommendations and results of our research work can contribute to
deal with matters of development and issues of the above fields.
I would like to express deep gratitude to Organizing Committee and wish you success in the
conference proceedings.
President,
Prof. NANJID.G
vii
MANDAKH-2017 3rd INTERNATIONAL CONFERENCE
DUTCH DISEASE SYMPTOMS IN MONGOLIAN ECONOMY ANDWAYS

TO REDUCE ITS NEGATIVE EFFECTS
Lkhagvaa Dansranbavuu1, a *, Sodnomdavaa Tsolmon2, b

1
MBA, Department of Economics and Busness, Mandakh University
2
Doctor (Ph.D), Department of Economics and Busness, Mandakh University
Ulaanbaatar city, Mongolia
a*
dansran22@yahoo.com, b tsolmon@mandakh.mn
Keywords: Economic policy, Dutch disease, Mongolian economy, resource curse, budget expansion
Abstract
Mongolia has plenty of natural resources and comparatively few populations of 3 million,
most of them are younger. It means Mongolia has a lot of opportunities to grow its economy quickly
and compete with other countries by an economic growth. But, Mongolian economy has been
stagnated in last few years since reaching the peak growth at 17.5 percent in 2011. We assume that
the main reason for an economic stagnation caused by the government bad decisions not basing on
the scientific research. The Dutch disease theory explains the relationship between increasing and
declining specific sectors, which resulting in the currency appreciation. This paper aims to
determine that the reason for economic difficulties and make some suggestion to prevent the
worsening situation. As of Mongolia, it has been reflected by Dutch disease very badly, so need to
find the way to dive into the right paths.
1. Introduction
The rapid economic growth in a specific sector influences on the whole economy in both
positive and negative ways. The increase in export revenue manipulates public sector investments,
creates jobs and implements public projects, which were impossible in previous economic
conditions. In reality, the revenue growth becomes the reason to increase government expenses.
Consequently, it affects the state budget to expand and influences to increase the consumption
quickly. Briefly, it is called as Dutch disease symptoms in an economy.
2. The Dutch disease

The first research paper published in the Economist in 1977, which points out that how does
the mining of natural gas explored in 1959, influence on country‘s whole economy. The article used
the terminology of Dutch disease for the first time (Economist, 1977). Emphasizing on a natural gas
mining helps Dutch government to increase its budget revenue, on the contrary, it decreased the
production and jobs in non-gas sectors. The government increased public expenditures to eliminate
these negative effects by providing social welfares for many unemployed people in non-gas sectors.
1
Eventually, the budget deficit became larger and inflation rate became worse that all causes the
number of increase in poverty and crime.
At the early stages, the increase in the mining sector of the development attracts the foreign
direct investment and creates more jobs. We need to emphasize on the number of jobs have been
created by the mining sectors comparing to the other sectors. It actually creates fewer jobs than
others and it does not affect the total employment rate. If government and citizens believe that this
situation will continue forever and plan the economy, it leads to a huge risk (Banks, G.2011).
As calculation by World Bank as shown on graph 1, if a particular country‘s export is high
dependable to the natural resources, then it will have a low growth rate. It means that the country
can use the development of mining sector in early stages, but not forever.
Fig. 1. Mineral exports and growth, 1970-2008,

Source: World Development Indicators, World Bank
3. Economic background of Mongolia

In 2010-2016, Mongolian real GDP expressed by the price of 2010 increased from 9.8 to
16.0 billion tugriks and by 63.3 percent. Unfortunately, Government of Mongolia is discussing with
IMF on launching its Extended Fund Facility program, because of lack of foreign currency reserve
to pay previous bond repayments and cover increasing the budget deficit.
There are several studies on Dutch disease in Mongolia. For example, Gan-Ochir noted that
―There are hidden and seasonal symptoms of Dutch disease in Mongolian economy and if the prices
of gold and copper, main export products of Mongolia continue to increase and new mining of
copper and gold are started exploration, then it may influence on tugrik‘s real exchange rate
appreciation and weakness of export production sectors except mining‖ (Gan-ochir, 2009).
2
On another one study, Avralt-Od and others mentioned that ―Some clear symptoms of the
Dutch disease are discovered in Mongolian economy from 2010. High growth of mining sector and
its supply sectors, an excessive demand for non-tradable goods, and budget expansion became the
result of high inflation‖ (Avralt-Od and etc., 2012). And researchers suggested creating the ―Natural
Resource Foundation‖ to diversify additional financial resources of the booming mining sector and
to implement budget-tightening policies combining with monetary expansion policies.
Ariunaa and Kim attempted to diagnose Dutch disease in Mongolian economy and
concluded that the diagnosis of Dutch Disease cannot be confirmed even though Mongolia may be
characterized by all these symptoms (Ariunaa and Kim, 2011).
There are other several studies about Dutch disease symptoms in Mongolian economy and
all of the studies reached controversial results.
One of the main characters to define Dutch disease symptoms on country‘s economy is real
exchange rate and its appreciation. As a report of BoM, between the end of 2000 and 2015, tugrik‘s
REER was appreciated by 83.78 percent when its NEER was depreciated by 41.72 percent.
200.00
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
REER NEER Linear (REER) Linear (NEER)
Fig. 2. REER and NEER, by percentage,

Source: Bank of Mongolia
The second character of Dutch disease is a lower growth rate of manufacturing sector comparing
to higher growth of booming mining sector and its supply sectors. Following graph shows that the
growth rates of real GDP and mining sector have a growing tendency when the growth rate of
manufacturing has a decreasing tendency in 2000-2016 in Mongolia.
3
40
30
20
GDP
10 Mining
Manufacturing
0 Linear (GDP)
Linear (Mining)
-10 Linear (Manufacturing)
-20
-30
Fig. 3.Real growth rate of GDP, mining and manufacturing sectors‘ production, by percentage,
Sourse: National Statistics Office of Mongolia
The third indicator of Dutch disease symptom is a growth of average salary depending on more
demand of skilled labors in booming sectors. Graph 4 shows that the real average salary has
increased 3 times in 2005-2015. At the same time, the real GDP has not grown same times.
180.0
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Fig. 4. Index of real average salary, salary of 2010 is 100 percent

Sourse: National Statistics Office of Mongolia
Quickly considering at above data, it seems Mongolia has some symptoms of Dutch disease. So,
here main goals of the paper to testify that does Dutch disease exist practically and define some
policies to remedy them appear.
4
4. Methods
W.Max Corden and J. Peter Nearly explained Dutch disease by an economic model. They
divided the country‘s economy into 2 main sectors as booming sectors and others. Furthermore, the
non-booming sectors are divided into tradable and non-tradable sectors. The more revenue of
booming sector creates 2 kinds of effects on the economy, first, ―resource movement effect‖ from
non-booming sector to booming sector and its supply sectors, and second, ―spending effect‖
increasing the money supply as loosening loan policies and expanding social welfares. These
policies influence on the price increase for non-tradable goods sharply, but prices for tradable goods
cannot be increased because of international market equilibrium and demand. After all, REER of
domestic currency will be appreciated and the competing capacity of tradable goods in a worldwide
market will decrease (Corden and Neary, 1982).
, here:
DDmanufacturing - Dutch disease in manufacturing sector

RME - Resource movement effect
SE - Spending effect
There are a lot of studies challenging different empirical models. In our study, we examine
real exchange rate, whether copper price and quick growth of GDP cause the Dutch disease in
Mongolian economy. This paper employed macroeconomic quarterly data on the exchange rate,
copper price, gross domestic product, and trade balance in 2000-2015. We used data resource as
calculation of Bank of Mongolia for tugrik‘s real exchange rate, data of www.macrotrends.net for
copper price, data of National Statistic Office of Mongolia for gross domestic product and trade
balance. The trade balance is calculated by taking the ratio of import and export of Mongolia and
then taken into logarithmic form. So regression equation is:
(1)
ln REER - real exchange rate index in logarithm (tugriks per USD)

ln (CP) - Copper price in logarithm (USD per tonn)
ln (TB) - Trade balance in logarithm (logEXP-logIMP in USD)
ε - Error term
5. Empirical findings and results

We used tugrik‘s real effective exchange rate per USD in logarithm, Ln(REER) as a
dependent variable, and copper price in logarithm, Ln(CP), nominal GDP in logarithm, Ln(GDP)
and foreign trade balance in logarithm, Ln(TB) as dependent variables.
Sampling data of Bank of Mongolia and National Statistics Office of Mongolia were used
and data span covers the period from the 1st quarter, 2000 to 1st quarter, 2016. Total 65 quarterly
data are used to evaluate the econometric model.
At first, we checked linear relationships between copper price and GDP, the real exchange
rate of tugrik and trade balance of Mongolia.
5
5.3
14.8
5.2
14.4 5.1
5.0
14.0
RER
4.9
GDP
13.6 4.8
4.7
13.2
4.6
12.8 4.5
7.2 7.6 8.0 8.4 8.8 9.2 7.2 7.6 8.0 8.4 8.8 9.2
CP CP
Fig. 5. Copper price and GDP, RER scatter diagram
We observe that there is strong, positive linear relationship between copper price and GDP,
RER of tugriks and weak, negative linear relationship between copper price and trade balance.
Regression results using OLS method are shown in table 1. For the equation 1, adjusted R-square is
high of 0.830792, but trade balance is not statistically significant. So we eliminated the data of trade
balance and the result is shown as equation (2) column on table 1.
Table 1. Regression results using OLS method

Independent Equation (1) Equation (2)
variables Coefficient t-Statistic Coefficient t-Statistic
Constant 0.454441 1.202189 0.425676 1.152074
*** ***
Ln(CP) 0.146278 6.262514 0.146745 6.331314
*** ***
Ln(GDP) 0.240473 6.780240 0.242030 6.906263
Ln(TB) -0.021016 -0.426588
Adjusted R-
squared 0.830792 0.824812
S.E. of regression 0.081955 0.081412
F-statistic 99.83408*** 151.6611***
Akaike info
criterion -2.105737 -2.133528
Observations 65 65
t statistics in parentheses: * ** ***
After both regressions, we can see that equation 2 is better described the situation and has
higher statistical significance comparing to first equation while the meaning of adjusted R-square
was decreased a little bit, but the value of F-statistics increased to 151.6611. From the regression
result, we can conclude that strong, positive linear relationship between RER of tugriks per USD
and GDP, copper price exists. And trade balance has a negative, weak effect on RER of tugriks.
Each 1 percent increase in copper price increases RER by 0.146745 percent, each 1 percent
increase in nominal GDP increases RER by 0.242030 percent. Copper price has the significant
effect on RER and it shows that first hypothesis of Dutch disease are proven.
After that, we used Johansen Cointegration test to check there is the long term relationship
between these variables. Attachment 2 shows us there is not a long term relationship.
6
Second criteria to evaluate Dutch disease symptoms is labor movement between economic
sectors depending on mining sector production, copper, and coal export revenues. For this purpose,
we used labor data of economic sectors from National Statistics Office, and data of mining
production, copper, and coal export revenue from Mongolian Custom Office.
Table 2. Labor movement between economic sectors and mining export revenues
Mining Copper Coal
№ Employment by economic sectors
export export export
1 Education
Public administration and defense; compulsory
2
social security
3 Arts, entertainment, and recreation
4 Professional, scientific and technical activities
5 Administrative and support service activities
6 Information and communication
Water supply; sewerage, waste management and
7
remediation activities
8 Construction
9 Financial and insurance activities
10 Transportation and storage
11 Manufacturing
12 Mining and quarrying
13 Accommodation and food service activities
Wholesale and retail trade; repair of motor vehicles
14
and motorcycles
Activity of International organizations and
15
representative offices
16 Human health and social work activities
17 Electricity, gas, steam and air conditioning supply
18 Household activities hiring individuals
19 Real estate activities
20 Other service activities
21 Agriculture, forestry, and fishing
Explanation:
Positive, strong Positive, weak No Negative, weak Negative, strong

relationship relationship relationship relationship relationship
Table 2 shows that copper, coal, and mining export increase influence on labor movement of
sectors in different ways.
We divided economic sectors into 3 segments after evaluating the relationships using a
correlation method. In other words, there are some economic sectors, where positive (strong and
weak) relationships with mining and main minerals‘ export increase, some sectors have no
7
relationships, and some economic sectors, where there are negative (strong and weak) relationships
with an increase of mining and main minerals‘ exports.
For example, increase of mining, copper and coal export creates more employment in sectors
of education, public administration and defense; compulsory social security, arts, entertainment and
recreation, professional, scientific and technical activities, administrative and support service
activities, information and communication and reduces the employment in sectors of agriculture,
forestry and fishing, real estate activities, other service activities depending on strong and negative
relationships.
So, we can say that mining export increase creates labor movement between economic
sectors. Also, it proves the second hypothesis of Dutch disease symptoms in Mongolian economy.
Additionally, table 3 shows that the relationships between mining exports increase and GDP
and production of economic sectors and proves that mining export revenue increase has a strong,
positive influence on some non-tradable goods sectors, and has negative effects on most of the
tradable goods sectors and symptoms of Dutch disease in Mongolian economy.
Table 3. Relationship between GDP, production of main economic sectors and mining export
revenues
Mining Copper Coal
№ GDP by economic sectors
export export export
1 Total
2 Mining and quarrying
3 Net taxes on products
Wholesale and retail trade; repair of motor
4
vehicles and motorcycles
5 Professional, scientific and technical activities
6 Construction
Public administration and defense; compulsory
7
social security
8 Transportation and storage
9 Other service activities
10 Information and communication
11 Education
12 Manufacturing
13 Human health and social work activities
14 Financial and insurance activities
15 Agriculture, forestry, and fishing
Water supply; sewerage, waste management and
16
remediation activities
17 Accommodation and food service activities
18 Real estate activities
19 Arts, entertainment, and recreation
20 Electricity, gas, steam and air conditioning supply
21 Administrative and support service activities
8
Conclusion and further discussions

The price increase of copper, one of the main sources of Mongolian export revenue has
strong and positive relationships with GDP and real exchange rate of tugriks per a USD. It proves
that the first hypothesis of Dutch disease symptoms.
Later, we checked how do labor movements between economic sectors depend on an export
revenue increase of mining, copper, and coal, and have divided into 3 segments. The result shows
that export revenue increase of mining, copper and coal influences on employment increase on
education; public administration and defense, compulsory social security; and arts, entertainment,
and recreation sectors and on employment decrease on agriculture, forestry and fishing sector, and
proves the second hypothesis of Dutch disease symptoms.
Until 2011, the average salary and employment on mining sector have increased, but the
sector has not much capacity to employ more people comparing to other sectors like agriculture.
Also after 2011, the peak growth of Mongolian economy, the production decrease of the sector
created mid-term unemployment.
To reduce Dutch disease symptoms, before all, we need policies to reduce real exchange rate
appreciation growth. Meanwhile, promotion policies to support decreasing sectors, which have
more capacity to offer more jobs, are required.
Some economic sectors are growing and some are decreasing depending on the rapid growth
of mining sector. This situation urges us to implement coherent monetary and fiscal policies. Whole
Mongolian economy depends on export revenue of few minerals and world price, not on an
exchange rate. In order to reduce these vulnerabilities, economic diversification policies are
urgently required.
9
References
1. ―The Dutch Disease,‖ The Economist, November 26, 1977.
2. Banks.G. (2011). ―Australia‟s mining boom: what‟s the problem”. Address to the
Melbourne Institute and the Australian Economic and Social Outlook Conference, 30 June
2011.
3. Gan-Ochir.D. (2009). ―Monetary Index calculation in Mongolian economy: Monetary policy

is tightening or loosening?”. Research paper of Bank of Mongolia, August 2009.
4. Avralt-Od.P., Gan-Ochir.D., and etc. (2012). “The Dutch disease symptoms in Mongolian
economy”, Research paper volume of Mongol Bank, Vol 8, 88-143, 2012.
5. Ariunaa.Kh,, and Kim.H. (2011). “Diagnosing Dutch disease: Does Mongolia have the
symptoms?”, The Korean Association for Mongolian studies, http://www.hanmong.or.kr/,
2011-8, №31 ISSN 1229-7097, p 349-381
6. Corden.W., and Neary.J. ―Booming Sector and De-Industrialization in a Small Open

Economy”, The Economic Journal, Vol. 92, No. 368 (Dec., 1982), pp. 825-848
10
METAPHOR IN ECONOMY
Sumiya Tuvdennyam1, a*
1
Senior Lecturer, Ph.D Candidate, Department of Foreign Language, Mandakh University
a*
suugii_t99@yahoo.com
Key words: Field of economy, Everyday language, Source domain, Target domain, Cognitive tools
Abstract
It has generally been held that metaphors have significant rhetorical uses in the field of
economy. The article focuses on the conceptual metaphor occurring in economic article to illustrate
how conceptual metaphor works in the economic discourse. Metaphor structure not only cognitive
linguistic but also our everyday respect of life. Therefore economy related topics are part of our
every day‘s language. Having a close relationship with human beings and human society, the field
of economics becomes a rich linguistic domain which, if explored, proves to be very productive in
offering semantic extension. The classification of these metaphors that have been found an article is
based on their different cognitive function, according to the theory of conceptual metaphor put
forward by Lakoff and Johnson. The aim of this paper is to address what are the metaphor that are
deployed by economic articles, how conceptual metaphor constructs the current economic condition
as cognitive tools. The method our research is based on Lakoff and Johnson‘s theory of the
conceptual metaphor. Non-economists, like us, find it easier to see the metaphor is used than the
professionals. By this paper, we suggest that further development of cognitive research on
metaphors, from the analysis, we can find that the cognitive tool metaphor can be employed in the
economic text. We have collected the metaphorical expressions that describe the economy and
applying conceptual terminology to corpus material we shall try to categorize structural metaphor
target domain and source domain with specific interest in metaphors that belong to the field of
economics. More articles need to be published to guide the study of metaphor in economic text.
Introduction
We may not always know it, but we think in metaphor. Traditionally, metaphors have been
understood as figures of speech, tools used in rhetorical style and they come in many shapes and
sizes. A metaphorical expression can be just one word, or it can be a phrase or a sentence. It is even
possible to regard an entire story as a metaphor for life or the world (2011). During this century,
new perspectives on metaphor have emerged that include the analysis of metaphors from the
everyday language. What exactly is metaphor? This question sounds rather basic and may
nowadays be categorized as belonging to the broad field of linguistics. Metaphors are rhetorical
figures used to express one thing in terms of another. Metaphor structure not only cognitive
linguistic but also our everyday respect of life. Nowadays, economy is getting closely related to our
life, and economy articles are often flooded with metaphors. Therefore, to understand metaphor of
economics, we have to look thoroughly at the complexity of its words combination. It is necessary
to investigate metaphor use in non-literary works with special reference to economics, especially
media economics in which metaphors are often overlooked.
11
Researchers have identified a close relationship linguists working on the theory of metaphor
have introduced the idea that metaphor is seen as a set of correspondences between two domains
(areas of human experience): source, which is usually more concrete, physical, and target, which is
more abstract, mental. The inter connection between the two is established through the notion of
mapping, i. e. the target is usually seen through the source.
The materials for the present research were collected from two magazines in English namely The
Mongolian Economist, Mongol Messenger, while selecting the articles an attempt was made to
objectify the process by the random choice of the articles the only restriction being the topic, i.e.
economic issues. The corpus for our analysis of the economic news metaphor in English, economic
terminology has been compiled from various sources. By this paper, we suggest that further
development of cognitive research on metaphors, from the analysis, we can find that the cognitive
tool metaphor can be employed in the economic text.
1. The Essence of the Conceptual Metaphor
Metaphor has been defined in a variety of ways. The word metaphor combines two ideas:
first, something is being transferred from one location to another and second, this something is then
not prominent in its new place but more or less stays behind, beyond or with something else.
According to Merriam Webster's Dictionary (1995), metaphor is "a figure of speech in which a
word or phrase denoting one kind of object or idea is used in place of another to suggest likeness or
analogy between them, like drowning in money. The other press views metaphor as "giving the
thing a name that belongs to something else." The etymological origin of the word metaphor is from
the Greek meta which means with and phor which means carry (Oxford Clarendon Press).
Besides, during the 70s as a result of the attention paid by a group of linguists led by George
Lakoff consider metaphor as a mechanism that works in everyday language that creates and, at the
same time, shows our way of understanding reality (1980).
As Lakoff and Johnson (1993), (1993) observe, metaphor is now a concept with
multidisciplinary implications and its use has been found ―in virtually every aspect of human
thought: physical science, biological science, economics, law, political theory, psychology, art,
philosophy, business, morality and even poetry‖. Moreover, metaphors are conventional, they are
part of the conceptual apparatus common to systematic as there is a fixed correspondence between
the structure of the domains.
They point out the importance of metaphor that is permeable in everyday life and plays an
indispensible role in defining the way people perceive the world and the way we react to the
world.
Point of views that, (2004) shows metaphor as "a linguistic representation that results from
the shift in the use of a word or phrase." In this respect, The essence of metaphor is understanding
and experiencing one thing in terms of another‖ (1952).
Many conceptual metaphors are universal, since they are grounded in human bodily as well
as cultural experience. Conceptual Metaphor Theory as a theoretical framework allows us to
establish whether different cultures share the same conceptual background as regards the
conceptualisations of abstract concepts.
In accordance with the differences in source domain, Lakoff & Johnson (2003) claimed that
conceptual metaphors can generally be divided into three main types: structural metaphors,
ontological metaphors and orientational metaphors.
12
Point of views that different classifications from their perspectives. Since a growing number of
scholars learn and study metaphor nowadays, we can easily tell some of the subcategories, such as
health metaphors, up-down metaphors, human metaphors, journey metaphors, and the liquid.
According to the source domain, we classify the metaphorical expressions into the following
subcategories. Structural Metaphor that are concepts structured in terms of another concept. In other
words, structural metaphor capacitates speakers to understand target domain by means of the
structure of the source domain; medicine metaphor, health metaphor, food metaphor, and etc.
Ontological Metaphors that are grounded in our experience with physical objects and substance
human metaphor, container metaphor, and entity and substance orientational metaphors organize
entire systems of concepts in a systematic way; for example up-down metaphors: sad is down,
health and life is up (2003).
Conceptual metaphors cannot always be observed directly, and they are not tied to specific
linguistic expressions. A common, well-known conceptual metaphor may find expression in both
conventional and unique metaphorical linguistic expressions. An unconventional conceptual
metaphor, on the other hand, would require an unconventional linguistic expression, at least to a
certain degree (1989).
The following classification the conceptual metaphor functions is based on Goatly and
elaborated and refined by Richardt (2011), (2005) that expert language and expert-lay
communication in the domains of economics, medicine and computing, some of the functions,
„decoration and disguise‟ and „enhancing memorability, foregrounding and in formativeness‟
appear in more than one category. The categories are to be regarded as prototypes rather than clear-
cut boxes that each metaphor will fit into information processing function-Metaphors in LSP
mostly fall into the first category, the information processing function, but the manipulative
function is also present and functions may overlap (2005).
In mapping structure and relations from the source domain to the target domain, metaphor
can also play a role in problem solving. Since, in the process of mapping one domain onto another,
our understanding of the more familiar source domain is transferred to the target domain, solutions
from the more source domain may also be applied to unsolved problems in the target domain.
Metaphor has been a heated topic of linguistic study.
2. The use of conceptual metaphor in economic article

How do metaphors work? We don‘t know that how metaphors work is as mysterious as the
process by which we come to recognize metaphorical language. Therefore least concrete approach
to define the structure of metaphors that is, how Metaphors work. If metaphor occurs in economics,
so what? reply was invoked by Robert Solow (1988) in response to the Klamer-McCloskey
rhetorical perspective. According to Solow, the rhetorical perspective had in 1986 yet to advance
beyond the ―Look, Ma a metaphor stage.‖ A more useful inquiry, he suggests, will examine how
metaphors actually work in economics. Definitions of metaphor are multifaceted and have
undergone profound changes over the years of scientific discourse.
Metaphor may be realised in language by many linguistic metaphors (alternatively and
perhaps more commonly called metaphorical expressions) ―words or other linguistic expressions
that come from the language or terminology of the more concrete conceptual domain (i.e., domain
B)‖ such as the growth of the economy, anaemic economy, economic nerve centers, prune etc.
(2003) .
13
Researches point out the usage of conceptual metaphors that are a matter of thought, not of
language only, although they are predominantly realized linguistically. Conceptual metaphor refers
to a systematic mapping between two conceptual domains, the source domain and the target
domain, and it ―typically employ[s] a more abstract concept as target and a more concrete or
physical concept as [its] source.‖ (Kцvecses, 2003). A convenient shortcut for a set of mappings
that exists between elements of one conceptual domain and elements of another conceptual domain
is target domain-A, source domain-B e.g. the economy is a living organism. which is the basic
formula for presenting conceptual metaphors in Cognitive Linguistics. Thus, in the economy is
health metaphor, the economy (target), being a highly abstract and intangible concept, is
metaphorically structured in terms of a body. As a source domain in the process of metaphorisation,
health is very productive in the field of economy (source), a concept which we, as human beings,
understand and conceive of much more easily. Linguistic metaphor, on the other hand, is a verbal
realization of the underlying conceptual metaphor. conceptualizations of some important economic
concepts based on the health and up-down metaphor, or alternatively,
Economic metaphors are related to our every day‘s language and everyday life since our
conceptual system is basically of a metaphorical nature. Therefore, nowadays, economy is getting
closely related to our life, and economy articles are often flooded with metaphors. The field of
economics is quite well researched when it comes to the conceptual metaphors structuring it.
Economic metaphors are everywhere. But choosing the right economic metaphor could be more
important than we think. Therefore, to understand metaphor of economics, we have to look
thoroughly at the complexity of its words combination. Metaphor usage can differ in several ways.
A conceptual metaphor becomes visible through a variety of metaphorical expressions. It is
necessary to investigate metaphor use in non-literary works with special reference to economics,
especially media economics in which metaphors are often overlooked.
The position of a human body: when people are happy and vigorous their posture is erect,
when they are sad or angry or tired, their bodies are limp and their heads down (Ungere, 1996).
In daily life, people pays close attention to their physical health and mental health, and at the
same time mop these familiar health experience hint to the economic field. Today the most
countries in the world, keeping strong is well praised and they do exercise to keep fit and healthy.
This tendency in human life is used to conceptualize other concepts like economy.
There are some metaphorical expressions that show the conceptual metaphor of economic problem
is a health, medicine and construction.
(1) The budget amendments are making experienced politicians of the ruling Mongolian people‘s
Party scratch their heads (2016.09.).In example the source domain refers to the phrase scratch their
heads and target domain is connected to the phrase budget amendments. The economic problem
is depended on budget amendments that is illness or weak if it keeps bad condition normally.
Scratch their heads – budget is pain, body health condition is economic operation condition.
Scratch heads budget is pain (target domain economy pain) medicine (source domain)
(2) ―Although the government must conduct surgery on the economy in order to revitalize it, they
have to put out the house fire before tending to the wounds ‖ (2016.09.)
People themselves are the primary source domain, which helps them to conceptualize the world.
People attribute human features such as their health condition to the non-human things to
understand the unfamiliar and abstract concepts. In bad mood, when economy is getting worse, it
will be weak, even very ill and suffer just like a patient in poor health thus medical treatment.
people suffer setback and pain. In example (2) the economy is a patient, economic activity and
14
for illness and surgery is the primary target domain that refers health need to be get better. The
house fire economy is a building structure for the target domain, metaphor is categorized structural
metaphor as construction and health source domain .
The house fire (target domain-1 economy building ) surgery on the economy
(target domain-2 economy patient ) construction/ health (source domain)
(3) If we take the deal, at the very least it will give us some breathing room. ‖ (2016.09.)
Thus, the complicated economic processes and phenomena become understandable and vivid to the
readers. (2016.09.) . The sentence might simply suggest that some efforts are being made to
further strengthen a possibly already strong and thriving economy. Economic problem is
healthy or sports that is conceptual metaphor mixes well most other conceptual metaphors in the
field.
Breathing room (target domain-economic problem) sports/ competition
(source domain)
The metaphorical expressions were sorted into a model is based on conceptual metaphors
structuring the field of economics. The most common used words in English to describe the body
health and mental health in economic article, the economy is good, the market will be strong and
vital, when in bad mood, people feel upset and suffer setback and pain. Therefore, it is quite natural
that the majority of economic problems are conceptualised through health metaphors referring to
illnesses or malfunction of a human body. The body experiences like those are mapped onto the
economic field. The examples that contain conceptual metaphors within economic area in
‗Mongolian economy‘ magazine selected. And the conceptual metaphors that referred to these
examples are categorized according to different target and source domains. Investigate how phrases
and expressions are metaphorically used in different contexts in the field of economy.
Conclusion
Metaphor structure not only cognitive linguistic but also our everyday respect of life.
Therefore economic metaphors are related to our every day‘s language and everyday life since our
conceptual system is basically of a metaphorical nature. People themselves are the primary source
domain, which helps them to conceptualize the world. People attribute human features such as their
feelings, their health condition to the non-human things to understand the unfamiliar and abstract
concepts.
Actually, the most common used words in English to describe the body health and mental health in
economic article, the economy is good, the market will be strong and vital, when in bad mood,
people feel upset and suffer setback and pain. It is important that the articles all deal with the sub-
field of economic activity. Therefore, health and illness has become a rich target domain and
source domain. This model is based on conceptual metaphors as well as the on the metaphorical
expressions found in the articles.
Our research has shown metaphor to be common not only in everyday language, but also in
language for special purpose (ESP), and this study focus on the use of metaphor in the field of
economics. The research about metaphor on economic discourse is rather limited. More articles
need to be published to guide the study of metaphor in economic text.
15
References
1. Aristottle, T. W. (n.d.). Oxford Clarendon Press.
2. Charteris-Black. (2004). Corpus Approaches to Critical Metaphor Analysis. London: Palgrave

Macmillan.
3. Dictionary, M. W. (1995).
4. Goatly. (2011). The language of metaphors. London.
5. Goatly. (2011). The language of metaphors. London: Routledge London.
6. Jkhnson, L. &. (1980). Metaphors we live by. Chicago: University Chicago.
7. Johnson, L. &. (2003). Metaphors We Live by. London: University of Chicago Press.
8. Kцvecses. (2003). The scope of metaphor. Berlin: Mounton de Gruyter.
9. Lakoff, G. (1989). More than cool rason a field guide to poetic metaphor. Chicago: University
of Chicago Press.
10. Lakoff, G. (1993). The contemprary theory of metaphor. Cambridge: Cambridge Press.
11. Lakoff, G. (2003). Metaphors We live by. London: University of Chicago.
12. Lakoff, G. (2003). Metaphors We Live by. London: University of Chicago.
13. Ortony, A. (1993). Metaphor and Thought. Cambridge.
14. Otgonjargal, b. (2016.09.). J.Eredenebat's economic policy. mongolian Economy, 8-9.
15. Reachardt, S. (2005). Metaphor in langauges for special purposes. Metaphor in langauges for
special purposes, 28-29.
16. Ross, D. (1952). Metaphor.
17. Ungere, F. &. (1996). An introduction to Cognitive Linguistics. London: Longman.
16
ASCERTAINING THE COMPETITIVENESS OF THAI AND MALAYSIAN

PRODUCTS EXPORTING TO THE UNITED STATES
Pornlapas Suwannarat1, a*, Wrawut Waranantakul2, b

1, 2
Doctor (Ph.D), Mahasarakham Business School, Mahasarakham University
Kamriang, Kantarawichai, Maha Sarakham 44150, Thailand
a, b
pornlapas.s@mbs.msu.ac.th
Keywords: Comparative Advantage, Competitiveness, Export, Thai Economy, ASEAN, Malaysian

Economy, International Trade
Abstract
This is an original study to focus on comparative advantage measurement via revealed
comparative advantage (RCA) index as well as the changing trends in the international
competitiveness of Thai products being exported to the United States compared to those of
Malaysia during 2007 – 2013. The dataset for the study has been provided by the Thai Ministry of
Commerce and the World Bank. The study reveals that rubber exports to US market from Thailand
have considerably comparative advantage and it is noticeably more than those of Malaysia with the
higher RCA index scores. Conversely, the chemical and steel products exported to US market from
Thailand and Malaysia have noticeably comparative dis-advantage in the US market. However, the
results show a slightly better situation of Thailand compared to those of Malaysia. The findings of
the study will contribute to knowledge of international competitiveness, especially in trade between
the ASEAN countries and the gigantic economy of a country like the US. The volume and value of
trade between these countries are expected to grow consistently with the arrival of the ASEAN
economic community (AEC).
1. Introduction
The 2015 report of the World Bank indicates that the Thai economy grew by 0.9 percent in
2014, as domestic demand was dampened in the first half of the year and exports fell amid lower
demand from abroad. The country‘s real GDP is expected to increase by up to 3.5 percent in 2015,
primarily due to lower oil prices, increased tourism receipts, and higher public spending. Thai
exports are expected to continue growing slowly. The Bank of Thailand (2014) points out that in
2013 the Thai economy slowed compared with the previous year, mostly owing to weakness in
domestic demand. In 2013 the Thai economy expanded by 2.9 percent, moderating considerably
from 2012 because of a slowdown in private spending. Exporters of processed agricultural products
and fisheries faced shortages of raw materials following the ongoing shrimp disease outbreak. As a
result, Thailand‘s export value in 2013 declined by 0.2 percent from 2012. The sluggish recovery
compared poorly with many countries in the region such as South Korea, Malaysia and the
Philippines, whose exports had been improving visibly since the third quarter of 2013 (Bank of
Thailand, 2014).
17
From these phenomena, the Bank of Thailand (2014) concludes that ―factors that could lead to
accumulation of imbalances in the Thai economy and hence require close monitoring are:
1) volatility of capital flows as a result of major advanced economies‘ monetary policy
implementation during times of abundant global liquidity, which could lead to fragile
confidence of foreign investors;
2) higher risk to fiscal stability from rising public debt due to government spending to stimulate
the economy in the short term, especially spending related to quasi-fiscal activities conducted
through specialised financial institutions as part of the rice pledging scheme, along with
subsidies of energy and other utilities. Such a development could affect the country‘s credit
rating, resulting in a higher cost of finance and loss of competitiveness of the corporate sector;
and
3) threats to overall economic and financial stability, especially household debt, which remained
elevated despite some moderation from the previous year‖ (Bank of Thailand, 2014: 10).
NESDB (2013) explains that these constraints represent a threat to the sustainability of
Thailand‘s economic growth. The most notable constraints are labor shortage due to an increase
in Thailand‘s aging population, low growth in labor productivity, and inability of businesses to
upgrade technology to cater for fast changing global demand in a timely manner. These issues
would require time to address but their resolution would be crucial to uplift Thailand‘s
competitiveness in the global arena (NESDB, 2013; Bank of Thailand, 2013, 2014).
A similar view of the situation and trend of the Thai economy can also be found in the report
of the World Bank (2014) that comments that the Thai economy has been recovering more slowly
from the Global Financial Crisis than such countries as Malaysia and China. Growth in 2013 is
shown to be 3 percent, with performance slower than expected in all components of GDP –
consumption, investment, net exports and government spending. While some of the weakness in
exports can be explained by the structure of production: falling global PC sales relative to tablets
may have reduced exports of hard disk drives, and sectors such as agro-products and metals have
also performed poorly. The weakness in household consumption is partly explained by tax
incentives for car purchases that expired at the end of 2012 and led to preponing of consumption.
Fast growing levels of household debt, more rigorous macro-prudential measures by the Bank of
Thailand, and arrears in payments on the Paddy Pledging Program have also been contributing
factors. The slowdown was evident by the third quarter, before protests began. The protests are
unlikely to have had a significant macroeconomic impact in 2013 (World Bank, 2014).
It can be seen that the Thai economy has decelerated considerably over the past a few years.
A large number of economic reports indicate that export growth has decreased dramatically and
continually since the early 2010s, in part due to erosion of Thailand‘s competitiveness. On average
exports grew 13 percent per year from 2006 – 2011, before slowing to less than 1 percent from
2012 – 2014. Thailand‘s market share in world exports has declined correspondingly during the
same period (World Bank, 2015). Hence, it is necessary to conduct a study to assess the
competitiveness of Thai manufacturing exports in order to show the real situation, as well as to
point out possible measures or make recommendations to stakeholders and policy makers to uplift
this situation. These are the main purpose of this research. This paper is structured as follows: first,
the literature review related to Thailand-US trade situation, comparative advantage,
competitiveness, and competitiveness measurement are discussed. Then, the research methodology
18
is presented, followed by the results, discussion, and policy implications, and empirical and
theoretical contribution of the study. The final section is limitations of the study and future research
agenda.
2. Literature Review
According to McKean, Toh, and Fisher (1994), by the late 1980s, Thailand had emerged as
one of the fastest growing economies in the world. Although Thailand‘s growth rates averaged
more than 7 percent in the 1960s and 1970s, its more recent growth is unprecedented. Between
1986 and 1989, real gross domestic product (GDP) increased by 10 percent annually. Thailand‘s
economy is heavily export-dependent, with exports accounting for more than two-thirds of GDP.
Exports as a percentage of GDP had risen from 17 percent in 1970 to 38 percent by 1988. Thai
exports tripled in value between 1985 and 1990, with total exports in constant dollars rising from
nearly 5.2 billion in 1985 to 15.5 billion in 1990 (McKean, Toh, and Fisher, 1994). According to
the Ministry of Commerce (2015), exports in Thailand averaged 9,348.86 USD million from 1991
until 2015, reaching an all-time high of 21,227.12 USD million in August of 2011.
Manufactured exports have led the export boom. Thailand‘s exports had been shifting from
agriculture and primary commodities to manufacturing for more than 20 years. The overall structure
of Thai exports has also changed. Manufacturing‘s contribution to the domestic economy has
increased rapidly, whereas agriculture‘s contribution to GDP has declined. Manufactures rose from
about 10 percent of total exports in 1971 to 66 percent in 1990, while agriculture, principally
primary commodities, dropped from 63 to 27 percent in this same period (Narongchai et al., 1991).
Textiles and apparel has been the lead sector in the export boom. Other sectors with outstanding
gains since 1985 include jewelry, electronic components, integrated circuits, machinery parts,
footwear, and processed and canned food. Traditional agricultural commodity exports (e.g., rice,
maize, and tapioca) lost ground.
Thailand has developed an increasingly broad and diversified export base. In 1990, no sector
represented more than 9 percent of total export earnings, with the exception of clothing and textiles,
which accounted for nearly 15 percent of the total. Thailand has excelled in various niche markets
and to date has been the world‘s largest tuna exporter and exporter of frozen prawns to such highly
competitive markets as Japan. Food processing industries have encouraged the diversification of
agriculture, leading to tremendous success in canned and frozen exports. At the present time,
Thailand exports mainly manufactured goods (86 percent of total shipments), with electronics (14
percent), vehicles (13 percent), machinery and equipment (7.5 percent) and food processing
products (7.5 percent). Agricultural goods, mainly rice and rubber, account for 8 percent of total
shipments. Major export partners are China (12 percent), Japan (10 percent), the United States (10
percent) and the European Union (9.5 percent). Others include: Malaysia, Australia and Singapore
(Ministry of Commerce, 2015). Thus it can be seen that, for Thailand, the United States is one of
its major export markets.
2.1 The Overall Trade Situation between Thailand and the United States
Chanlett-Avery, Dolven, and Mackey (2015) point out that Thailand is Southeast Asia‘s
second largest economy. One of the region‘s more developed and open economies, it has been for
19
many years one of the region‘s largest destinations for foreign direct investment. According to the
World Bank (2015), Thailand became an upper middle income economy in 2011. In recent years,
the Thai economy has performed strongly, despite the political turmoil. However, after the 2014
coup, the economy grew only 0.7%, the slowest rate in three years. In 2015, Thai economy has
grown to 2.8% (ADB, 2016).
According to the Office of U.S. Trade Representative (2014), Thailand is the 25th largest
market for U.S. goods exports. Two-way trade with Thailand totaled $47.4 billion in 2014 and the
overall U.S. trade deficit with Thailand was $15.3 billion. Major exports from the United States
include integrated circuits, computer parts, semi-conductors, cotton, aircraft parts, electronics,
soybeans, and oil. Major imports to the United States include electronics, jewelry, seafood,
clothing, furniture, natural rubber, auto parts, and rice. U.S. companies have substantial investments
in Thailand. U.S. foreign direct investment (FDI) in Thailand was $14.4 billion in 2013, led by
investments in the manufacturing sector. Thailand also receives substantial investment from other
countries, notably Japan, China, and South Korea.
According to Chanlett-Avery, Dolven, and Mackey (2015), the United States and Thailand
initiated negotiations for a Free Trade Area (FTA) in 2004. In 2006, the talks were suspended
following the military coup, and no new ones have occurred since then. However, Thailand has
aggressively pursued FTAs with other countries. It has signed trade agreements with Bahrain,
China, Peru, Australia, Japan, India, and New Zealand. Further deals are possible with South Korea,
Chile, and the European Union (EU). Thailand has championed ASEAN (Association of Southeast
Asian Nations) regionalism, seeing the ASEAN Free Trade Area (AFTA, among ASEAN countries
only) and the planned ASEAN Economic Community (AEC) as vehicles for investment-driven
integration which will benefit Thailand‘s outward-oriented growth strategy (Chirathivat and
Mallikamas, 2004). However, debates over economic policy have become increasingly contentious
in Thailand, mirroring the growing political divisions in the country.
2.2 FDI and Trade Policies in the ASEAN4

2.2.1 Changing Policies
Import substitution policies were pursued in all four countries in the 1960s, in keeping with
the prevailing development view that government intervention was necessary to promote
industrialisation. Strategic sectors were protected from foreign competition through high tariffs. In
some sectors, foreign investment was proscribed, and in most it was heavily circumscribed.
Foreign investors were limited to minority shares in companies, and were required to transfer
technology and sometimes to divest after a number of years.
The switch to export promotion policies began at different times in different countries.
Malaysia started to promote exports as early as the 1970s, although for both Malaysia and Thailand,
the real export push began only in the mid-1980s. Indonesia and the Philippines converted to the
export-oriented approach in the late 1990s. Thomsen (1999); Felker and Jomo (2000) assert that
the following external factors were important in encouraging a change in FDI policies in the
ASEAN4 countries (Thailand, Malaysia, Indonesia, and Phillipines): the example of the successful
and outward-orientated approach of the NIEs; the prolonged commodity slump in the 1980s; and
the opportunities offered by exchange rate realignments after 1985. Currency realignments, the
20
switch to export promotion, including FDI (Foreign Direct Investment) liberalisation, and the rapid
inflow of FDI from Japan and the NIEs all combined to account for the dramatic export-led
recovery of the ASEAN4 economies after 1985.
Rather than replacing import substitution, export promotion was superimposed on the pre-
established structure. The restrictions on FDI for the domestic markets remained largely intact;
indeed, some of them are enshrined in national constitutions. There has nevertheless been some
relaxation in the implementation of these policies, often on a temporary basis, as a result of the
financial crisis in 1997, but the basic regulatory structure for domestic-orientated investment
remains in place.
2.2.2 The Role of FDI in ASEAN4 Development

Thomsen (1999: 23) argues that the role of FDI in development is as ‗multi-faceted‘ as FDI
itself. On one level, FDI has been seen as having a potential to contribute to development and
global economic welfare similar to any other form of capital flow, by channeling resources from
countries where they are abundant to those where they are scarce. Thus, inflows of capital in the
form of FDI allow host countries to invest in productive activities beyond what could be achieved
by domestic savings alone.
On another level, the benefits of FDI resemble those from trade, especially in sectors
producing goods and services which tend not be traded internationally. Thus, foreign firms can
potentially enhance the level of competition in an economy and bring in ideas, innovation, expertise
and other forms of technology which the host economy would not necessarily have created on its
own. Multinational enterprises (MNEs), with their global network of affiliates, can also channel
exports from the host country to affiliates elsewhere in the form of intra-firm trade. Through this
mechanism, FDI permits an international division of labour within the MNEs which, owing to high
transaction costs, might not otherwise occur.
The success of ASEAN4 countries amply demonstrates how FDI can play a major role in
bringing about rapid, export-led growth. Rapidly rising exports have fuelled the world‘s fastest
growth rates in these four countries. For instance, in Thailand exports have been the main engine of
economic growth, particularly since the mid-1980s. Historically one of the world‘s leading rice
exporters, it has become a major exporter of manufactured goods, with these rising from only one
third of total exports in 1980 to over 80 percent by 1997. This shift in exports is mirrored in the
structural transformation of the Thai economy, from agriculture to industry. While agriculture‘s
contribution to GDP was three times that of manufacturing in 1960, by the early 1990s, it was less
than half as important as manufacturing. The Malaysian experience is similar to that of Thailand,
with exports growing quickly after the mid-1980s. Although the substantial currency depreciation
at the time was a major catalyst, investment liberalisation was an important complementary factor.
2.3 The Concept of Comparative Advantage, International Competitiveness, and

Measurement
2.3.1 Comparative Advantage
According to Prasad (2004); Seyoum (2007); Jayawickraman and Thangavelu (2010); Wei
and Chunming (2012); Kathuria (2013); Huo (2014); Erkan and Saricoban (2014), the concept of
21
comparative advantage is widely used in economic and export competitiveness literature. This
concept is originally created by Ricardo (1817) in order to explain trade specialisation patterns
among countries as a function of a nation‘s resource endowments. Domestic natural resources and
factors of production being fixed, a country which possessed them could produce a good more
cheaply than a country which had to import them. Simply put, countries that have a comparative
advantage in the production of a good should be found to export a higher proportion of that good
relative to other countries (Addidon-Smyth, 2005). Thus, comparative advantage in essence became
a cost-based notion of a country‘s economic competitiveness, based on the fixity of basic inputs into
the production process.
Likewise, Leishman, Menkhaus and Whipple (1999); Cai and Leung (2007); Erkan and
Saricoban (2014) argue that the concept of comparative advantage is largely derived from the
propositions on opportunity cost and labor specialisation. The theory explains that the driving force
behind international trade is not ―absolute‖ but ―comparative‖ advantage. That is, even if an autarky
country has absolute advantage in all the goods (i.e., it can produce all the goods more efficiently
than other countries), it can still benefit from international trade through increasing specialisation in
the goods where its comparative advantage lies (Erkan and Saricoban (2014: 118).
Correspondingly, Siggel (2007) points out that each country would produce and export products
with obvious comparative advantage or weaker comparative disadvantage, and import products with
obvious comparative disadvantage. So-called comparative advantage meant that one country had
less comparative cost for a certain quality of the same product than another country.
In addition, Thornhill (1988); Siggel (2007); Erkan and Saricoban (2014) rationalise that the
comparative advantage concept is a microeconomic level, focusing on industry-specific trade,
explaining why one country might export labor-intensive products while another country might
specialise in capital-intensive ones. In other words, each country has a comparative advantage in the
production of some products for which it has a lower relative (opportunity) cost than its
competitors. Comparative advantage is an equilibrium concept, predicting a pattern of trade when
prices, trade flows and exchange rates are in equilibrium. Business decisions, in contrast, often
explicitly consider short-term developments (Erkan and Saricoban, 2014).
2.2.2 International Competitiveness

According to Adams, Cangnes and Shachmurove (2004), international competitiveness has
been defined as the ability under present conditions of a country‘s products to command world
market, while OECD (1992) explained [international] competitiveness as the degree to which, under
open market conditions, a country can produce goods and services that meet the test of foreign
competition while simultaneously maintaining and expanding domestic real income. Asscha, Hong
and Slootmaekers (2007) argue that a country gains international competitiveness if it is able to
export products and services at a relatively cheaper price and therefore grab a larger export market
share. A country loses international competitiveness if it loses export market share. However, the
concept of competitiveness is still evolving and controversial (Krugman, 1994; Siggel, 2007; Erkan
and Saricoban, 2014).
22
Welch and Lyford (2007) argue that a key aspect of evaluating whether a producer of a
given good is competitive in its market offering depends on both a definition and measure of the
term
competitiveness. Welch and Lyford (2007: 66) cite Drescher and Maurer (1999)‘s definition of
competitiveness as the ability of firms and industries ―…to protect and/or improve their position in
relation to competitors which are active in the same market‖. This definition is consistent with that
of Sharples (1986) and Kennedy and Rosson (2002) who define competitiveness as the ability to
achieve market share. The producer who attains a market share for its product is by definition
competitive. A product for which market share is increasing can be said to be increasing in
competitiveness and, conversely, a product is regarded as decreasing in competitiveness if the
market share for that product is in decline.
Competitiveness is an ex-post concept and could ideally involve comparisons between

countries in regard to the efficiency of production (Thornhill, 1988; Siggel, 2007; Erkan and
Saricoban, 2014). On the other hand, comparative advantage is an ex-ante theoretical concept
involving comparisons between countries and products. Measurement of comparative advantage
would ideally enable researchers to predict trade flows and to evaluate the extent to which the
resource allocation between industries is optimum or not (Erkan and Saricoban, 2014).
Siggel (2007) argues that, comparing to comparative advantage, the concepts of

[international] competitiveness proposed in the economic and business literature have not been
defined rigorously in the early economic literature. Therefore, over time and after many attempts of
definition, it has become a somewhat ambiguous concept. Some researchers use the term
synonymously or in a similar way as comparative advantage, others view it as an economy-wide
characteristic. The concept of competitiveness has been given interpretation both macroeconomic
and microeconomic level (Siggel, 2007).
The first macroeconomic interpretation use the World Competitiveness Index computed and
published yearly by the World Economic Forum and Institute of Management Development
(WEI/IMD, annual since 1995). The index is the basis for an international ranking of countries in
terms of their business climate. It is a composite of a large number of attributes condensed into a
single index. Siggel (2007) contends that this method may serve a useful purpose to international
investors, but its theoretical base and, especially, its aggregation method are problematic.
The second interpretation of macroeconomic competitiveness defines an economy to be

competitive if it harbors a large number of internationally competitive enterprises and industries.
This idea underlies the concept used by Dollar and Wolf (1993) who defined a competitive country
as one that succeed in international trade via high technology and productivity, with accompanying
high income and wages. Similar approaches are the concepts proposed by Hatsopoulos, Krungman,
and Summers (1988) and Markusen (1992).
The third macroeconomic interpretation is real exchange rate (RER) as well as the real
effective exchange rate (REER) proposed by researchers from International Monetary Fund
(Lipschitz, McDonald, 1991; Marsh and Tokarick, 1994). Since the RER implicitly compares the
nominal exchange rate with the purchasing power parity rate, it measures the degree of currency
23
misalignment based on the purchasing power parity assumption. Under-valuation enhances and
overvaluation reduces the international competitiveness of domestic producers. This indicator is
clearly macroeconomic, but it has also been used as a micro-level concept, by using the price
indices of single industries rather than economy-wide price indices (Helleiner, 1991). At the macro
level it is essentially a monetary indicator, capturing the distortion of the currency value, rather than
factors of real competitiveness, although those are not unrelated to the currency misalignment
(Siggel, 2007).
The weakness of the macroeconomic approaches in measuring competitiveness has triggered

many researchers to adopt microeconomic concepts and indicators of competitiveness in the recent
past. Siggel (2007: 8) points out that microeconomic approach is preferred because it has a more
solid theoretical background by focusing on the essential characteristics of producers in competition
for market share and profits or the ability to export. This ability can be measured by the size or
increase of market share (e.g. Mandeng, 1991), by export performance (e.g. Balassa, 1965), by price
ratios (e.g. Durand and Giorno, 1987), cost competitiveness (e.g. Turner and Gollup, 1997; Siggel
and Cockburn, 1995), or by more complex and multi-dimensional indicators (e.g. Porter, 1990;
Buckley, Pass, and Prescott,1992; Oral, 1993). These indicators differ from each other in terms of
various characteristics, especially in terms of the number of dimensions they focus on.
2.2.3 International Competitiveness Measurement

A large number of researchers (e.g., Rugman, 1993; Jin and Moon, 2006; Chikan, 2008;
Seyoum, 2007; Siggel, 2007; Welch and Lyford, 2007; Richard, 2008: Wei and Chunming, 2012;
Kathuria, 2013; Huo, 2014) argue that the measurement of international competitiveness has been
widely adopted from two prominent approaches: Porter (1990) and Balassa (1965). Porter‘s method
assesses competitiveness along the value-added chain. For example, it not only evaluates the
competitiveness of the farmer but that of all the participants in the value-added chain. This method
therefore allows to identify and analyse the structure of a sector and to point out the strengths and
weakness. Thus critical success factors can be identified to which participants in a chain have to pay
attention in order to develop and sustain competitive advantage as successfully as possible.
According to Porter (1990), there are six broad attributes of a nation that shapes the
environment in which local firms can compete that promote the creation of competitive advantage.
These are factor conditions, demand conditions, related and supporting industries, firm strategy,
structure and rivalry, government and role of chance. Chance events are occurrences that have little
to do with circumstances in a country and are often largely outside the power of firms and also the
national governments to influence. These include events such as wars, political decisions by foreign
government, large increases in demand, shift in world financial markets and exchange rates,
discontinuity of technology and input demand (Porter, 1990; Rugman, 1993; Jin and Moon, 2006;
Chikan, 2008).
Balassa‘s competitiveness indicators are ex post concepts (Balassa, 1965). Many studies have
determined a country‘s competitiveness via the paradigm of Balassa by comparing a commodity
share in its exports to the commodity share in world exports, referred to as its revealed comparative
advantage (RCA) (Balassa, 1965; Seyoum, 2007; Huo, 2014). If the RCA is greater than one it is
taken as evidence of international competitiveness. It compares how well a country has done in
24
export of some particular set of goods. Balassa (1977) claims that comparative advantage is
revealed by observed trade patterns, i.e. high shares of export markets. RCA is grounded in
conventional trade theory and measures a country‘s exports of a commodity relative to that of a set
of countries (Seyoum, 2007).
Erkan and Saricoban (2014) argue that in empirical work, the concept of comparative
advantage has been used extensively although the notion of comparative advantage faces a
measurement problem because it is defined in terms of relative autarkic price relationship that are
not observable in post-trade equilibria. This is because trade statistics reflect post-trade positions
(Sharma and Dietrich, 2004). The linkage between comparative advantage and competitiveness
(RCA) as follows (Ballance, Forstner and Murray, 1987): EC → CA → TPC → RCA. Economic
condition (EC) in the various trading countries ultimately determine the international pattern of
comparative advantage (CA). This pattern, in turn, governs the pattern of international trade,
production and consumption (TPC) among countries. Indices constructed from TPC and, perhaps,
other post-trade variables are normally used to indicate comparative advantage and referred to as
indices of ―revealed comparative advantage (RCA)‖.
The index of revealed comparative advantage was first introduced by Liesner (1958) and
operationalised by Balassa (1965) in order to measure comparative advantages (Balassa, 1965).
The export index of revealed comparative advantage (RCA) has been defined as the ratio of a
country‘s exports in a particular commodity category to its share in total merchandise exports
(Balassa and Noland, 1989). Benedictis and Tamberi, (2001) argue that this measurement was
initially created in an attempt to overcome obstacles in measuring Ricardo's index because of
unobserved relative autarkic prices. This approach uses value of exports to measure a comparative
advantage in production of each country. The index can be presented as:
RCA = (Xij/Xj)/(Xiw/Xw)
Where X stands for exports, i, j and w refer to industry (product category), country and
world respectively. The index neutralises the effect of the size of a country‘s economy or industry,
thereby making it possible to make meaningful comparisons between countries and the international
performance of different industries.
The value of index varies between zero to infinity, where zero indicates a country has no
exports in the industry being considered, and infinity means that the industry is a major exporter
relative to other industries of the economy. A sector with an RCA index of over one has a share in
the world market share which exceeds the average share of the country in world exports. This
means that it is relatively competitive, compared to the rest of its home economy. Such a sector has
therefore a comparative advantage (Rivlin, 2000).
According to Hinloopen (2001); Erkan and Saricoban (2014), a more detailed analysis, in
order to demonstrate the power of comparative advantage, the Balassa‘s RCA indices can be
classified into four types (Hinloopen, 2001): Comparative disadvantage has been named as type 1,
where 0< RCA ≤ 1. Type 2 is a weak comparative advantage (1 < RCA ≤ 2), while the moderate
25
comparative advantage has been categorised as type 3 (2 < RCA ≤ 4). The RCA with scores are
greater than 4 has been classified as type 4, the strong comparative advantage.
3. Research Methodology
The dataset of this study has been obtained from the Thai Ministry of Commerce and the
World Bank. This research measures international competitiveness using the RCA Index. World
Bank (2010) notes that RCA is the ratio of the export output of a product of a certain country to that
product in the world market. The measure of competitiveness can be straightforwardly computed by
the RCA Index, which can, to a certain extent, show the comparative advantages of the product:
whether it is cost-effective to produce that product in a certain location compared to the opportunity
cost of the resources in producing the product.
The measure of competitiveness by RCA index can be computed straightforwardly and it can show
the comparative advantages of the product to a certain extent: whether a cost effective to produce
that product in a certain location compared to opportunity cost of the resources in producing that
product. In this study, the RCA index is calculated as follows.
RCA = (Xia/Xta)/(Xiw/Xtw)
Where Xia = Total exports of goods (i) from Thailand (Malaysia) to the United States
Xta= Total exports from Thailand (Malaysia) to the United States
Xiw= Total imports of goods (i) of the United States
Xtw= Total imports of the United States
The criteria determining the index of comparative advantage (RCA) are as follows.
If the RCA> 1 means that the country has a comparative advantage in exporting goods (i) to China.
If the RCA <1 means that the country has a comparative dis-advantage in exporting goods (i) to
China.
4. Results, Discussion, and Policy Implications

Table 1 illustrates the value of total Thai rubber exports and total Thai exports to the world
and value of those of Malaysia to the world market during 2007 – 2013. It can be seen that the total
Thai rubber exports to the world market have the average increasing rate as 12.6 percent during the
seven year period. In 2008, the rubber export increased considerably as 15 percent compared to the
previous year, whilst the sharp drop was seen in 2009 as 19 percent of decreasing rate compared to
2008. The significant increasing rate of Thai rubber exports to the world market can be found in
2010 and 2011 with 51 percent and 42 percent respectively compared to the preceding year.
However, the trend showed the substantial decrease of Thai rubber exports as 14 percent of
decreasing growth rate in 2012 from that in 2011. The trend shows a slight increase as 0.89 percent
from 2012 to 2013.
Regarding to Malaysia, during the seven year period, the data show that the average
increasing of rubber export to the world market during this period is about 10 percent with the value
of average annual rubber exports of 1,360 million USD from 2007 to 2013. In terms of value of
total exports of Thailand and Malaysia, it can be seen that these two countries have the similar
26
figures with the average annual total export value of 17,598 million USD in the beginning of this
period to about 22,900 million USD in the end of the period.
Table 2 and Figure 1 shows the RCA index of rubber exported to the United States between
Thailand and Malaysia. The data show that rubber exports to US market from Thailand have
considerably comparative advantage and higher than that of the Malaysian rival. The evidence
shows that RCA index scores of rubber export from Thailand to the US market during the seven
year period are more than 1 and outnumber Malaysian rival every year. This shows the strong
comparative advantage of rubber exports from Thailand.
However, according to the Thai Ministry of Commerce (2015), a number of potential

problems or barriers to exporting rubber from Thailand to the United States are labor shortages,
high operating cost, volatility of the rubber price, and a low rate of rubber product development.
Thai government and related stakeholders urgently need to find measures to address these problems.
The best way to strengthen this sector and boost rubber exports to the US market could be as
follows:
Firstly, the Thai government could support production by rubber planters directly and
promote the use of new production technologies in order to increase yield per rai effectively and
consistently. Secondly, the Thai government might seek new approaches and measures to solve the
labor shortage in the agricultural sector. It might also accelerate development of agricultural
machinery to reduce labor dependency. Planters might upgrade their machines or invest in new
machines for more efficient use and cost reduction. Thirdly, Thai government officers may wish to
encourage planters to change their production technology, by encouraging the use of organic
fertilisers in order to reduce operating cost. Finally, Thai policymakers may wish to foster research
and development from upstream industry to downstream industry by setting up joint research
projects between the Thai rubber research centre and other rubber research centres in other top
rubber export countries: Malaysia and Indonesia in order to increase productivity, support the
learning of planters, and develop the rubber industry as a whole.
Table 3 shows the value of Thai chemical exports and total Thai exports to the world and
value of those of Malaysia to the world market during 2007 – 2013. The data show that the total
Thai chemical exports to the world market have the average increasing rate as 14.7 percent during
the seven year period. In 2008, the chemical export increased considerably as 20 percent compared
to the previous year, whilst the slight drop can be seen in 2009 as 4.2 percent of decreasing rate
compared to 2008. The significant increasing rate of Thai chemical exports to the world market can
be found in 2010 and 2011 with 30 percent and 33.7 percent correspondingly compared to the
preceding year. The trend showed the slight increase of Thai chemical exports as 3.5 percent of
increasing growth rate in 2012 from that in 2011. The trend continues to show the similar figures
with a slight increase as 5.2 percent from 2012 to 2013. Table 3 also indicates that the chemical
exports of Malaysia has similar trend to that of Thailand. However, in terms of annual value of
exports, the Thai chemical exports are greater than those of Malaysia.
Table 4 and Figure 2 shows the RCA index of chemicals exported to the US between
Thailand and Malaysia. The data show that chemical exports to US market from Thailand and
27
Malaysia have noticeably comparative dis-advantage. The evidence shows that RCA index scores
of chemical exports from Thailand and Malaysia to the US market during the seven year period
have lower than 1, however, the RCA index scores of Thailand are still higher than those of
Malaysia during 2007-2013. This shows a slightly better situation of Thailand to Malaysia.
However, it might be a temporary comparative dis-advantage of Malaysia to Thailand since,
according to the report of Ministry of Industry (2014), currently Malaysia has the relative cost
advantage over Thailand. Hence, the urgent measure could be made to uplift this situation and
enhance the competitiveness of this sector of Thailand.
Ministry of Industry (2014) argues that the trend of world chemicals industry depends on the
improvement of the global economic situations: the solution of public debt of the EU countries, the
recovery of Chinese economy, and the better situation of the United States fiscal problem. Also,
Thai chemicals production has been affected by the rise of the minimum wage of 300 Baht
nationwide. This could increase cost of production significantly; Thai government may subsidise or
use other schemes and policies to help Thai chemicals producers to adjust their production structure
for a period of time since this sector relates to a large number of exporting industries that use
chemicals as raw material for manufacturing.
According to Ministry of Industry (2014), the index of industrial production of chemicals in

2013 illustrated the contracted figure, which the import volume grew with a faster pace than export,
compared to the relatively high index in 2012. This results from the high domestic consumption by
heavily importing from overseas producers for supplying for industrial and residential construction
sectors. Hence, it can be seen that a number of construction projects of Thai government contribute
to the rapid growth of chemical demand in 2013.
For this situation, Thai government may wish to enhance the competitiveness of
manufacturers in this sector in a number ways. For instance, in terms of technology transfer, this
has been shown to be an area where foreign firms have disappointed the hopes of the Thai
government. The Thai government may wish to consider giving higher priority to targeted
education policy in order to improve this situation, supporting links and collaboration between Thai
higher education institutions and foreign manufacturers operating in Thailand in this sector. Such
foreign and Thai companies might be encouraged to send specialists to teach and collaborate with
Thai students and scholars, or to set up courses for, for example, final-year engineering students.
These students, would then be of great value directly to their companies or as key players in this
chemical sector. Thai universities could act as intermediaries in promoting such links among firms
in the industry with the aim of expanding the supply of highly qualified and compatible managers
and workers for the industry in the future and enhance competitiveness of this sector as a whole.
Table 5 illustrates the value of Thai steel exports and total Thai exports to the world and
value of those of Malaysia to the world market during 2007 – 2013. It can be seen that the total Thai
steel exports to the world market have the average increasing rate as 2.5 percent during the seven
year period. In 2008, the steel exports decreased slightly as 4.6 percent compared to the previous
year, whilst the considerable slump can be seen in 2009 as 15 percent of decreasing rate compared
to 2008. The recovery of Thai steel exports to the world market can be found in 2010, 2011, and
2012 respectively.
28
Table 6 and Figure 3 shows the RCA index of steels exported to the USA between Thailand
and Malaysia. The data show that steel exports to US market from Thailand and Malaysia have
comparative dis-advantage in the US market. The evidence shows that RCA index scores of steel
exports from Thailand to the US market during the seven year period have lower than 1, excepting
in 2007 and 2009, which show RCA scores of 1.032, and 1.0889 respectively. However, the RCA
index scores of Thailand are noticeably higher than those of Malaysia, which close to zero. This
shows a better situation of Thailand to Malaysia. However, according to the report of World Bank
(2015), the data show the dramatic slump of the market growth of the US. Hence, Thai government
may wish to establish a number of export promotions to support Thai exporters to expanding
exports into new markets like South America and Africa. Also, Thai government could support the
manufacturers especially SMEs to develop their products to improve the product standard
internationally. Also, Thai government and related government institutions like EXIM Bank
(Export Import Bank of Thailand), SME Bank, and so forth could promote the expansion of
financial services to diverse international markets for facilitating overseas transaction and
increasing export volumes.
5. Empirical and Theoretical Contribution

This paper is the first attempt to assess the competitiveness of Thai exports to the US market
vis-à-vis those of Malaysia in respect of three economic products: rubber, chemicals, and steels.
This provides new data and empirical insights into the literature of export, trade, and
competitiveness assessment. Also, this study integrates the concept comparative advantage with
competitiveness via the microeconomic level since these two terms are often used interchangeably.
In general, comparative advantage refers to situations of unrestricted free markets of Ricardo, in
which resources are allowed free flow to their most efficient and productive uses, while
competitiveness explains trade as it exists in the real world. This includes the influence of trade
barriers, exchange rate variation, product differentiation, and other factors which Ricardian
comparative advantage does not consider. Furthermore, the international trade situation has
changed dramatically and continues to do so. Competitiveness assessment could be an important
tool to enable all firms and nations to perceive their strengths and weaknesses, and then find
strategies and measure to move ahead of their rivals in a sustainable manner.
6. Limitations of the Study and Future Research Agenda

We need to be aware of the weaknesses of the RCA Index, noted in the literature (e.g.,
Siggel, 2007; Suriya, 2001; Benedictis and Tamberi, 2001), since the data obtained from the
previous period was computed. The Index gives no indication of the potential for change. It also
fails to reflect other implicit costs to the country, such as trade barriers and transportation costs.
Hence, the calculation and the interpretation of this index rest on an assumption that there will be no
market distortion or market intervention by government or related stakeholders. Also, RCA Index
does not indicate the source of comparative advantage. Because of these limitation, measuring with
other sophisticated indices (e.g., DRC, CMS, MI, and CAI) could, however, provide even clearer
results. Hence, assuming future availability of the database, a future project is encouraged to
conduct this same type of research using the aforementioned indices for comparison with the results
of this study. This would contribute significantly to the literature.
29
Further, future study of this issue could be conducted with other major trading partners of Thailand
and ASEAN (e.g., Japan, China, and the EU) in order to understand the competitive position of
Thailand and ASEAN countries in the world market. Last but not least, if a broader range of export
products could be studied, this would provide a greater understanding of competitiveness for
academicians, policymakers, and all stakeholders.
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Method of Development Policy Analysis, Concordia University Department of Economics,
DiscussionPaper 9517.
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Journal of Economics, (September – December 2001): 10 – 15.
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[Online ] [Accessed June 11, 2015] http://www.thaibizchina.com/thaibizchina/th/thai-
china/trade-statistics/index.php?ELEMENT_ID=12966
60. Thomsen, S., 1999. Southeast Asia: The Role of Foreign Direct Investment Policies in
Development, Unclassified Working Papers/1999, OECD, Paris.
61. Thornhill, D. J., (1988). The Revealed Comparative Advantage of Irish Exports of
Manufacturers 1969-1982. Journal of the Statistical and Social Inquiry Society of Ireland.
25(5), 91-146.
62. Turner, A., and S. Gollub, (1997), Towards a System of Unit Labor Cost-Based
Competitiveness Indicators for Advanced, Developing and Transition Countries, Staff
Studies for the World Economic Outlook, IMF.
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Exports. Journal of US Economic and Foreign Trade Studies, 5(2), 107-126.
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United States Make the Grade? International Food and Agribusiness Management Review,
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2015
33
AUTHOR PROFILE:
Dr. Pornlapas Suwannarat is currently an assistant professor of international business at Mahasarakham Business
School, Mahasarakham University, Thailand. He received his Ph.D. from Nottingham Business School, UK in 2009. He
specialises in the impact of foreign direct investment; exporting, entry mode strategies of the MNEs and cross cultural
management.
NB: The views expressed in this paper are those of the author and do not necessarily reflect the view of Mahasarakham
Business School, Mahasarakham University.
Table 1. The total value of rubber exports and total Thai exports to USA comparing to those of
Malaysia during 2007- 2013.
Value: Thousand USD
Thailand Malaysia
Year
Rubber Exports Total Exports Rubber Exports Total Exports
2007 17,146,990.2 153,571,126 965,330.112 175,961,863

2008 19,738,478 175,907,915 1,214,576.49 198,702,475
2009 15,831,316.4 152,497,203 1,023,985.99 157,194,832
2010 23,917,009.5 195,311,520 1,455,628.41 198,790,691
2011 34,185,683.7 228,823,973 1,619,384.56 226,992,682
2012 29,380,155.8 229,544,513 1,658,727.44 227,449,500
2013 29,642,015.2 228,527,440 1,587,922.37 228,515,734
Source: World Bank (2015).
Table 2. The comparison of annual revealed comparative advantage index (RCA) of Thai and
Malaysian rubber exports to US Market during 2007 - 2013
Products Year
Rubber 2007 2008 2009 2010 2011 2012 2013
Thailand 3.9886 4.0867 3.5886 4.0089 4.7696 4.0176 3.9986

Malaysia 0.1960 0.2226 0.2252 0.2397 0.2278 0.2289 0.2142
Source: Calculation.
34
Fig. 1. The comparison of annual revealed comparative advantage index (RCA) of Thai and
Malaysian rubber exports to US Market during 2007 – 2013
Table 3. The total value of chemical exports and total Thai exports to USA comparing to those of
Value: Thousand USD
THAILAND MALAYSIA
YEAR
CHEMICALS TOTAI EXPORTS CHEMICALS TOTAI EXPORTS
2007 5,826,674.45 153,751,126 256,831.306 175,961,863
2008 7,039,762.46 175,907,915 291,315.23 198,702,475
2009 6,741,376.39 152,497,203 261,022.822 157,194,832
2010 8,786,683.14 195,311,520 256,365.322 198,790,691
2011 11,750,472.8 228,823,973 354,098.206 226,992,682
2012 12,167,101.2 229,544,513 297,937.75 227,449,500
2013 12,167,101.2 228,527,440 318,046.48 228,515,734
35
Malaysian chemical exports to US Market during 2007 - 2013
Products Year
Chemical 2007 2008 2009 2010 2011 2012 2013
Thailand
0.5386 0.5332 0.5024 0.5524 0.6388 0.6983 0.7397
Malaysia 0.0207 0.0195 0.0189 0.0164 0.0194 0.0173 0.0184
0.8
0.7
0.6
0.5
0.4 Thailand
Malaysia
0.3
0.2
0.1
0
2007 2008 2009 2010 2011 2012 2013
Malaysian chemical exports to US Market during 2007 - 2013
Table 5. The total value of steel exports and total Thai exports to USA comparing to those of
Value: Thousand USD
Thailand Malaysia
Year.
Steel Exports Total Exports Steel Exports Total Exports
2007 9,497,653.54 153,571,126 453,367.364 175,961,863

2008 9,058,154.04 175,907,915 427,962.138 198,702,475
2009 7,765,062 152,497,203 220,294.267 157,194,832
2010 8,521,574.33 195311520 414,217.518 198,790,691
2011 9,633,898.87 228,823,973 589,391.04 226,992,682
2012 11,694,646.9 229,544,513 582,535.842 227,449,500
2013 11,197,712.5 228,527,440 571,287.812 228,515,734
36

Malaysian steel exports to US Market during 2007 - 2013
Products Year
Steel 2007 2008 2009 2010 2011 2012 2013
Thailand 1.0320 0.8609 1.0889 0.8711 0.8006 0.9545 0.9621

Malaysia 0.0430 0.0360 0.0300 0.0416 0.0494 0.0480 0.0491
Malaysian steel exports to US Market during 2007 - 2013
37
CURRENT MANAGEMENT ACCOUNTING PRACTICES AMONG LARGE

JAPANESE MANUFACTURING COMPANIES
Susumu Ueno1, a*, Paul Scarbrough2, b

1
Professor Emeritus, Konan University
Kobe, Japan
2
Associate Professor, Goodman School of Business, Brock University
Ontario, Canada
a*
ueno@konan-u.ac.jp, b pscarbrough@brocku.ca
Keywords: Management accounting, Current practices, Japan, information and communication technology
(ICT), Disclosure rules
Abstract
This paper provides a comprehensive and objective picture of current management
accounting practices in large Japanese manufacturers. Employing a descriptive method, we discuss
specific aspects of both corporate-level and front-line management accounting practices, as well as
the impact of information and communication technology (ICT) and disclosure rule changes.
Corporate-level management accounting practices discussed include planning and budgeting,
hoshin kanri, the balanced scorecard and performance management. Front-line management
accounting practices include the relationship between management accounting and the Japanese
Cost Accounting Standards, Just-in-time (JIT) production and business continuity management
(BCM) and quality control. Since our research question is ―what is‖ or ―what was,‖ therefore, this
study refrains from making normative claims and /or prescriptions. We also reveal some unique
constraints to management accounting development faced by Japanese manufactures. The
knowledge and analysis in this study provide an insightful basis for the improvement and
development of management accounting systems and practices.
Introduction
As each county develops its potential, one tool is clear knowledge of the current state of
management accounting across the world. This paper presents the current state of management
accounting practices in Japanese manufacturing companies.
During the 1980s Kaplan, in his review of ―The Evolution of Management Accounting”
(1984), and with Johnson in ―Relevance Lost: The Rise and Fall of Management Accounting”
(1987), levelled criticism at the management accounting practices of the day. Since then a number
of new and novel management accounting methods and practices such as activity-based costing
(ABC), the balanced score cards (BSC) and economic valued added (EVA) have been developed
and publicized internationally. Scholars refer to these as ‗innovative‘ and/or ‗advanced‘ methods
and practices.
A putative model of management accounting released by the International Federation of
Accountants (IFAC) in 1998, and based, in part, on Kaplan and Johnson‘s approach (Management
38
Accounting Practice Statement Number 1,) defines four stages of management accounting
evolution. Stages 1 and 2 focus on the information provision function, and stages 3 and 4 move their
focus towards resource management. Abdel-Kader and Luther (2006) attempted to operationalize
the four-stage conception of the evolution of management accounting. In Stage 1 (Cost
determination and financial control) and Stage 2 (Provision of information for management
planning and control), they say, traditional practices such as cost accounting and budgeting are
among the main players. Activity-based costing is a representative tool used in Stage 3 (Reduction
of waste in business resources). Target costing, EVA, shareholder value analysis are main tools in
Stage 4 (Creation of value through effective resources use). Taken together, the Kaplan and Johnson
and IFAC models indicate a normative status for a range of management accounting methods.
There is an extensive research literature describing Japanese management accounting
practices in English, some written by overseas researchers and some by Japanese scholars (e.g.,
Ueno, Scarbrough, and Hosomi, 2017; Okano and Suzuki, 2006; Baydoun et al. , 1997; Ueno and
Wu, 1993; Ueno and Sekaran, 1992). Some empirical studies of Japanese management attempt to
draw conclusions based on cultural perspectives derived from stereotypes. Overweighting such
cultural influences in interpreting local practices leads to excessively broad conclusions. Other
researchers attempt to generalize their results from limited evidence to all management accounting
practices. Although generalizations are the essential basis of all valid deductive inferences, the
process of verification is necessary to determine whether a generalization holds true.
Since this study aims to provide an objective and comprehensive picture and delineate what
current management accounting practices of large Japanese manufacturers are, we employ a
descriptive method in this study. Descriptive studies are usually the best method for collecting
information that will demonstrate relationships and describe the world as it exists. Our research
question is ―what is‖ or ―what was,‖ therefore, we refrain from making normative claims and /or
prescriptions.
In this paper, we discuss first, corporate-level, and second, front-line management
accounting methods and practices, paying special attention to the impact of changes in information
technology, and third, recent changes in disclosure rules. Firstly, we discuss the development and
current state of corporate-level management methods and practices used by large Japanese
manufacturers. One of our main research concerns is: ―to what extent are the normative
management accounting systems and practices, described as ‗innovative‘ and/or ‗advanced‘ and
advocated by international academics, textbooks and professional institutes, actually employed in
Japan?‖ We focus on the management accounting practices of planning and budgeting, hoshin
kanri, the balanced scorecard and performance management. In the next section, our discussion
moves to the topic of front-line management accounting practices observed in large Japanese
manufacturers. The topics we include are Japanese Cost Accounting Standards, JIT production and
business continuity management (BCM), as well as company-wide quality control (CWQC).
In both of the above sections, we pay special attention to the impact on management
accounting practices in Japan of innovations in information and communication technology (ICT).
During the past decades much innovation has occurred within the orbit of ICT (Ueno and
Scarbrough, 2011; Ueno ed., 2007) whether accountants are positively and or deeply involved or
not. The increased affordability of ICT for organizations has created great opportunities for these
entities to improve their operations and accounting processes. The management accounting
discipline is not immune to concepts and practices developed by modern day digitization forces
(Bhimani and Bromwich, 2009). Since disclosure regulations for publicly traded companies have
39
considerable influence over management accounting practices, the influence of recently developed
timely-disclosure rules, internal control and corporate governance is also presented.
The remainder of this paper has the following structure. The next section reviews methods
and practices of corporate level management such as planning, management control and
performance measurements used at leading Japanese manufacturers. Section 3 reports front-line
management accounting methods and practices. Section 4 reviews the influence of recent disclosure
regulations on Japanese management accounting practices. The last section provides concluding
remarks.
CORPORATE-LEVEL MANAGEMENT PRACTICES

For corporate-level management, Japanese publicly traded companies have long used
traditional management accounting methods such as planning and budgeting. Our focus in this
section is to describe how large Japanese manufacturers have used these traditional methods.
However, we also discuss why they did so. Although US companies have more aggressively
adopted newly developed management accounting methods such as the balanced scorecard
proposed by Kaplan and Norton (1992), there is evidence that some Japanese manufacturers have
also used them. We also present the impact of changes in ICT on these Corporate-level practices.
Planning, budgeting and financial performance indicators

A new technology often appears and spreads widely. Medium-range business planning,
profit planning, and annual budgeting are pervasive among large Japanese companies. Actually,
government timely disclosure rules for financial accounting (described in a later section) request
that publicly traded companies implement these practices, and such requests are universally
complied with.
Most large Japanese companies have their own accounting manuals and guidelines. Staff
members at corporate, divisional or departmental levels are required to follow these manuals strictly
in the processes of financial statement preparation, profit planning and budgeting, cost accounting,
and internal control. For the most part, the management methods appear to be very similar to those
seen outside of Japan, although the actual use may be somewhat different, as we will see later.
The process of planning and budgeting involves setting a performance target, measuring
performance, comparing performance against that target, computing the difference (variance)
between measured performance and the target, and taking action if necessary. Horii (2015)
surveyed budget practices of Japanese publicly traded manufacturers in 2011. The highest ranked
roles for budgeting were, ―it functions such as an operational goal‖, ―a control tool‖ and ―a measure
for departmental performance.‖ It is interesting that the ―communication and coordination‖ function
was not ranked as high as the other three items.
Changes in what managers consider the key performance indicators (KPIs) have occurred
over time. Currently, the key metrics for the success of an organisation‘s strategies and tactics in
planning and budgeting are profits, sales and costs. From the 1960s to the 1980s, when Japan
enjoyed high economic growth, the growth in sales volume and profit was the supreme goal, thus
volume and market share were the most popular metrics in measuring a company‘s and division‘s
performance (Ueno, 1993, 1997). Many foreign researchers remarked on this, and people still think
it is a characteristic of Japanese business. However, business culture in Japan changed since that
time, and the importance of profitability and cash flow has increased markedly.
40
Over the 1990s, Stern Stewart heavily promoted the idea of economic value added (EVA).
EVA is almost the same as Residual Income, as used at General Electric since the 1920s and CCM
as used by Panasonic since the 1990s (as discussed below). A number of Japanese stock market
listed manufacturers such as HOYA Corporation, Krin Company Limited, Asahi Breweries
Limited, Asahi Kasei Corporation, Panasonic Corporation , TOTO LTD, Daikin Industries Ltd., and
TDK Corporation, installed the EVA as a key performance measure in the 1990s and early 2000s
(Ueno, 2008). However, according Kawano‘s survey (2014) conducted between 2011 and 2012, of
the companies traded on the Tokyo Stock Exchanges, only 13 companies (7% of all respondents)
implemented EVA.
The Life Insurance Association of Japan has conducted a survey on ―Actions for increasing
shareholder value by publicly traded companies (many of them are manufacturers) (Kabunushi
kachi kojo ni muketa torikumi ni tsuite)‖ every year since 1974. The 2015 survey results indicate
that (see Table 1, below) institutional investors (N=84) consider ROE as the most important KPI
(79.8% of the respondents), followed by Total Payout ratio (48.8%), Dividend Pay-out Ratio
(40.5%) and Free Cash Flow (35.7%). Total Payout Ratio to Shareholders is calculated by adding
dividends and treasury stock acquisitions and dividing the sum by net income for the same period.
The Dividend Pay-out Ratio is the percentage of net income that a company pays out as dividends
to common shareholders. The results indicate that institutional investors place greater importance
on yearly distributions to shareholders.
On the other hand, the most frequent disclosed KPI in Mid-term Planning by the surveyed
companies (N=568) is Profit & Profit Growth (66.5 % of companies surveyed), followed by Sales
& Sales Growth (58.5%), Return on Equity (ROE) (52.3%) and Profit over Sales (49.5%). We note
that Dividend Payout Ratio and Total Payout Ratio to Shareholders, which are thought to be very
important KPIs by institutional investors, are lower, 29.5% and 9.0% respectively.
Table 1: Key Performance Indicators (KPIs) for Japanese Listed Companies

Rank KPIs shown in mid-term planning KPIs that institutional investors think to
of listed companies (N=568) be important (N=84)
1 Profit & Profit Growth 66.5% Return on Equity (ROE) 79.8%

2 Sales & Sales Growth 58.5% Total Pay-out Ratio 48.8%
3 Return on Equity (ROE) 52.3% Dividend Pay-out Ratio 40.5%
4 Profit/Sales 49.5% Free Cash Flow 35.7%
5 Dividend Pay-out Ratio 29.5% ROIC 34.5%
6 Stockholders Equity 19.8% Profit/Sales 32.1%
Ratio
7 ROA 16.8% ROA 32.1%
Source: The Life Insurance Association of Japan (2015)
Since early in the use of ICT, large Japanese companies developed a variety of software
solutions such as in-house-based templates for planning and budgeting (e.g., Lotus 1-2-3 and later,
Microsoft Excel sheets), as well as entire custom packages. As well, vendors provided applications
for mainframes and office computers. Today, large and medium-sized companies use ICT
applications for planning, budgeting, and forecasting, and they often use enterprise resource
41
planning (ERP) packages supplied by vendors. Examples of popular accounting applications

include ‗NEC EXPLANNER/Ai,‘ ‗FUJITSU Enterprise Application GLOVIA smart,‘ ‗Oracle
Hyperion,‘ ‗IBM Cognos Planning,‘ and ‗Microsoft SharePoint Server.‘ TKC Corporation and
OBIC Co., Ltd. are influential local vendors of business intelligence software solutions for small
and medium-sized enterprises (SMEs).
Hoshin kanri, MBO and the balanced scorecard

Hoshin kanri (called policy deployment, hoshin planning, or simply hoshin), broadly
practiced among Japanese manufacturers since the 1960s, is a management accounting method
associated with total quality control (TQC; described in a later section). Taking a top-down
approach, hoshin kanri focuses the organization, deploys corporate annual hoshin (strategic policy)
and plans to all levels and functions, i.e., divisions, department, sections and employees. Hoshin
Kanri uses the total quality control process and action cycle to control the management accounting
planning process.
Hoshin is a complex and sophisticated process that includes the vision, direction, targets,
and plans of the company. It is not just a forecast financial statement. People at all job levels
develop their own action plans based on the policy. Then, the plan-do-check-act (PDCA) cycles
learned from total quality management are used to iterate within the action plan of each unit
(department) as an example of cross-functional management. All employees and managers report to
their superiors with a PDCA process that cascades up from the lowest levels to the highest levels on
weekly and monthly cycles. As a company-wide activity, hoshin kanri makes everybody in the
company aware of their critical success factors (CSFs) and key performance indicators (KPIs) via
face-to-face horizontal and vertical communication sessions (catch-ball). It should be emphasized
that hoshin kanri is a practice coupled with nichijo kanri (day‐to‐day management) that manages
daily operations and progress by using PDCA cycles.
Manufacturing companies such as Bridgestone Corporation, Komatsu Ltd. and Toyota
Motor Corporation, developed hoshin kanri in the 1970s. Panasonic Corporation developed it
further in the 1970s and NEC Corporation in the 1980s. Some Japanese companies use management
by objectives (MBO) within a hoshin kanri framework. MBO, first outlined by Drucker, P. in 1954
in his book ―The Practice of Management,‖ aims to improve performance of an organization by
clearly defining objectives agreed on by both management and employees. Some people view
hoshin kanri as an innovative, multi-level application of Shewhart‘s and Deming‘s PDCA cycle to
management activity. Others believe that it provides the same integration as the BSC, but through a
different path.
Hoshin kanri software is not sold separately. However, ERP and Business Intelligence (BI),
in addition to traditional ICT software that supports hoshin kanri, refine the hoshin kanri process
and make the scheme more elaborate by providing accurate feedback information and data to all
levels of an organization on a timely basis.
The balanced scorecard (BSC), an idea of Robert Kaplan and David Norton, became very
popular in the 1990s. Like hoshin kanri, the BSC is a framework for defining and communicating
strategy, for translating a strategy to operational terms, and for measuring outputs of strategy
implementation. It is a management system for planning actions and controlling performance of
business units and individuals. Many companies in Japan were active in studying or implementing
it, such as the Bank of Tokyo-Mitsubishi UFJ and Kansai Electric Power, Co. Inc., as well as some
of the large hospitals and municipal governments.
42
Although the idea of the BSC arrived in Japan in the 1990s and attracted significant
attention, not many companies actually installed it. Several surveys (Kawano, 2014; Yokota and
Senoo, 2011; Moriguchi, 2010; Ueno ed. ,2007; Matsubara, 2003) report that only around 10 % of
publicly traded companies use the BSC. A few companies discontinued the use of hoshin kanri after
adopting the balanced scorecards, and others used the BSC along with hoshin kanri. Companies,
with expertise in the traditional management control schemes such as budgeting and hoshin kanri
did not usually believe they would get incremental benefits from replacing their traditional systems
with the BSC.
There are several possible reasons. One is that large Japanese companies, being accustomed
to effective traditional management control systems such as budgeting along with hoshin kanri do
not have a sufficient reason for replacing their traditional systems with the BSC. Another possible
reason is naïve and poor approaches to BSC implementation led to a bad reputation for the BSC,
i.e., the BSC designed through a top-down approach. If a staff member lacking sufficient
knowledge of front-line operations creates the BSC, it may not make sense, and can confuse
managers and employees, who may resist and eventually cause the withdrawal of the BSC. Such
resistance is easily possible in a Japanese organization.
To facilitate their implementation, some companies develop BSC software specifically for
their own use, and others buy and customise commercial packages. Examples of popular BSC
software in Japan are ‗Oracle Balanced Scorecard’ (in ‘Oracle E-Business Suite‟), ‘SAP
Balanced Scorecard’ (in ‗SAP Strategic Enterprise Management‟) and ‘QPR Metrics‟.
Performance management of a diversified company

Diversified companies in Japan generally use a divisional organisation structure to run their
businesses. The divisional structure serves companies that have distinct products, customers and/or
locations. In this section, we review the performance management system of Panasonic
Corporation.
Founded in 1918, Panasonic (originally known as Matsushita) started using a divisional
structure in 1933. As of March 31, 2015, the group employs 254,084 people, and it comprises 468
consolidated and affiliated companies. Currently, Panasonic runs its business by grouping them into
five domains, i.e., consumer electronics, housing, automotive, B2B solutions and devices. Each of
these domains has distinct R&D, production, and sales functions.
To evaluate performance of the company and its business units, Panasonic installed the
Capital Cost Management (CCM) in 1999. CCM is a key performance indicator that is similar to
residual income and/or EVA. The equation below shows the calculation of CCM metrics:
CCM = (operating income plus investment income) - (capital charge for use of assets)
The company calculates CCM for each unit (division) on a global consolidated basis. Managers
compute CCM by multiplying a uniform cost of capital rate (8.4% at this time) by the value of the
business unit‘s assets (Ueno, 2008). Panasonic will introduce new capital rates in the 2016 fiscal
year that can reflect the risk of each unit properly. The CCM is part of the formula used to
determine the annual compensation of Panasonic directors and executive officers.
Internet-technology combined with modern software package development has led to a
situation where accounting/performance management is virtually independent of time and space.
Diversified multinational enterprises (MNEs) have built standardized performance management
systems across divisions and countries. Those systems facilitate control capability for MNE
headquarters. However, to many Japanese MNEs that demand their enculturation activity in
43
overseas subsidiaries, installing and customising uniform ERP solutions globally is a challenge
since it potentially entails the risk of lessened adaptive capability of these subsidiaries. To
diversified multinational enterprises (MNEs) such as Panasonic, determining how far to go in
standardising performance management practices and transferring home country practices to foreign
subsidiary companies remains a critical issue (Ueno, 1996).
PRACTICES IN FRONT-LINE MANAGEMENT

Publicly traded manufacturers in Japan use the 1962 Japanese cost accounting standards for
their product costing. This section reviews development of the standards and discusses its
influences on management accounting methods and practices. In front-line management, Japanese
companies have developed unique methods such as target costing, kaizen costing, JIT production
and company-wide quality control (CWQC). This section discusses them also.
Japanese cost accounting standards

In 1962, the Accounting Deliberation Committee of the Ministry of Finance released Cost
Accounting Standards as an interim report. This standard contains strong US influence as do other
regulations set after the Second World War. For example, the standard costing section of the Cost
Accounting Standards was edited by referring to ―How Standard Costs are Being Used Currently
(1951)‖ released by NAA (National Association of Accountants, which later became the Institute of
Management Accountants).
Based on the state of the art in 1962, the objectives of the standards were to provide true
costs on the financial statements, to provide cost data for pricing decisions, for cost management,
for budgeting and budgetary control, and for strategic planning. The standards require companies to
use absorption costing for financial reporting and stipulate details of account definitions, support
cost allocation procedures, costing methods, product cost valuation and variance accounting. The
standards are an integral part of current Japanese GAAP, and is ―rule-based.‖
Since cost accounting systems reflect specific production processes and systems, they are
not uniform. The standards aim to provide multiple frameworks for costing used in developing cost
accounting procedures and systems. According to the preface of the interim report, the use of the
standards is strongly recommended although the use is not mandatory. In Japan, organisations and
individuals usually follow government recommendations because of their great social force. All
publicly traded manufactures are thus strongly motivated to comply with the prescribed costing
procedures and methods for their financial statement disclosure purpose.
Cost accounting courses provided by Japanese universities, high schools and vocational
schools devote many lessons to interpretation and explanation of the Standards, similar to a legal
education outside of the ―common-law‖ countries. The standards, released in 1962, are a rule-based
set of procedures, and part of Japanese GAAP, i.e., they prescribe ―accepted‖ costing procedures
and systems for financial reporting purposes based on the understandings of 1962. It is important to
differentiate cost accounting education, which anchors on the past because of this, from cost
management education that is very keen to develop and use new procedures and methods from a
variety of fields such as engineering, management, industrial psychology, etc.
The use of standard costing has a relatively long history in Japan, and it is popular especially
among publicly traded manufacturing companies who focus on production cost management.
According to Kawano‘s survey (2014) conducted between 2011 and 2012, 68% of respondents use
standard costing. This ratio is higher than in prior surveys of Japanese publicly traded
44
manufacturers. An important part of standard costing is variance analysis, which breaks down the
variation between actual costs and standard costs into various components (material variance,
labour variance, factory overhead variance, etc.). When asked about the main purpose of their using
standard costing, 53 companies (56% of the respondents) answered, ―cost control and cost
reduction‖ and 16 companies (17% of the respondents) answered, ―budgeting‖ (Kawano, 2014).
About direct (variable) costing, the survey by Kawano (2014) reports that 37% of
respondents use direct costing. Supporting profit planning, budgeting and cost management is main
reasons for their use of direct costing. Since the Japanese cost accounting standards requires
companies to use absorption costing for product costs that they disclose in financial statements,
product costs calculated by direct costing are adjusted to absorption costs prior to disclosure.
Because of this, Japanese companies use direct costing as a ‗special cost study‘ tool (analysis), but
not within a regular costing system.
Activity-based costing (ABC) is not popular in Japan, although some companies and
organizations tried it for special cost studies as early as the 1990s. One reason for the low
penetration is that ABC is not in the 1962 Japanese Cost Accounting Standards. ABC has both
different support cost allocation bases and different procedures from those prescribed by the
standards. The Cost Accounting Standards actually specify specific accounts and account titles, and
how to connect and allocate those accounts to costing units (departments and products). ABC, of
course ignores departments to focus on activities.
According to Kawano (2014), 13% of the respondents have tried to use ABC as a special
cost study tool. Some companies, banks, hospitals and local public enterprises (waterworks, gas,
transportation, hospital, electric power, etc.) attempted to use ABC/ ABM for their cost and expense
management. However, they sometimes misunderstand the essence of ABC/ABM. Osaka City
Waterworks Bureau has disclosed cost information by cost centres (waterworks activities) every
year since 2005 and the bureau named its costing ABC (Source:
http://www.city.osaka.lg.jp/suido/page/0000017062.html). However, the method used is actually a
simple cost-aggregation by cost centres, but not ABC.
A variety of local IT vendors such as Hitachi Solutions, and OBIC, etc. provide software for
job order costing. However, software for process costing is limited. Product cost calculations are
contingent upon production processes. The diversity and complexity of process-oriented production
motivates companies to develop Excel templates and spreadsheets for process costing in-house.
Recently more ERP, business intelligence and data warehouse applications allow companies to
combine existing templates and spreadsheets for the process costing with these systems. ‗FUJITSU
Enterprise Application GLOVIA smart RTCM‘ serves for both job order costing and process costing
(http://www.fujitsu.com/jp/services/application-services/enterprise-applications/glovia/glovia-
smart/rtcm/ ).
Just-in-time (JIT) production and business continuity management (BCM)

Just-in-time (JIT) production (manufacturing), a well-known aspect of the Toyota
production system (TPS), is a production model in which items are created to meet demand, not
created in surplus or in advance of need. A fundamental principle of JIT is demand-based flow
manufacturing (a pull system). The intent behind this system is to avoid the waste that would
otherwise arise from the excessive storage of inventory and the overproduction of goods. Four key
elements are required to make sure the successful operation of a JIT manufacturing system; i.e.,
improving plant layout, reducing the setup time, striving for zero defect (quality) and developing a
45
flexible workforce. Under certain circumstances applying JIT decreases cycle time, lowers
inventory, increases utilisation of facilities and equipment, and increases productivity.
JIT manufacturing, when combined with company-wide quality control (CWQC), is very
efficient and can be a strategic source of competitive advantage under normal conditions. However,
its supply chain is vulnerable to natural and human disasters (accidents). If one supplier of
materials/ components has a breakdown and cannot deliver the goods on time, that supplier can shut
down the entire supply chain. Natural disasters such as The Great East Japan earthquake on 11
March 2011 and the flood in Thailand during October 2011 disrupted global and domestic supply
chains of manufacturers, causing a shortage of components for electronics, vehicles, etc. and
demonstrated the vulnerability of JIT supply chains. In order to improve the resilience of their
global supply chain, the Toyota group is preparing for future emergencies by creating a business
continuity plan (BCP) that aims at early recovery with limited resources (http://www.toyota-
global.com/sustainability/csr/governance/risk_management/ ). The ways a company can improve its
resilience include dispersion of key plants, standardisation of parts and materials, and
diversification of suppliers.
Although in the west the JIT concept is mainly associated with Toyota, actually, many
Japanese companies contributed to the development of the JIT methods in the 1950s and 1960s.
When transferred to Western industry in the 1980s, JIT leads to a new term, lean manufacturing in
the 1990s. Lean manufacturing and JIT production are not just two different phrases for the same
thing. Lean manufacturing is a broader term spawned within the MIT study on Toyota production
system (TPS) in the 1980s that led to the book ―The Machine That Changed the World‖ by
Womack, J. P., Jones, D. T. and Roos, D. in 1990. JIT production concentrates on the product line
itself, while lean manufacturing usually includes JIT as part of a more encompassing approach to
the entire process from design to disposal. Over the years, many names have been used to try and
describe the changing understanding of this approach to business processes, including: world class
manufacturing (WCM), continuous flow manufacturing, and stock-less production.
(http://leanmanufacturingtools.org/34/lean-manufacturing-definition-2).
Companies with manufacturing operations must be aware of their supply chain at all times,
monitoring the performance of suppliers, transportation partners, global competition, delivery times,
changing demand, inventory and customer service. Traditional, non-Lean approaches to supply
chain management (SCM) synchronizes demand with a business unit as a whole by using
materials/parts and resource capacity and also by considering bottlenecks. This eliminates wastes of
business processes and increases the flow from materials/parts supply to product selling. Software
vendors offer SCM modules with a complete set of tools, from purchase order software, MRP and
inventory management to production and logistics ERP. Traditional top-down organizations use
them extensively, however Lean organizations have difficulty with this type of software unless
extensively modified.
Japanese software appears to be more sensitive to the issues related to Lean-style
production, such as ‗FUJITSU Enterprise Application GLOVIA smart PRONES,‘ an ERP
application with a large installed base among medium-sized manufacturers in Japan. It supports
multiple production styles, such as engineering to order (ETO), make to order (MTO, ie, JIT), build
to order ( BTO, ie, JIT) and make to stock ( MTS, i.e., traditional make based on forecast).The
software works under kanban, order control, material requirements planning (MRP) and reorder
point (ROP). In 2015, Hitachi, Japanese software vendors, released ‘Hitachi Total Supply Chain
Management Solution/IoT‘ (http://www.hitachi.co.jp/New/cnews/month/2015/10/1023.html).
46
Accurate and real-time data enables shortening operational and management decision cycles
significantly. In the 1990s, the manufacturing operations management (MOM) and the
manufacturing execution system (MES) began to attract attention, and they gradually spread into
Japan since the early 2000s. Fujutsu and NEC supply „GLOVIA ENTERPRISE MES‘
(http://www.fujitsu.com/jp/services/application-services/enterprise-applications/glovia/glovia-
enterprise/glovia-enterprise-mes) and ‗NEC Industrial IoT‟
(http://www.hitachi.co.jp/New/cnews/month/2015/10/1023.html) respectively. In September 2016,
NEC supplies ‗IFS Applications for MES.‘ In fact, ICT has changed the factory and manufacturing
scene significantly. Companies are afraid of digital divide phenomenon, and Japanese
manufacturers are interested in ICT investment; some are enthusiastic.
Company-wide quality control (CWQC)

After the Second World War, the first priority of Japan was rebuilding its industries. The
quality of Japanese products was very low through the post-war period and 1950s, and
improvement was imperative. To reduce faulty and defective products, for example, Toyota
introduced statistical quality control in 1949
(https://www.toyota.co.jp/jpn/company/history/75years/data/company_information/management_an
d_finances/management/tqm/explanation01.html). In 1950, the Union of Japanese Scientists and
Engineers (JUSE) invited Deming W. E., an American expert in quality control. He lectured on the
basics of statistical quality control and its role in management. Deming advocated QC circles, small
groups consisting of first-line workers. JUSE promoted and coordinated the QC movement starting
in 1962, and QC activities spread rapidly over Japanese industry.
Total quality control (TQC), comprising three pillars, i.e., QC circles, hoshin kanri and
nichijo kanri (day‐to‐day management), became pervasive in the 1960s. A distinctive characteristic
of the TQC is company-wide involvement (company-wide quality control, CWQC) that requests
organisation-wide efforts by all levels of employee to install, and make permanent, a climate in
which a company as a whole continuously improves its ability to deliver high-quality products and
services to customers. Quality focused thinking considers culture, people, production processes, and
products holistically, rather than as independent factors. This differs from traditional US approaches
to quality control, which depends mainly on experts rather than on widespread use of the tools.
In the US and other western countries, however, there has been a move to a company-wide
approach over the last few decades. Total quality management (TQM), developed in the USA by
the US Navy in the 1980s, is a process improvement methodology based on a ‗customer satisfaction
quality-driven processes with guidelines set by management. Ford Motor, one of the enthusiastic
promoters of TQM, started TQM activities in the 1980s when ―Quality Is Job 1‖ was their slogan.
Although TQM takes top-down approach, in a TQM effort, all members of an organization
participate in improving processes, products, services and the culture in which they work.
Since the early 1990s when the asset bubble burst, the Japanese economy suffered slow
growth coupled with price deflation. AISIN SEIKI Co., LTD. and other manufacturers in Japan
expanded TQC activities to the total quality management (TQM) at this time due to the changed
environment. Today, quality standards such as the ISO 9000 series and quality award programs
such as the Deming Prize in Japan and the Malcolm Baldrige National Quality Award in the Unites
States specify principles and processes that comprise TQM.
47
INFLUENCE OF DISCLOSURE REGULATIONS ON MANAGEMENT ACCOUNTING

PRACTICES
Japanese disclosure-related regulations changed recently, as is also the case in many
developed countries. This section describes the influences of changes in timely-disclosure rules,
internal control report and corporate governance on management accounting practices of publicly
traded Japanese manufactures.
Timely disclosure rules

In Japan, the Companies Act (enacted on May 1, 2006), the Financial Instruments and
Exchange Act (FIEA: enacted on September 30, 2007) and other laws, as well as rules in the Tokyo
Stock Exchange's Securities Listing Regulations constitute what are called the timely disclosure
rules. The timely disclosure rules request that companies disclose annual/interim reports,
sustainability/integrated reports, environmental reports and corporate governance reports. Japanese
publicly traded companies generally disclose these reports in the Investor Relations (IR) library on
their websites. These disclosure requirements compel large Japanese manufacturers to maintain
reliable internal control systems and articulated management accounting methods and practices, in
addition to behaving as a good corporate citizen in a global society.
Timely disclosure rules also request that companies prepare a forward-looking statement (a
forecast) within annual/interim reports. A forward-looking statement provides information for next
year‘s sales, profits and financial ratios. The rules ask companies to disclose differences in their
estimates and actual earnings promptly as an ―Amendments to Performance Estimates.‖ To respond
this request, publicly traded manufacturing companies must maintain systems that enable them to
disclose the information in a timely and appropriate manner. In other words, companies must
maintain effective accounting systems that can provide all relevant information on time across
business units.
Internal control report

In Japan, the main sources of internal control rules are the Companies Act and the Financial
Instruments and Exchange Act (FIEA). The Companies Act requires ―Large Companies‖
(companies with capital of JPY500 million or more or with total debts of JPY20 billion or more)
with a board of directors to establish a basic policy regarding the internal control system. The
internal control system is, in this case, a system designed to provide reasonable assurance regarding
the achievement of objectives relating to operations, reporting, and compliance by an entity's board
of directors. The Companies Act applies to both public and private companies.
FIEA requires publicly traded companies to disclose issues relating to corporate governance
by way of filing annual securities reports or quarterly reports. Companies must submit an internal
control report once every fiscal year to the Financial Service Agency with an assessment of the
internal procedures designed to ensure the credibility of their financial statements and information.
The section of FIEA relating to internal control, along with its subordinate regulations, are
commonly called the J-SOX act because of the similarity of the underlying ideas to provisions of
the US Sarbanes-Oxley act which is often referred to as SOX.
The introduction of the J-SOX forced publicly traded manufacturing companies to maintain
always-up-to-date business process documentation and increased record-keeping and reporting
requirement significantly. This revealed to many of them the poor state of development of corporate
databases and management accounting systems. Some companies overhauled their business
48
processes and integrated them into enterprise-wide systems. Others accelerated the digitalization of
business operations. Companies contain the spiralling costs of complying with J-SOX by utilizing
computer solutions such as ‗StarOffice X Audit Manager (NEC),‘ ‗Microsoft visio‘ and ‗QPR J-
SOX ‘ (Innovative Technology Lab Co).
Corporate governance
Corporate governance broadly refers to the mechanisms, processes and relations by which
companies are controlled and directed. The Tokyo Stock Exchange (TSE) and the Financial
Services Agency (FSA) released the Corporate Governance Code on March 5, 2015. Adopting a
principles-based approach, this code offers fundamental principles for effective corporate
governance of publicly traded companies. It adopts a ―comply or explain‖ approach for
implementation. Publicly traded manufacturing companies are required to submit a corporate
governance report that includes the outline of the corporate governance system, basic policy
regarding the internal control system, and the relationship of the directors, statutory auditors and
executive officers with the company.
CONCLUDING REMARKS
This paper presents many details of what methods large Japanese manufactures use in
different circumstances. They have been fairly conservative and traditional in their use of cost
accounting methods. Standard costing has a long history and is close to US types of standard
costing from the early 1950s. At the same time, large Japanese manufactures are extremely
creative in their use of management accounting methods.
Locally developed and unique Japanese management accounting practices such as hoshin
kanri, kaizen and target costing and CWQC, have a long history. Foreign scholars sometimes
include them in the category called strategic management accounting (SMA) methods. Budgeting,
using the worldwide model, but with the ‗catch-ball‘ process also has a long history in Japan.
Hoshin kanri also uses the ‗catch-ball‘ style in the processes of strategy implementation and control.
One of our research questions is ―to what extent are the so-called ‗innovative‘ and/or
‗advanced‘ management accounting methods and practices advocated internationally by academics,
textbooks and professional institutes, actually employed in Japan?‖ As described in the previous
sections, we conclude that new methods such as ABC and the balanced scorecard have not
penetrated much in Japanese practice even though knowledge of these methods is widespread.
Other new methods such as life cycle costing (excluding target costing), throughput costing and
material flow costing also have not become very popular. Japanese companies tend to use
traditional practices, but in a very intense and mindful manner. Some people may interpret this as
evidence that the Japanese manufacturers are regressive and have a passive/negative attitude to so-
called ‗innovative/advanced‘ practices such as ABC/M or the BSC. We do not agree with this
interpretation. Instead we think that the Japanese manufactures are not attracted to the so-called
innovative/advanced‘ practices because of the reasons previously described.
We would like to raise a question whether the term evolution, with its implication of
progress, is an appropriate description of what may be only change and adaptation (Abdel-Kader
and Luther, 2006). As everyone knows (and contingency theory asserts), different companies adopt
different management techniques, and some companies adopt different management techniques
over time to work (adapt) in a new environment and changes. Evolution, in the sense of biological
evolution, is not about improvement, but about adapting in a new environment. Often, when used as
49
a metaphor for things outside of biological evolution, evolution is presumed to be about progress,
however this is not correct. Since we believe that change is one thing, progress is another, we
refrain from addressing normative claims and /or prescriptions. All norms have the presumption of
what is best, or correct.
Management accounting practices cannot be studied apart from ICT (and its context).
Although scholars and practicing accountants increasingly face the issue of how to cope with ICT,
not many prior studies in management accounting discussed methods and practices in the context of
ICT. This is because accounting academia has, in general, a limited understanding of the current
developments in the accounting-ICT interface. This knowledge gap has important implications as
regards what should be studied in the area (Granlund, 2007). It is not ―too late‖ to start
incorporating ICT issues into management accounting research.
This study sketches an overview of current management accounting practices among large
Japanese manufacturers. However, we note that some assertions come from our personal
observations. Future studies need to collect more empirical evidence and make the assertions more
persuasive.
50
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52
EVALUATING ACCOUNTING SKILLS OF MONGOLIAN FARMING AND

AGRICULTURAL ENTERPRISES
S. Altantsetseg1,a*, B. Odonchimeg2, b
1, 2
Doctor (Ph.D), Department of Accounting and Analysis, Mongolian University of Life Sciences
Keywords: Farming and Agricultural Accounting, Accounting Skills, Likert-scale.
Abstract
This study aimed at determining Accounting skills of Mongolian Farming and Agricultural
Enterprises based on their financial statements. In order to get the necessary data, we chose 40
Enterprises and conducted a survey to measure their Accounting skills and used mean score derived
from 1-4 point Likert-scale. According to our research, we concluded that those 40 Enterprises had
had unsatisfactory accounting skills and financial statements that insufficiently demonstrate their
factual market productivities.
1. Introduction.
Farming and Agricultural Accounting mainly concerns about process of recording farming
and agricultural resource distribution, efficiency of production output and their correlation with
financial statements. If we compare the results of the farming and agricultural accounting studies
conducted in similar developing countries, there are certain trends that are prevailing in those
countries.
 Modern agricultural procedures consider importance of record keeping, mainly accounting

records, by farmers (Undutimi, 2013).
 Managing farm accounting affairs is a must for farmers to be successful (Yaaghubi et al.,
2009)
 In most developing countries, there is a shortage in fulfillment of management accounting to
managerial needs in the case of and medium agri-business enterprises (Ahmed & Zabri,
2012).
 On the other hand, many researchers pointed out that using accounting procedures can
improve farm efficiency (Luening, 1989; Allen, 1994)
Regarding the implementation of IFRS in Mongolia, some studies were done to see its
inception, application and the difficulties it faced in Mongolian Business Environ. For example we
can further delve into those issues by familiarizing ourselves with the works such as ―Methodology
of Estimating Cost of Farm production‖ by S. Altantsetseg, ―Distinctive features of Farming
Accounting ‖ and ―Issues of adapting International Accounting Standards to existing finances of
private entities.‖ by B. Bolormaa. Unfortunately, in our humble opinion, there has not been enough
scientific works on the importance of keeping rigid farm accounting and how widespread the actual
53
usage of farming accounting in local areas. Thus, we chose to evaluate the accounting skills of
Mongolian farming and agricultural enterprises. /Needs more goal oriented ending here./
2. Farming and Agricultural Productivity /output/
Mongolian Farming output is at 80% of the total Agro-Farming production and it produces around
10% of export income nowadays. One third of Mongolians sustain income earned by cattle herding.
According to the Authorities, there are a total of 5876 registered entities which are involved with
producing beef, milk, sheep, goat, pig, rabbit and bee produces. Moreover, there are 1190
registered agricultural enterprises and approximately 34500 family-owned small units employing
around 65000 people consisting of farmers, mechanics and orchardists utilizing 706 000 hectare
area.
3. Research Methodology, input and compilation.
Our survey work is made up of 51 questions that are split into 3 main parts.
 The Part A deals with general information regarding Farming and Agricultural Entities and
has 10 embedded questions.
 The Part B explores the Farming and Agricultural Accounting Administrative Set-up
/System, framework/ and has 20 embedded questions.
 The Part C has 21 questions related to Farming and Agricultural Accounting and rigid record
keeping capabilities.
We chose 40 Farming and Agricultural enterprises to conduct our research and used mean score
derived from 1-4 point Likert-scale. The following is the Likert formula:
= Mean score; Σ = summation F = frequency or number of response; n = Likert scale point,

= total number of respondents.
In order to determine the subjects‘ accounting skills of those participating Enterprises based on their
financial statements, we opted to use Decision Rule. Decision Rule (DR) of 4 point likert-scale was
calculated as follows:
DR = (4 + 3 + 2 + 1)/4 = 2.5
Thus, we consider those enterprises gets mean score equal or more than 2.5 has fair and competitive
skills of farming and agricultural accounting. If not, those entities get mean score below 2.5,
obviously lack proper training and skills of farming and agricultural accounting so we can safely
conclude that those enterprises need some major improvements on the management level.
4. Results and Discussions.
Reliability of the Data
To examine measurement accuracy of the data and data collection instrument (its reliability), the
Cronbach‘s Alpha (CA) of the data was computed. The computed value of the Cronbach‘s alpha
54
coefficient was 0.83. Reliability of the questionnaire was high depending on the estimated value of
the Cronbach‘s alpha coefficient which is higher than the minimum acceptable value (0.60).
Demographic Characteristics of the Respondents
Out of the total of 40 participating businesses, 18 are agricultural enterprises, 8 are farming and the
rest is mixed farming and agricultural entities. Also 59% of the respondents had less than 5 years of
accounting experience, 10% had 6-10 years of experience, 12% had 11-16 years and 19% had more
than 16 years of extensive experience.
Table 1 The areas of Agricultural Enterprises
Frequency Valid Percent Cumulative Percent

Up to 50 2 6.7 6.7
51-300 6 20.0 26.7
301-600 3 10.0 36.7
601-1000 4 13.3 50.0
1001-1500 9 30.0 80.0
1501-2000 2 6.7 86.7
More than 2001 4 13.3 100.0
Total 30 100.0
Table 2 The number of cattle owned by farming enterprises
Frequency Valid Percent Cumulative Percent

Up to 100 10 35.7 35.7
101-300 7 25.0 60.7
301-500 4 14.3 75.0
501-1000 4 14.3 89.3
More than 1001 3 10.7 100.0
Total 28 100.0
Accounting skills of farming and agricultural enterprises
We split the accounting skills into 3 main categories to look deeper into issue.
 Recording and calculating income flow

 Recording and calculating expenditure
 Implementing International accounting standards
According to the questionnaire, 57% of the respondents submit their income data and 60% of the
respondents submit their total expenditure data to their financial statements.
Table 3 Keeping income record
55
Cumulati
Valid ve
Frequency Percent Percent Percent
Valid Current Account income 3 7.5 8.1 8.1
Cash and current account income 11 27.5 29.7 37.8
Total income /accrual basis / 23 57.5 62.2 100.0
Total 37 92.5 100.0
Missin System
3 7.5
g
Total 40 100.0
Table 4 keeping expenditure record
Cumulati
Valid ve
Valid Current account withdrawal 1 2.5 2.7 2.7
Cash and current account
12 30.0 32.4 35.1
withdrawal
Total withdrawal /accrual basis/ 24 60.0 64.9 100.0
Total 37 92.5 100.0
Missin System
3 7.5
g
Total 40 100.0
Regarding the implementation of International Accounting Standards, IAS – 41 Agriculture

(International Accounting Standard for agricultural activities), IAS - 2 Inventories, IAS - 16
(Property, Plant and Equipment) were successfully applied by 20% or one fifth of the respondents
but 80% or large majority of the respondents received below acceptable level score in their usage of
the above international accounting standard guidelines.
Table 5 Implementation of IAS – 41 Agriculture, IAS – 2 and IAS -16 standards
Valid Cumulative
Valid Fully integrated 8 20.0 21.1 21.1
Occasional Usage 20 50.0 52.6 73.7
Seldom Usage 5 12.5 13.2 86.8
Absent 5 12.5 13.2 100.0
Total 38 95.0 100.0
Missing System 2 5.0
Total 40 100.0
When we compared those farming and agricultural enterprise that use accounting systems more
often had improved management systems and consequently better decision making and those are
not, enterprises that keep rigid account of their financial statements and use that statements into
their decision making tend to make greater income compared to their other competitors.
56
. Relations between financial statement and decision

making dependant on revenue /million ₮/
70.0% 66.7% 66.7%
61.5%
60.0%
50.0%
50.0%
38.5%
40.0%
33.3% 33.3%
30.0% 25.0%
18.8%
20.0%
10.0% 6.3%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
0.0%
Important Moderately Important Slightly Important Not Important
revenue up to 20 revenue from 21 to 100 revenue from101 to1500 revenue up 1500
Fig. 1. Relations between financial statement and decision making.

In conclusion, we evaluated the general statistics provided by our participants.
Farming enterprises generally tend to meet the mean score of 2.5 or above DR on the questions 24,
25, 26 and 27, so we can safely assume that they are familiar with the related law and regulations.
However, they only got mean score less than 2.5 or performed rather poor on the questions 21, 22,
23, 28, 29, 30 and 31. So we can conclude that they had unsatisfactory level of agricultural
accounting skills and their decision making process should be influenced by their financial
statements more often.
Table 6 Farming Production Descriptive Statistics

Question Std.
questions N Mean Decision Rule
number Deviation
21 Livestock movements act 22 1.7273 1.07711 Rejected
28 identifying impairment for breeding stock 22 2.4545 1.01076 Rejected
The computation of the cost of agriculture Rejected
22 22 1.7273 1.07711
produce
23 Initial recognition of biological asset 22 2.4545 1.01076 Rejected
24 Initial recognition agricultural produce 22 3.0909 1.23091 Accepted
Reporting value of Biological asset in balance Accepted
25 22 2.9545 1.21409
sheet
26 Initial recognition of new born animal 22 3.0909 1.19160 Accepted
27 Recognition of biological transfomation 22 2.8182 1.33225 Accepted
29 Reporting breeding stock on statement 22 2.3636 1.59001 Rejected
30 Reporting livestock held for sale on statement 22 2.2273 1.65994 Rejected
31 Farming operational expenditure 22 2.4545 1.56532 Rejected
Agricultural enterprises generally pass the mean score of 2.5 or above DR on the questions 36, 37,
38, 39 and 43, so we can safely assume that they are familiar with the related law and regulations.
57
However, they only got mean score less than 2.5 or performed rather poor on the questions 34, 35,
40, 41 and 42. So we can conclude that they had unsatisfactory level of agricultural accounting
skills and their decision making process should be influenced by their financial statements more
often.
Table 7 Agricultural production Descriptive Statistics
Question Std. Decision Rule
number Questions N Mean Deviation
34 29 1.5172 .78471 Rejected
35 Cost computation for the harvested crop 29 1.7931 .90156 Rejected
40 Deprecation of bearer plant 28 .9643 .79266 Rejected

36 Recognition purchased bearer plant 29 2.6207 1.56784 Accepted
37 Recognition harvested agricultural produce Accepted
29 3.1379 1.24568
from bearer plant
38 Reporting value of bearer plant in closing Accepted
29 2.5862 1.61505
balance at 31 december
39 Reporting value of consumable biological Accepted
29 2.8621 1.35552
asset in closing balance at 31 december
41 Reporting bearer plant 29 1.1724 1.51349 Rejected
42 Reporting consumable biological asset 29 2.0345 1.52322 Rejected
43 Account of cost crop production cost 29 2.5517 1.57176 Accepted
58
Conclusion
- Those enterprises possess below 2.5 score or had unsatisfactory level of accounting skills
tend to ignore their financial statements when making managerial decisions.
- Even though the participating enterprises had different degree of implementing IFRS
procedures on their daily production and work basis, particularly those enterprises keep rigid
record of income and expenditure end up earning higher profit compared to their
counterparts.
- Farming enterprises should follow IAS – 41 standards when calculating costs of breeding
cattle, agricultural produce, measuring biological assets accounting.
- Agricultural enterprises also should follow IAS – 41 standards when calculating costs of
agricultural produce, determining the value of bearer plant.
- All in all, if farming and agricultural enterprises are provided with modern, internationally
recognized accounting courses and trained properly, their financial statements will play key
role in their decision making. Thus enabling them to calculate their production expenditures
and profits accurately and greatly improve their production efficiency.
Suggestions:
 In order to further implement IFRS in Mongolian farming and agricultural areas, the owners
of small farming and agricultural enterprises and their accountants should be provided with
the necessary basics to the mid-level training courses including basic skills such as keeping
records of financial transactions, producing financial statements, decision making
procedures, calculating costs of biological assets, etc.
 Those citizens don‘t belong to any farming associations nor member of any trade unions,
who run their unregistered small family businesses should be provided with the necessary
accounting skills related to calculating the expenditures and profits respectively like in
Estonia and Lithuania.
59
References
1. Ahmed, K. Z. (2012). The Uptake of Management Accounting Practices among Malasian

Firms in SMEs Sector. Paper presented at the International Conference on Technology
Management, Business and Enterpreneurship, Malasi. Retrived from
http://www.eprints.uthm.edu.my/3437.
2. Undutimi, J. (2013). Record Keeping Among Small Farmers in Nigeria: Problems and
Prospects. International Journal of Sceintific Research in Education, 6(2), 214-220.
3. Yaaghubi, A. C. (2009). Importance of Farm Management Skills from the viewpoint of
Wheat Farmers in Tafresh Township. Journal of Agricultural Economic and Development,
17(66), 99-114
4. ХХААХҮЯ. (2016). http://investmongolia.gov.mn/wp-
content/uploads/2014/02/%D0%BC%D0%B0%D0%BB-%D0%B0%D0%B6-
%D0%B0%D1%85%D1%83%D0%B9.pdf.
60
CHANGING TREND IN OWNERSHIP OF MONGOLIAN COMPANIES:

THE CORRELATION WITH GOVERNANCE MECHANISM
Ernest Nweke1, a*, EnkhtuyaBavuudorj 2, b

1
ACA, CPA, Business Studies Department, Royal International University,
Ulaanbaatar city, Mongolia.
2
Doctor (Ph.D), Prof, School of Business Administration and Humanities,
Mongolian University of Science & Technology,
Ulaanbaatar city, Mongolia.
a*
ernestnweke@royalacademy.edu.mn, benkhtuya_bavuudorj@must.edu.mn
Keywords: Corporate governance, Mongolia, Private ownership, Free market.
Abstract
This paper examines the changing trend in ownership of Mongolian companies and how this
trend has influenced corporate governance mechanisms in Mongolian companies.
Owing to Mongolia‘s Soviet past, much of the companies in Mongolia were state-owned, state
directed and state controlled with the attendant consequences of widespread inefficiencies in diverse
respects. This is in sharp contrast with the reality and accepted norm that strict adherence to the
basic principles of good corporate governance is essential for economic growth and development.
As result, Mongolian government has in the past fifteen years, made giant strides in promoting
private ownership, taking several measures to establish and strengthen governance structures. This
has tremendously changed the trend in the ownership on companies in Mongolia reversing the old
order. The expectation locally and internationally is that companies in post-socialist Mongolia will
be more closely aligned to generally accepted corporate governance mechanisms, generally
improving company performance and ultimately returns to shareholders.
In achieving the objectives of this study, a sample of seventy randomly selected listed firms,
representing 22% of Mongolian Stock Exchange listings, were surveyed. We find that ownership
trend has drastically changed in the post-socialist Mongolia leading to better corporate governance
practices in Mongolian companies. This result has important policy implications.
1. Introduction
Private ownership simply entails the ownership of a company by people or organizations that
are not part of the government of a country. Such firms are proven harbingers of efficiency, good
corporate governance, profitability and economic growth. It should be noted that good corporate
governance practice fosters economic development through transparency, disclosure equitable
treatment of stakeholder and improved investor confidence.
State invested firms on the other hand are companies in which the state has stakes either wholly or
partially. State ownership has its merits and demerits. Its unintended consequences include the
potential for firm mismanagement, corruption, lax in control, supervisions and content of
61
regulations. As a result, non state-invested firms have been touted to be more efficiently ran and
adhere to high levels of corporate governance.
What then is corporate governance? ―Corporate governance involves a set of relationships
between a company‘s management, its board, its shareholders and other stakeholders‖ [1] Good
corporate governance provides proper incentives for the boards of companies and management to
pursue objectives that are in the best interests of the company and its shareholders and should
facilitate effective monitoring. The International Finance Corporation (IFC), an arm of the World
Bank agrees with these views; ―….good corporate governance contributes to sustainable economic
development by enhancing the performance of companies and increasing their access to outside
capital‖ [2]
The organization for economic cooperation and development (OECD) enunciated the
linkage between good corporate practices and economic development in the following statement;
―the presence of an effective corporate governance system, within an individual company and
across an economy as a whole, helps to provide a degree of confidence that is necessary for the
proper functioning of a market economy. As a result, the cost of capital is lower and firms are
encouraged to use resources more efficiently, thereby underpinning growth‖ [3]. It is therefore clear
that the degree to which companies adhere to fundamental principles of good corporate governance
is an increasingly important element for investment decisions and has implications for economic
growth. If countries are to reap the full benefits of the global capital market, and if they are to
attract long-term capital, corporate governance mechanisms must be credible and well understood
across borders with strict adherence to internationally accepted principles.
Nonetheless, Mongolia‘s soviet-era economy was dominated by state ownership, wide
spread inefficiencies resulting in poor investor confidence. This is the reason why Mongolian
government has placed serious emphasis on privatization to turn the economy around and improve
governance structures in both private and public enterprises. Consequently, following the
ratification of its new investment law in 2013, Mongolia has been described by the World Bank as
―one of the fastest growing economies in the world making the country more attractive to foreign
investors‖ 4. Prior to this time, the main stay of Mongolian economy has been agriculture and
livestock. However, ―Mongolia also has extensive mineral deposits: copper, coal, molybdenum, tin,
tungsten, gold etc and their extraction have really facilitated the growth of Mongolian economy‖ 5.
This notwithstanding, increasing global competition, the rapid development and expansion of the
Mongolian economy has made the enhancement of corporate governance mechanisms in Mongolian
firms imperative. In addition, governments around the world, including Mongolia have become
more proactive in ensuring sound corporate governance mechanisms in both public and private
enterprises owing to the corporate failures of the past decade. Indeed, transparency, accountability,
rule of law and stable investment climate are vital in Mongolia‘s quest for stable economic growth
and full transition to free market economy it desires. Another factor for this drive for change and
improvement is that, in today‘s internationalized capital markets, only reputable local firms that
meet high environmental, health, safety and corporate governance standards are able to attract
foreign capital. These factors and a lot more make it even more of a necessity than choice for good
corporate governance standards to be maintained in Mongolian firms.
2. Ownership of listed firms in Mongolia: Transition from State to Private ownership
Mongolia is a beautiful land-locked Asian country, very rich in natural resources with
formidable growth prospects. Transitioning from a socialist to a democratic system of governance
62
and free market economy in the early 90s, Mongolia is today one of the fastest growing economies
with GDP growth rate for 2011 reaching an all time high of 17.50% and 12% for 2013 according to
the World bank[6].
The current economic scenario is in sharp contrast with the situation in the early 1990s when
the economy was in doldrums; state invested enterprises accounted for 96% of the economy with
the bulk of the support for the economy coming in the form of Soviet aids. Soviet aids accounted
for as much as two thirds of the GDP. This enormous level of aid disappeared with the fall of the
Soviet Union between 1990 and 1992, pushing the country into deep recession. Government
quickly responded with transition to democratic rule, establishing the Mongolian Stock Exchange
(MSE) to facilitate the privatization of state owned enterprises. Government establishments were
marred by large scale inefficiencies and corruption. Privatization thus became a sure option to
improve the competitiveness of the Mongolian economy.
Table 1. Ownership of MSE listed companies as at March 2016
OWNERSHIP OF MSE LISTED COMPANIES AS AT NUMBER OF

MARCH 2016 COMPANIES
100% State owned companies 21
Partly state owned companies 15
Non-state owned companies 288
TOTAL 324
Source: Author-prepared, using research data.
Table I above clearly illustrates how the ownership structure of listed enterprises has changed over
time on the MSE. 96% of listed companies in the early stages of the MSE were state owned, as at
March 2016, the picture has changed dramatically.
5%
6%
100% State owned
companies
Partly state owned companies
89% Non-state owned companies
Fig. 1. Ownership of MSE listed companies as at March 2016.

Fig.1 above illustrates the sharp decline in state ownership of MSE listed companies.
It is easily observable that the change in the ownership structure of Mongolian enterprises brought
about massive improvement in economic performance and unparalleled contributions to GDP
growth by the private sector. In terms of GDP contribution, the private sector accounted for 56% in
1996, 71.8% in 1999, 75% in 2001 and over 80 percent as of today. Table II below further
illustrates this transformation.
63
Table 2. Change in Mongolia GDP structure

CHANGE IN MONGOLIA GDP
STRUCTURE
YEAR STATE PRIVATE TOTAL
1990 96% 4% 100%
1996 44% 56% 100%
1999 38% 72% 100%
2000 37% 73% 100%
2001 25% 75% 100%
2004 22% 78% 100%
2007 18% 82% 100%
2010 15% 88% 100%
2011 13% 89% 100%
2014 10% 90% 100%
3.1 Problem Statement

Mongolia is currently at the threshold of a major economic transformation driven by the
exploitation of its enormous mineral resources. According to World Bank, ―to ensure sustainable
and inclusive growth, Mongolia will need to strengthen institutional capacity to manage public
revenues efficiently...‖ [7]. Government has already implemented far-reaching economic and
political reforms that have facilitated its transformation of Mongolia from state-controlled to a
market-driven economy.
However, inefficiency still persists in the economy on a massive scale especially in majority of
Mongolian firms. There is an urgent need to further improve governance position and encourage
more private sector ownership in order to increase Mongolia‘s global competitiveness the more.
The Mongolia Economic Policy Reform and Competitiveness project designed to promote
increased competitiveness of its economy to achieve broad and sustainable, private–sector–led
economic growth is ongoing.
3.2 Research Questions
Bearing in mind the above situation, the key questions are;
i) What gains have so far been made since Mongolia‘s transition?
ii) How have they impacted governance practices in Mongolian firms?
iii) What is the position of corporate governance in Mongolian firms?
iv) Are non-state-invested firms really better run than state-invested firms?
3.3 Research objectives

The key objectives of this study are;
i) To highlight the present position of corporate governance practices in Mongolian firms.
ii) To assess the impact the efforts of Mongolian government at improving corporate
governance practices has so far had on governance mechanisms in firms.
iii) To find out whether corporate governance practices are truly better in non-state-invested
firms than they are in state-invested firms in Mongolia.
3.4 Research Hypotheses

With the objectives in mind, the following hypotheses have been formulated;
64
Ho1: There is no improvement in corporate governance practices among Mongolian firms post free
market transition.
Ho2: Increases in private ownership of firms in Mongolia have not led to the practice of improved
corporate governance principles in Mongolian firms.
Ho3: Corporate governance practices in non-state-invested firms are not better than corporate
governance practices in state-invested firms in Mongolia.
4. Theoretical Framework
Agency theory, Principal-principal theory and stakeholder-agency theory are three theories
that provide an explanation of the place of corporate governance in firms.
Agency theorists posit that an agency relationship subsists between shareholders and directors in
their respective roles as principals and agents. According to Jensen and Meckling (1976, p. 308)
agency relationship is "a contract under which one or more persons (the principal[s]) engage
another person (the agent) to perform some service on their behalf which involves delegating some
decision making authority to the agent‖ [8]. This is the scenario in private enterprises where
managers (single agent) are the agents of the shareholders (single principal).
Principal – principal conflicts refer to the conflicts between two classes of principals; controlling
shareholders and minority shareholders [9]. While principal – agent conflicts are especially relevant
in firms characterized by simple separation of ownership and control, Principal-principal conflicts
are relevant in firms with concentrated ownership and control with a controlling shareholder [10].
This is the scenario in big firms in Mongolia characterized by dominant or major shareholder and
minority shareholders. Principal-principal theorists argue that different types of owners may or may
not have aligned incentives regarding corporate strategy when the strategy does not uniformly
impact the benefits and costs of different owners. Principal-principal conflicts have firm-level
consequences that directly impact on firm performance.
Lastly, Stakeholder-agency theory suggests that the firm could be seen as a nexus of contracts
among resources holders; shareholders, managers, other employees and finance companies that
provide supplementary finance. Its paradigm encompasses all explicit and implicit stakeholders
unlike mainstream agency theory. In this scenario, co-ordination provided by corporate governance
mechanisms is required to minimize opportunistic tendencies that jeopardize firm‘s commitment to
innovative activities that improve financial performance and foster economic development.
5. Methodology
This study has an empirical perspective and derives data from both reliable secondary and primary
sources. It begins with an introduction explaining the key concepts, highlights the changing
structure of the ownership of Mongolian listed firms and looks at the problem scenario, presents and
analyses research data using tables and charts, tests the research hypotheses using chi-square test
and finally makes some conclusions based on the research findings.
5.1 Collection and Analysis of secondary data
Informative and authoritative websites, government literatures and National Statistics Office (NSO)
were consulted for secondary data. Secondary data for the study was analyzed using charts, bars and
percentages.
5.2 Primary Data Collection and Analysis
Interviews and surveys were conducted to collect primary data. Primary data was in respect of
corporate governance practices in Mongolian firms and was collected using questionnaire.
65
The questionnaire is structured in such a way that it focuses on three important dimensions of
internal corporate governance of Mongolian firms, namely: ownership concentration, the board of
directors, and whether external or internal CEO positively impact firm governance structures. There
were a total of twenty-four (24) questions on the questionnaire; eight (8) each pertaining to each
dimension. Responses to the questions were measured using Likert five point-scale; strongly agree
to strongly disagree.
5.3 Population and Sample Size
Out of a population of three hundred and twenty (320) firms listed on the Mongolian Stock
Exchange, a sample size of seventy (70) randomly selected companies was used for the study. Four
(4) management level employees were surveyed in each selected company giving a total of two
hundred and eighty (280) respondents. This was to ensure that only knowledgeable and experienced
staff were surveyed.
6. Demographics of respondents
Set out below are the years of experience and ages of the respondents;
Years of experience of respondents

Number of Respondents
300
250
200
150
100
50
0
Less 25 - 30 31 - 35 36 - 40 41 - 45 Over Total
than 25 Years Years Years Years 45
Years Years
Frequency 1 12 48 85 118 16 280
Fig. 2. Years of experience of respondents,

Source: Prepared by the author from survey data.
66
Age ranges of respondents
Number of Respondents
300
250
200
150
100
50
0
Less 5 - 10 11 - 16 - 21 - Over Total
than 5 Years 15 20 25 25
Years Years Years Years Years
Frequency 0 36 88 115 32 9 280
Fig. 3. Age ranges of respondents,

7. TEST OF HYPOTHESES AND RESULTS
Questionnaire responses were analyzed and research hypotheses were tested using Chi-Square.
The test results presented below are in respect of questions relevant for hypotheses testing;
Hypothesis 1
There is no improvement in corporate governance practices among Mongolian firms post free
market transition.
Figure 4: Analysis of questions related to test of Hypothesis 1,

67
Table 3. Test statistics and validity1

Test Statistics
X²cal (Chi-Square Calculated)
= 13.01933919
df = 4
α = 5%
X²tab (Chi-Square Tabular, X² 0.05,4) =
9.488
Test validity
All Fe are > 5
Min. Fe = 45
Sample size is > 50
Each Class is > 5
Source: Author, survey result analysis
The results above show that the X²cal = 13.02, X²tab = 9.49 at 4 degrees of freedom. X²cal is >
X²tab therefore the null hypothesis Ho1: There is no improvement in corporate governance
practices among Mongolian firms post free market transition is rejected and the alternate hypothesis
H1: There is improvement in corporate governance practices among Mongolian firms post free
market transition is accepted.
Hypothesis 2
Increases in private ownership of firms in Mongolia have not led to the practice of improved
corporate governance principles in Mongolian firms
Fig. 5. Analysis of questions related to test of Hypothesis 2

Source: Author, survey data.
68

Test Statistics
X²cal (Chi-Square
Calculated) = 20.33088
df = 4
α = 5%
X²tab (Chi-Square Tabular, X² 0.05,4) =
9.488
Test validity
All Fe are > 5
Min. Fe = 45
Sample size is > 50
Each Class is > 5
The test results show that the X²cal = 20.33088 and X²tab = 9.489 at 4 degrees of freedom. X²cal is
> X²tab therefore the null hypothesis Ho2: Increases in private ownership of firms in Mongolia have
not led to the practice of improved corporate governance principles in Mongolian firms is rejected
and the alternate hypothesis H2: Increases in private ownership of firms in Mongolia have led to the
practice of improved corporate governance principles in Mongolian firms is accepted.
Hypothesis 3
Corporate governance practices in non-state-invested firms are not better than corporate governance
practices in state-invested firms in Mongolia.
Fig. 6. Analysis of questions related to test of Hypothesis 3

Source: Author, survey data.
69

Test Statistics
X²cal (Chi-Square Calculated)
= 16.10816904
df = 4
α = 5%
X²tab (Chi-Square Tabular, X² 0.05,4) = 9.488
Test validity
All Fe are > 5
Min. Fe = 45
Sample size is > 50
Each Class is > 5
For test of hypothesis 3, the results above show that the X²cal = 16.11 and the X²tab = 9.49 at 4
degrees of freedom. X²cal is > X²tab therefore the null hypothesis Ho3 that Corporate governance
practices in non-state-invested firms are not better than corporate governance practices in state-
invested firms is rejected and the alternate hypothesis H3 that Corporate governance practices in
non-state-invested firms are better than corporate governance practices in state-invested firms is
accepted.
Conclusion
This paper has highlighted the influence private ownership has had on corporate governance
mechanisms in Mongolian listed companies. Specifically, this paper provides empirical evidence
that there is a positive relationship between private ownership and good corporate governance
practices of firms in Mongolia. The three null hypotheses formulated at the beginning of the study
to guide and provide direction were all rejected and there corresponding alternatives accepted.
The study discovered that although a lot still needs to be done, private ownership has generally
impacted significantly on corporate governance practices among Mongolian firms.
By way of recommendation, the ongoing privatization program of Mongolian government is a step
in the right direction and should be cautiously fast tracked. It is imperative that corporate
governance mechanisms in Mongolian firms be further improved in order to boost investor
confidence, attract foreign capital and make the economy more competitive.
70
References
1. OECD Principles of corporate governance, 2004 ed., Preamble.
2. About Corporate Governance. Available from

http://www.ifc.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/C
orporate+Governance (Accessed May 6th, 2015)
3. http://acts.oecd.org/Instruments/ShowInstrumentView.aspx?InstrumentID=151&Instrument
PID=147&Lang=en&Book (Accessed June 17th, 2015)
4. Robinson, B. (1995). Mongolia in transition: a role for distance education. Open Learning,
10, 3-14.
5. Bray, M., Davaa, S., Spaulding, S. & Weidman, J. (1994). Transition from socialism and
the financing of higher education: The case of Mongolia. Higher education policy, 7, (36-
42).
6. http://www.tradingeconomics.com/mongolia/gdp-growth-annual(Accessed June 20th, 2015)
7. http://www.worldbank.org/en/country/mongolia/overview(Accessed June 19th, 2015)
8. Jensen, M. C., & Meckling, W. H. 1976. Theory of the firm: Managerial behavior, agency
costs and ownership structure. Journal of Financial Economics, 3(4): 305–360.
9. Dharwadkar, R. , George, G. , and Brandes, P. (2000). ―Privatization in Emerging
Economies: An Agency Theory Perspective,‖ Academy of Management Review, 25(3):
650–69.
10. Young, M. N. , Peng, M. W. , Ahlstrom, D. , Bruton, G. D. , and Jiang, Y. (2008).
―Corporate Governance in Emerging Economies: A Review of the Principal–Principal
Perspective,‖ Journal of Management Studies, 45(1): 196–220.
71
HUMAN RESOURCE VALUE MEASUREMENT: POSSIBILITY TO ADOPT

INTERNATIONAL EXPERIENCE IN MONGOLIA
Saruultugs Natsagdorj1, a*, Purevdorj Otgonbayar2, b

1, 2
The Business School of National University of Mongolia
a
nsaruultugs@yahoo.com, b purevee21@yahoo.com
Keywords: Human capital, Human resources measurement model, Human resource value, Human resource
accounting, statement
Abstract
The first attempt to measure human resource value was done by R. G. Barry Corporation
with the help of scientists from the Michigan State University, Ohio in 19671. Since then human
resource accounting and human asset measuring methods and theoretical aspects have been actively
developed by scientists. Today, stakeholders of the organization are very interested in human
resource accounting due to it is importance in human assets measurement and became a tool of
information exchange.
However, human resource records, estimates and measurements are still not widely recognized in
human resource accounting studies. This situation is the same here in Mongolia. Therefore, this
article is intended to compare "human resources measurement models", which were developed by
international scientists, and we aimed to make proposition for Mongolian companies to evaluate
human resource and make statement about them.
Introduction
The global economy has been transferred to a knowledge-based economy. Human resource
became a high priority issue for many countries‘ political policies. For the development of any
country, specially, for companies to achieve their objectives, it is essential to participate in the
competition with experienced and skilled personnel, who has specialized knowledge and right
attitude. Therefore, within the globalized economy, we need to determine human resource policies
appropriately, specifically, human capital needs to be properly valued and guided in order to create
economic growth and wealth.
Through out hundreds of years of industry development, the importance of land and natural
resources, physical resources / assets, machinery, equipment, money and finance have been often
overvalued compared to its workers by the business owners. Then, in the 21st century, investors,
executives, human resource managers and employees all have recognized that the key factor of the
organizations‘ achievements and success is optimal management of human resources. One of the
1
Pedro Andrade, Ana Maria Sotomayor. (2011) Human capital accounting-measurement models, International Journal of Economics and
Management Sciences. Vol.1, No.3. 78-89.
72
indications of this is an international conference ―Global Leadership forecast 2014‖, in which 13124
leaders of 2031 organizations were participated from 48 countries and they determined ―10
challenging issues faced by CEO‖.
If we rank them according to its importance, ―human capital‖ has been considered as the most
important issue among them. This indicates that the most valuable asset and the main source of
competitive advantage for the organization is human capital.
Fig. 1. 10 challenging issues faces CEOs

Resource: Global Leadership Forecast 2014/2015
Many academics in economic and management field have developed their theories, definitions and
models about human capital and if we summerise them, as following:
1. It is a ―social capital‖ as it creates social wealth
2. It is an ―institutional capital‖ as it enhances organization's efficiency and value
3. It is an "intellectual property or intangible capital" as it creates wealth through knowledge,
skills, experience and talent.
1. Human Capital at international level:

According to the World Bank study, intangible asset is the largest component in the total
wealth structure of the most countries. This study was carried out in 2010 based on data of 2005 and
it revealed that intangible asset accounts for 57% of total wealth in low income countries, while it
accounts for 81% of total wealth in high income countries.
Table 1. Total wealth structure (2005)

Percent in Total wealth
Country Total Wealth
Intangible Produced Natural
/by income/ (US$ billions)
Capital Capital Capital
Low income 3,597 57 13 30
Lower middle income 58,023 51 24 25
Upper middle income 47,183 69 16 15
High income 551,964 81 17 2
Total 673,593 77 18 5
Resource: The world bank, (2010). The Changing Wealth of Nations, 28
73
From this, it can be concluded that these countries produce more wealth and intangible assets
through with highly skilled and knowledge human resources.
In 2008, the United Nations conducted a study and determined the total wealth and wealth structure
per capita of some countries.
Fig. 2. Study on total wealth in some countries

Source: UN report, 2008
It is shown that in these countries, wealth created by human has produced more efficient return than
the natural and physical capitals. For example, in Japan, total wealth per capita consisted of 70% of
human capital, 1% of natural capital and the remaining is physical capital.
Also, we can see the growth of human capital from China‘s example. Human capital of China is
7.1-10 times more than its GDP. From the Table 2, it is seen that human capital has increased by
2.6-2.7 times per 101 years‘ time.
Table 2. China's human capital and GDP /prices in 2005/

Years Human capital /US$ billions/ GDP /US$ billions/
1987 3,247 325
1997 8,627 953
2007 23,364 3,280
Source: The world bank, (2010). The Changing Wealth of Nations, 28
It can be concluded from this data that in the era of information and technology any organization‘s
development and success mostly depend on human capital (manpower, specially human resources
management) rather than physical capital.
74
2. Issues of human resource measurement:
The father of economics Adam Smith (Adam Smith 1776) was the first man, who described
about human capital in his definition of capital and also he considered that human skills can
enhance social wealth.
The first attempt to evaluate human value by monetary amount had done by economist William
Petty in 1691. He considered that human value must be included in the national wealth. Then, in
1853, William Farr and in 1863, Ernst Engel studied deeply about human behavior and started to
critisize that human capital is not included in the accounting records due to consideration of
impossiblities to measure human resources. As a result, economists and accountants started to
understand the value organization‘s employees and their costs. Since then, theory and methodology
of human resources value, innovation and measurement issues have been still developing rapidly.
Since 1960, classic models of human capital concept and human capital valuation has been
developed. The first attempt of measuring organization‘s human resources had done by R. G. Barry
Corporation, Ohio, in 1967 and it was done with the help of scientists from the University of
Michigan. Also, there are many scientists, who have developed models to assess human capital and
main representatives are Theodor W.Schultz, Eric Flamholtz and Lev & Schwartz.
3. Human resources’ evaluation methods:
Human resources can be measured by certain parameters in terms of human resource management
and accounting concern. There are 3 types of measurements to be used, such as:
1. Rating scales /quantity, units etc/

2. Labour measurement /working day, working hours, performances has to be done,
productivity and quality/
3. Monetary measurement /tugriks, value/
In this study, we have done comparative analysis on models, which are concern on measurement of
human capital and express them by monetary value.
Monetary measures of the value of human capital can be classified as following:
А. Models based on cost approach: historical cost, compensation cost, standard cost and current
cost are used by identification methods.
Б. Value-based models: these models include methods, which evaluating the efficiency of HR
organizations. From them, Hermanson‘s model ―Adjusted discounted future wages model,"
Lev & Schwartz "Present value of future earnings model", Erich Flamholtz’s ―Stochastic
model‖, Lev and Friedman's "Labor cost model" are the basic models of human resource
value measurement.
Today, the measurement of organizations profitability and its labor cost is becoming a
measurement that‘s based on human resource value. For example: Based on the methodology by
Russian scientist, valuator V.Alaverdyan, Scientists G.N.Tuguskina, A.V.Korozki and
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V.V.Alaverdyan have included human resource value measurement design in their 2009 work
―Methodology for Assessing the Human Capital of Enterprises‖.
The design by G.N.Tuguskina makes calculations easier, and as the calculations are based
on factors such as the profit changes brought by the human resource to its organization, staff
proficiency and retention, the human resource value is now calculated in a more realistic manner to
a certain extent.
4. Estimation of organization’s human resources
We have chosen one economic entity from both business and educational sectors of Mongolia in
order to estimate their human resources. Business entity is a major business organization registered
at the Mongolian Stock Exchange, while educational organization has conducted educational
activities for many years through comparatively sustainable human resources. We have also tried to
choose organizations of similar numbers of staffs.
In order to estimate results of two organizations, we have used Lev Friedman‘s model, and
G.N.Tuguskina‘s model. In order to keep secrecy of both organizations, we have not included
information used for models into this article. Thus, you can see estimations and summaries on
human resource values in every model from Table 3.
Table3. Comparative research on the results of human resource value models

Educational organization Business organization
Criteria
2015 2016 2015 2016
By G.N.Tuguskina‘s model:
Human Resource‘s revenue index 0.76 0.06 0.95 2.01
Human Resource‘s cost index 1.09 1.17 1.12 1.73
Professional growth 3.76 3.79 3.06 3.08
Human resource index 5.62 5.02 5.14 6.82
Total asset /by balance sheet sum/ 36.0% 34.1% 61.8% 51.4%
Human Resource value 64.0% 65.9% 38.2% 48.6%
Total resources 100.0% 100.0% 100.0% 100.0%
Total asset growth - 98.4% - 110.7%
Growth in human resource value - 107.0% - 169.4%
Total resources growth - 103.9% - 133.1%
By Lev Friedman‘s model
Lev Freedman‘s model 36.1% 31.7% 58.9% 55.4%
Human Resource value 63.9% 68.3% 41.1% 44.6%
Total resources 100.0% 100.0% 100.0% 100.0%
Total asset growth - 98.4% - 110.7%
Growth in human resource value - 119.6% - 127.4%
Total resources growth - 112.0% - 117.6%
Source: Researcher‘s calculation
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In the G. N. Tuguskina‘s model, human resources revenue index shows the changes in the average
contribution of the staff to the organization in comparison with previous year. It shows human
resources in the educational organization have less capacity to make revenue than human resources
in the business organizations.
Human Resource‘s cost index shows the growth of the labor costs paid by organization for per
person and investment to the human resources. Business organization has sharply increased its costs
in 2016.
By professional growth, educational organization has higher criteria and data than business
organization. This difference has arisen due to calculation of the professional growth as follows:
A. By the knowledge and education of staffs. Most of the educational organization‘s staffs are
specialized staffs with higher professional skills; therefore, it influences on the professional
growth.
B. By average term of employment for the organization: permanent employment for the
organization allows the work efficiency of the staff. In other words, it is criterion of
productivity and skills: as staffs in the educational organizations work longer and more
permanently for their organization; therefore, the criteria of professional growth is better
than staffs of business organization.
C. By average age: the older average age show better work experience that is one criterion of
human resources. This criterion is also better for educational organization. In comparison
with previous year, average age of staffs grew in the business organization that also
influenced on the growth of professional skills.
By this model of Tuguskina, human resources value was 1.8 times more than total asset of
educational organization as of 2015 and 1.93 times more in 2016, respectively. In business
organization, human resources value was equal to 61.8% of total assets in 2015 and 94.6% in 2016,
respectively.
In comparison with the growth in total assets, human resource growth was 8.6% for educational
organization and 58.7% for business organization as of 2016. It shows that business entity has paid
a special attention on its human resources. Certainly, this rate of human resource growth influences
on growth of business organization‘s total asset (sum of total asset and human resource values) by
33.1%.
By Lev Friedman‘s model, human resource value was 1.77 times more than total asset of
educational organization in 2015 and 2.2 times more in 2016. Human resource value of business
organization was equal to 69.8% total asset in 2015 and 80.5% in 2016, respectively.
In comparison with the growth of total asset, growth in human resource was 21.2% for educational
organization and 16.7% for business organization as of 2016.
Lev Friedman‘s model uses salary cost information of organization, while Tuguskina‘s model uses
information on total costs of labor. As the used information is different, the relevant results are also
different.
The difference in results of two models was 0.6% in 2015 and 26.7% in 2016 for educational
organization, while it was 13% in 2015 and 17.6% in 2016 for business organization, respectively.
5. Revision of human resources from the accounting point of view

Human resource is not an asset of the organization like capital and material assets; however,
it becomes an object of the accounting and management accounting through creation of efficiency
for the organization. Scientists and researchers have different opinions whether to register the
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human property into the accounting; however, Mongolia has not had such practice yet because
International Accounting Standard and International Standard for Financial Statement have not
stated to reflect it.
Business participants are provided with information discrepancy to trust each other; therefore, some
major companies and transnational companies of foreign countries measure and estimate their
human resources and human capital to reflect into internal information and full reports. For
instance: Singapore, Malaysian, Australian, Philippines, and Indian companies use classic models
for human capital estimation and reflect into their balance sheets and financial statements.
Human capital is one of the reserves that bring efficiency to the organization; however, it has not
been registered and reflected into the accounting due to the necessity to admit the following main
notions and understanding:
1. The first cost to reflect into the accounting
2. Addition to the costs
3. Reduction in the costs
4. Balance cost
5. Remaining cost
6. Discounts
These issues have been revised, summarized, and explained by scientists and researchers in different
ways; therefore, they can‘t reach the untied understanding and negotiation on acceptance of the
measurement. Mongolian scientists and researchers have not also made research works on these
issues, yet.
From the management accounting, human capital is revenue or treasure creating asset; however, it is
difficult to reflect and register costs, investments, and withdrawals spent on the human capital into
the financial statements and report information can‘t meet the requirements for decision making
process. For instance: When the previous staff leaves the organization, costs for hiring a new staff
can be a sum of costs related to the hire of new staff, ―training costs‖, and ―Costs to dismiss/ release
a staff from the work position‖.
Now let‘s see how Mongolian economic entities2 reflect these costs into their financial statements
and balance sheets.
1. Costs for finding new staff – it is reflected into Other costs in the Income Statement,
2. Training costs – direct costs of training activities are reflected into training costs while
salary and wage for teachers and instructors conducting the training are included into Salary
and Wage costs, and Social Insurance Cost,
3. Costs for dismissal of staff from the work position – when staffs leave the organization, the
organization reflects the promised amount or subsidy into ―Costs for Subsidy and
stimulations to staffs‖, promotion and vacancy notice costs into ―Costs of promotions and
advertisements‖, respectively; however, it does not reflect and calculate the costs and harms
caused to the company when the staff leaves the organization.
Generally, all these costs are reflected into the administration costs in the balance sheets in our
country.
2
Монгол Улсын Сангийн сайдын 2014 оны 12 сарын 23 өдрийн 219 тоот тушаал, ―Аж ахуйн нэгжийн нягтлан бодох бүртгэлийн заавар‖
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Proposals and summary

When the development of world countries are based on human knowledge, and skills, it is
necessary for mongolia to make an investment into its human capital.
Thus, it is necessary to improve average educational level of Mongolian persons, to estimate human
capital, and make them understand about their values, and to improve their competitiveness up to
the world level.
Organizations, especially their administration and supervisors must measure their human resource,
to estimate and analyze their measurement criteria correctly, and use for future achievements,
results, and business growth of the organization. Calculation of report of Human resource related
costs and investments shall grant privileges to estimate efficiency correctly and to manage
organizational treasure optionally.
References:
1. Flamholtz.E.G.(1999). Human resource accounting: advances in concepts, methods, and

applications. 3.ª edição, Kluwer Academic Publishers
2. FRIEDMAN.A, LEV. B (1974). A surrogate measure for the firm‘s investment in human
resources. Journal of Accounting Research. 235-250.
3. HERMANSON, R.H. (1964). Accounting for Human Assets. Occasional Paper, №.14,
Bureau of Business and Economic Research, Graduate School of Business Administration,
Michigan State University.
4. MORSE, W.J. (1973). A Note on the Relationship Between Human Assets and Human
Capital. The Accounting Review. 589-93
5. Pedro Andrade, Ana Maria Sotomayor. (2011) Human capital accounting-measurement
models, International Journal of Economics and Management Sciences. Vol.1, No.3. 78-89.
6. The world bank, (2010). The Changing Wealth of Nations
7. Монгол Улсын Сангийн сайдын 2014 оны 12 сарын 23 өдрийн 219 тоот тушаал, ―Аж
ахуйн нэгжийн нягтлан бодох бүртгэлийн заавар‖
8. Тугускина.Г.Н. (2009). Анализ человеческого капитала коммерческих предприятий.
Управление персоналом. №1 (203). 42–44
79
CURRENT STATUS OF COMPLIANCE TO IFRS AND SOME OTHER

ISSUES
Bolormaa Budsuren1, а*
1
Doctor (Ph.D), CPA, Senior officer, Accounting Policy Department, Ministry of Finance Mongolia
a
bolormaa_bu@mof.gov.mn
Keywords: IFRS/IPSAS, national standards, Governmental Financial Management and Information System,
Finance Management of Government.
Abstract
International Financial Reporting Standards which is a result of accounting globalization is
renovated and updated in consequence of changes in concept, principles and globally-recognized
best theory, practice and experience to present the transactions in the financial statements.
As shown in survey[1] carried out by the Ministry of Finance in 2017, there has been no
IFRS that is graded as ―A‖ in regards with the adoption to/implementation of IFRS. There were 7
IFRSs graded as ―B‖, 5 IFRSs graded as ―C‖, 17 IFRSs graded as ―D‖ and 7 IFRSs graded as ―F‖.
The rating percentage of IFRSs graded as ―D‖ and ―F‖ is 66.7 percent out of current IFRSs adopted.
New Mongolian Law on Accounting and Mongolian Law on Auditing were formulated in
2015 and became effective from 2016, accordingly, it was found that there have had some positive
effect to reduction in problems and difficulities facing with preparation, submission, auditing and
correction of financial statements by business entities adopting to IFRS in aspect of legal
environment. However, classification, measurement, recognition and valuation of financial
statement elements are not fully in compliance with internationally-recognized standards and
requirements. Therefore, it is facing the need to adhere to a policy for direct adoption to standards
rather than adoption to regulation and guidelines that are consistent with the standards.
1. State of countries’ transition to IFRS
It has been over 40 years since first transition to international standards in order to
harmonize the financial reporting policy and procedures in global countries and region. These
standards have been spread over rapidly since 2005 and a single-sourced and high-quality standards
improve the transparency of information, reduce the cost for financial statement preparation and
upgrade the quality and comparability of financial statement as well as significantly affect to the
development of capital market, thus, the majority part of standard-setting bodies in 200 countries
around the world adopts to the standards (IFRS) approved by the International Accounting Standard
Board (IASB).
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IFRS is the integrated system having the certain scope, certain goal, integrated structure and
interconnected elements and they are based on certain accounting framework.[2]
International standard setting bodies (IFAC and IASB) regularly observe the evolution of
transition to international standards by a way of updating the annual survey from 1993. In annual
report of IASB for 2015 (Figure 1), the adoption of international standards among the countries in
the world is classified for purpose as (a) required to adopt to IFRS, and (b) pursuing adoption of
IFRS.
Fig.1. Status of adoption to IFRS

Source of information: Annual Report of IASB for 2015. www.iasb.org
Based on its survey on IFRS Adoption Status by countries where Microsoft Dynamic AX is
generally available by Microsoft Company in 2012 (Figure 2), it has classified 81 countries[3],
which adopt to international standards and which use Dynamic system in consistency with IFRS
into following 7 classes, including
1. Convergence of IFRS and local standards – US, India and Indonesia;

2. Adoption of IFRS without any restrictions – Russian federation, Saudi Arabia, Canada,
Mexico;
3. Adoption of IFRS with some restrictions – Brazil;
4. IFRS as adopted locally – Australia and Republic of South Africa;
5. IFRS as adopted by local regulatory organization – Japan;
6. IFRS as adopted by the EU- European Union Countries; and
7. No plan for IFRS adoption
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Fig. 2. IFRS Adoption Status

Source of information: Overview survey in 2012 by Microsoft Dynamic AX
http://blog.Oignify.com/tag/ifrs-support-in-microsoft-dynamics-ax-2012/
As shown in this survey, it was noted that there are 2 general characteristics in countries
where IFRS is adopted:
1. Level of economic development – It is proven that countries of group of Great 20 are

adopting.
2. Level of culture – it is proven that the countries having historical development of
accounting and no language barrier are adopting.
As a researcher on the basis on surveys carried out internationally, my view lays on than the
status of countries adopting IFRS can be classified as (a) direct adoption of standards approved by
IASB; (b) converge of local standards to IFRS; and (c) Adaptation of IFRS as local standards.[4]
(Table 1.)
Table 1. Status classification of countries currently applying IFRS
Status of adoption of IFRS Comment
1 Direct Adoption The class of countries include the countries adopting standards issued by
IASB with and without restrictions. For example: Montenegro, UK, Canada,
EU, Turkey, Argentina, Brazil, Mongolia.
2 Converge of national The class of countries include the countries adopting the National accounting
standards to IFRS standards and aiming to reduce difference of those standards.. For example:
USA, India, Japan, Russian federation, China, Saudi Arabia
3 Adaptation of producing for The class of countries include the countries approving and adopting the
National Accounting National accounting standards compliance with IFRS. For example: Australia,
Standards compliance with Singapore, South Africa, Taiwan.
IFRS
International Federation of Accountants and International Accounting Standard Board
rapidly have revised and updated the financial reporting standards and standards on auditing during
recent years, as a result of which a number of standards has been superceded by new standards,
including IFRS 15, Revenue from the Contract with Customer, IFRS 16, Lease that were issued and
ISA700, Forming an Opinion and Reporting on Financial Statements, ISA701, ―Communicating
Key Audit Matters in the Independent Auditor's Report‖, ISA706, ―Modifications to the Opinion in
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the Independent Auditor's Report‖, ISA570, ―Emphasis of Matter Paragraphs and Other Matter
Paragraphs in the Independent Auditor's Report‖, ISA720, ―The Auditor‘s Responsibilities Relating
to Other Information‖.
2. Status of adoption of IFRS by the Entities in Mongolia
There are 100,000 entities and organizaitons registered in website ―e-balance‖ for
submission of financial statements and operated in Mongolia and 78 percent of total entities submit
their financial statements prepared using on-line e-balance system. In accordance with the state
inspection on the accounting practice conducted by Ministry of Finance, the rate of compliance to
IFRS among the entities in Mongolia was 27.1 percent in 2001 and 59.1 percent in 2003,
respectively. Full adoption rete was 49 percent and rate of partial adoption was 37 percent.
Currently, there are 43 IFRSs/IASs that are issued and 36 standards can be adopted, except
for 3 (IFRS 14, IFRS 15 and IFRS 16) of total 43 standards that are not yet effective and 4 (IFRS 1,
IFRS 2, IFRS 14 and IAS 34) standards that are not for accounting for transactions. However, for
the entities of Mongolia, the adoption to IASs 12, 24, 28, 32, 36 and IFRSs 3, 13 is rated ―F‖, the
adoption to IASs 2, 8, 10, 11, 18, 20, 27, 39, 40, 41 and IFRSs 5, 6, 7, 9, 10, 11, 12 is rated ―D‖, the
adoption to IASs 16, 17, 19, 23, 38 is rated ―C‖ and the adoption to IASs 1, 7, 21, 33, 37, IFRS 4, 8
is rated ―B‖. Thus, this fact shows that the adoption to international standards is very weak in
Mongolia.
It was concluded in Public Sector Financial Management Performance Report Governmental
Financial Management Information System of Mongolia /PFMPR/[5] that Mongolia has been
working towards implementing accrual based IPSAS, however, the IPSASs have not been adhered
with fully. In other hand, the financial statements of entities looks like consistent with international
accounting standards in aspect of reporting format so it has been concluded that international
standards are implemented in full.
The International Financial Reporting Standards, as a result of accounting globalization are
designed in consequence of concepts, principles, internationally-accepted best theory, methodology
and experiences to account for and express the transactions in the financial statements and are
updated regularly. IFRS is the integrated system having the certain scope, certain goal, integrated
structure and interconnected elements and they are based on certain accounting framework.[6]
However, some researchers consider that it is necessary for the countries, which have a
small population, few certified public accountants and auditors, a huge territory and not developed
infrastructure, to have difficulties in adoption to the international accounting standards.[7]
2.1 Current legal environment of adherence to IFRS
The accounting law and Auditing law of Mongolia have been revised and the revised laws
are effective from 2016. As a result, the difficulties faced with preparation, presentation,
submission, restatement and auditing of financial statements of entities adopting IFRS have been
reduced on legal aspect. Accordingly, the following positive changes have been found:
1. It enabled for entities and organizations to adopt the international accounting standards in
consistency with its business features and to have its financial statements audited. In other
hand, it will enable for entities either International Financial Reporting Standards or
83
International Financial Standards for Small and Medium Entities or International Public
Sector Accounting Standards which is appropriate.
2. Entities and organizations are possible to submit the financial statements electronically one
or twice annually and are able to use information in E-balance on-line platform.
3. The accounting and auditing standard board, which oversee the official translation of
Accounting and Auditing Standards, has been established in accordance with the resolution
of Ministry of Finance, and accordingly it has issued and approved Standards on accounting
for exploration and extraction activities, on accounting for Construction contract revenue
and expenses and on accounting for biological asset and agricultural produce.
4. The requirement for submission of consolidated financial statements for the group of
companies is implementing from first quarter of 2017.
5. Criteria for statutory audit of entities has been changed from base of amount of total assets
into a base of concept ―public interest entities and organizations‖ and rotation of auditors for
every 5 years has been resolved. The system has been changed that the quality of audit and
assurance engagements is controlled by the Government.
6. The Law of Auditing has been changes that the Board of Directors can engage the auditors
of the state owned companies, which is in consistency with the Company Law of Mongolia
and Corporate Governance principles.
2.2 Differences in adoption of IFRS
The following departure from and differences in adoption of IFRS among state owned
companies and joint ventures are occurring popularly in our country:
 It may be getting more common that the accrual basis of accounting cannot be maintained in
regards with the administrative requirements from government agencies, for instances the
acquisition and disposal of PPE items should be authorized by State Property Commission
/former/.
 Recognition of PPE item and related borrowing is deferred as a result of not handling over
by the decision of government inspection in regards with assets acquired by the proceeds of
sub-loan of the Government and used in company‘s principal activity.
 The measurement of assets at fair value is not practically implemented. The inventories
should be valued at lower of cost or net realizable amount, however, they are carried at
historical cost. In other hand, the impairment of assets is not practicable since the
impairment loss is not tax deductible cost.
 The transactions such as exchange of assets, depreciation, capitalization of subsequent cost
and recognition of assets in regards with cash-generating units, are treated for tax purposes.
The residual value is not determined for PPE and intangibles. The requirements of related
standards are not meet in accounting for impairment, revaluation surplus and deficiencies
and initial recognition of intangible assets.
 It has been noted that the stripping costs are charged as cost rather than capitalization to
mine properties. There are statutory requirements for provision for rehabilitation and closing
of mine site, however, the entities do not determine the provision for future costs.
 The funds and subsides provided from state budget should be accounted for as income in the
financial statements in accordance with IAS 20, ―Government Grant‖, however, they are
84
recorded and presented in the financial statements as other equity items. The Government
grants in the form of non-current assets are not deferred and amortized over the useful lives
of the related assets.
 The requirement for payables arising from employees bonus, benefit and pension plan under
IAS 19 to be measured at present value and to be accrued is not adhered to.
 The equity method for investment in subsidiary, associate and joint venture under IAS 28,
Interests in associates and the proportionate consolidation of revenue and expenses of joint
venture under IAS 31 Interests in joint venture are not adequately applied .
 The knowledge and awareness of non-controlling interests are weak and new control model
for preparation and presentation of consolidated financial statements is not applied.
 The deferred tax asset and deferred tax liabilities under IAS 12, Income tax are accounted
for properly, however, subsequent reconciliation and amortization is not made due to weak
knowledge and skill.
Conclusion
The international standards are fully adopted neither for Government sector entities and nor
private sector. This is due to the fact that there is no framework of setting accounting and auditing
standards not established, skills and capacity of accounting personnel is weak and use of audited
financial statements under IFRS is limited.
However, there is an increasing demand for use of consolidated financial statements of the
Government of Mongolia as a result of Government bonds issued in international capital market.
Therefore, the quality of audited financial statements of entities and enterprises for consolidation
government financial statements is considered as a vital issue.
The guidelines for accounting and auditing approved by the Minister of Finance of Mongolia
do not stand for international standards and are for regulation of general relationship of accounting
and financial reporting. Therefore, we need to adopt the international standards directly rather than
adopt the guidelines in consistency with IFRS and to have the strategic policy to issue national
standards developed for the issues not regulated by the international standards or regulated by the
general framework.
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References
1. Bolormaa, B. (2015). Adoption of international standards in entities‘ accounting records.
Ulaanbaatar city.
2. www.iasb.org. (2016). International Financial Reporting Standards.
3. Paul, G. (2015). Mongolia‘s moment. The Accountant journal. December.
www.theaccountant-online.com/countrysurvey/mongolias-moment
4. The International Bank for Reconstruction and Development/ The World bank. (2015).
Mongolia: Public sector financial management performance report. April.
5. Ministry of Finance. (2017). Survey on Application of IFRS Standards. World Bank and
Mongolian Accounting Institute. Ulaanbaatar city.
6. http://blog.ignify.com/tag/ifrs-support-in-microsoft-dynamics-ax-2012/
7. www.iasb.org
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TYPES GRAIN MANUFACTURING THREATENS AND IT’S

MANAGEMENT
L.Naranhuu1, а*, Yumaajav Byambaarai2, b

1
Doctor (Ph.D), Prof, Мongolian National Defense University
2
MBA, CPA, Мongolian National Defense University
а*
narankhuu.l@muls.edu.mn, byumaa_bhis@yahoo.com
Keywords: Risk of agriculture, Value of risk, Grain production, Risk management, Benefit
Abstract
Agriculture production is one key sector of Mongolian economic development. During this
time, when there is frequency of economic risk in worldwide, the past experiences had shown that
relying on the underground resources and wealth will be very disadvantageous, it is very essential to
improve economic immunity. This issue had been launched in nationwide policy and programs such
as Virgin land crusade III had been implemented but development of this sector had not been
reached to the adequate level, the country still is importing wheat and floor from the two
neighboring countries. Many factors such as climate, conditions, weather, outdated technique
technology, finance lack are influencing to this issue.
Therefore the research thesis aims to determine the risky situations facing to agriculture
production especially farming production, to estimate the risk vale and risk probability, to identify
how this risk is influencing to benefit and efficiency, to make analysis using the probability, statistic
and econometrics methods on the basis of statistics data and actual information, and to report the
outcomes.
Identifying the risks which might face to grain manufacturing, and determining and
management methodology and the ways protecting against the risk facing, thus it would be effective
for entrepreneurs and to make stable their business operation and increase the benefit from the
production.
It is recommended to develop the proposal and issues to pay particular attention by the
business entities, branch authorities and ministries nationwide.
87
1. Types grain manufacturing threatens and its management

1.1 Grain manufacturing current situation and its attitude
Grain manufacturing activity shall be taken on legal environment under ―Law of
Farming‖/January 29th ,2016 /2016-2020 Action program of Mongolian Government‖, Policy of
sector of Food, agriculture and light industry.
Following measures of planned policy in 2016-2020 Action Program of Mongolian
Government are reflected. Included:
Environment of Virgin land crusade III:
- To improve usage of circulating field, to establish area of farming and livestock/ to solve
offence related to herders/ to provide domestic demand 100% by grains
- To raise hectare‘s size of harvest by 30% as improving quality of grain sort
- To introduce technology of soil conservation, fertility, and rotation teg endenshuuleelt
- To improve irrigation system and introduce new technology
- To create insurance system
- Grain technology innovation to achieve 75%
- Planning to take measures to develop system for the enpower continuously on human
resources and provide the continuity of educational.
Current grain production is defined as followings and reported by the Ministry of Food,
Agriculture and Light Industry . (Figure 2.)
Fig. 2. Grain manufacturing

Table 1. Support on grain manufacturing /billion. tug/
Year Promotion Fuel Grain Wheat Total
2012 27.8 3.0 2.0 32.8
2013 25.3 6.6 1.8 33.7
2014 24.7 8.6 7.3 40.7
2015 5.6 7.5 5.6 18.8
2016 16.0 9.4 7.8 33.2
Total 99.4 35.2 24.5 159.2

Source: http://mofa.gov.mn/exp/blog/8/70
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1.2 Grain sort

State committee of sort test is approved to test Zusakh/this sort planted in Autumn , in Winter
sort left under soil and In Spring it shall harvest/ soft wheat ‗Trizo‘sort on meeting of December
14th, 2016 according to list of approved and considered sorts.
This sort is a great opportunity to avoid natural and weather ricks because planting on Fall and early
growing period for crops after a year or next year.
This kind of problem is still urgent problem that relocation of maturing grain of cold-resistant and
short term.
Current days, Darkhan-176, 165 sorts are used in farming
Agricultural technique and technology
1.3 Grain technical current situation and its urgent issue
Technical innovation of grain, oil and feed crops are 60-65%
About 40 percent of total techniques are using and its lifetime ended, Capacity is low so that
increasing expense and raising production‘s own cost. Technology work is done on time so
unnecessary expense is out and decreasing size and quality of harvest. Because the lack of capital
property and high bank interest rates Farming Enterprises can not do technical innovation very well.
Modern and Advanced technology of Grain
Modern and Advanced technology of Grain
Integration:
Traditionul: Teg eldenshuulelt /To plant the crops by
1Processing the soil without soilerosion
1Break the activating field by rotating not destroying soil/
2Harrow
2Harrow 1UKhB spray
3UKhB spray
3To plant 2To plant
4To plant
4To harvest 3To harvest
5To harvest
The feature of modern technology is recycling the soil and refuse to endenshuulh so that soil
erosion, fertility, retain moisture, excess fuel and technical expense is decreased.
1.4 Technical Innovation framework for the Future
To support methods of tax policy, finance and leasing for doing technical innovation
 To extend exemption time from Custom Duty; /Ends in December 31st, 2016/
 To exempt Value Added Tax that is limited for financial hiring service of agricultural
equipment;
89
 To get finance and loan that is supported export of The world‘s biggest Agricultural
equipment manufacturer; /USA, China, Belarus, Poland/
 Entrepreneurs to be able to offer low-interest, long-term leasing techniques consistent with
the size and type of production.
 For example, to create a fund of technical innovation from sources of China focused back
asset marketing that supplied under Chinese discounted loan. To support discounted loan to
enterprises that shall do technical innovation from this fund and implement the project of
technical leasing with financial organization.
The national results for the 1982-2016 data analysis, grain production is the appearance of the
following scene
Улсын хэмжээний үр тариа

1000
900
800 Тариалсан талбай/га-гаар/
ургац, тариалсан талбай
700
Авсан ургац /тн-оор/
600
500 Нэгжийн ургац/цн-ээр
y = -14.292x + 28974
400 R² = 0.3344
y = -11.712x + 23809
Linear (Тариалсан талбай/га-
300 R² = 0.4249
гаар/)
200
Linear (Авсан ургац /тн-оор/)
100
y = 0.0329x - 55.459
0 R² = 0.0098 Linear (Нэгжийн ургац/цн-ээр)
1980 1990 2000 2010 2020
хугацаа
Fig. 2. The national results for the 1982-2016 data analysis, grain production
Total amount of farming area is sharply decreased until 2008. Since 2009 it is increasing as
supporting policy from government. But farming amount of Socialist can not reached. Because
First, Virgin Land is abundant and it is required to include a great deals of costs to the circulation.
Second, As planting crops such as oilseeds, arabus plants, it has been decreased. According to the
functional form it is shown that the threat of disruptions are expected to support the government
and continuity decline.
The amount of harvested is direct proportional to the cultivating field and Between 1990-
2007 technical obsolescence, no policy of grain improvement and no supervision Because of no
policy of government implementation, levels of a total harvest and harvest per hectare was very low.
It is clear that no advance without helps to make even their activities So that government invest
grain capital to technique technology issues in this sector.
90
The following results are occurred to determine impact percent in hectare harvest –main
result that based on above information. Furthermore , the test will be expanded by investing in
additional costs added to the annual precipitation , technique and technology. /Appendix.1/
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.859166
R Square 0.738166
Adjusted R
Square 0.721801
Standard
Error 1.789527
Observations 35
ANOVA
Significance
df SS MS F F
Regression 2 288.9047 144.4523 45.10741 4.88E-10
Residual 32 102.4771 3.202408
Total 34 391.3817
Standard Upper Lower Upper

Coefficients Error t Stat P-value Lower 95% 95% 95.0% 95.0%
Intercept 9.851628 0.746906 13.18993 1.74E-14 8.330231 11.37302 8.330231 11.37302
X Variable 1 -0.02184 0.003387 -6.45007 2.97E-07 -0.02874 -0.01495 -0.02874 -0.01495
X Variable 2 0.022273 0.002462 9.046407 2.48E-10 0.017258 0.027288 0.017258 0.027288
The results indicated that Hectare‘s effect on harvest of 73.8% of the total cultivating field
and harvested from field and the remaining 26.2% of the other factors includes natural, climatic
technique technological innovation, human factors and the support from government.
Equation:
У(x1, x2)= 9.851628-0.02184x1+0.022273x2 (1)
If the harvest from total cultivating field is not increased, it affects to harvest of hectare by
information up to date. Actually, this index would have a positive impact on it
91
2. Grain manufacturing risk and management of risk
Any production affects the risk of external and internal environment. Risk is defined as
vulnerability
Grain manufacturing is occurred the following vulnerabilities from external environment.
Included:
1. Political and their policy. For instance: In 2015 Irrigation system is financed by 1billion
MNT in Dornogobi but still today it is uncertainty of how to use and it is dead capital.
Like as there is any estimated investment that is to create risk of political policy.
2. Wrong distribution of Investment. Even though Revenues from mining resource should be
included in agricultural sector, education, public, service, health and development, That is
guided investment to construction and infrastructure.
3. Distribution channel: Railway to use exports production to 2 neighbors countries and
logistical risk will face problem for third neighbor.
4. Technology. Lack of asset to use directly new technology that is introducing to international
5. International Market
6. Sensitive of weather and climate. Risk that sufficient time for maturing crops
7. Import. If harvest fail, it is ready to export floor and crop to 2 neighbors in our country
Our vulnerability to assess these risks, investors locates on investment and political instability
Risk and vulnerability is occurred from internal environment to grain manufacturing:
It is difficulty to enter to market. However Mongolian territory is wide, amount of cultivating field
is limited.
1. On the other hand, The production of the seasonal and technical equipment and technology
that creates vulnerability and requires a high cost
2. Grain innovation. A good sort of grain is basis of rich harvest and because of no uniform
policy it is created vulnerability
3. Professional staff. Stage differentiation un the agricultural area residents often were carried
out in this business and the business –oriented agriculture by professional agronomists and
experts were not endangered and technology card records
4. Technique and technology innovation. It is rare to innovate because of high price,
government can not focus enough on it
For the manufacturers internal risks are related to facts on vulnerable
- Main ingredient of grain manufacturing is cultivating field that is ranged by livestock
grazing field
- Specificity of nature and weather
- Dependency on technique and technology
- Lack of Investment
- Human resource
The main issue of risk is to identify opportunities and manage risk in order to address the
circumstances of these vulnerabilities.
Risk management is a way to manage risk by minimizing changes to the performance
indicators
Reduce the volatility of performance indicators can be defined as the stabilizing reduced
level of risk
92
When some risks can be managed, some are unstrained. Therefore, the risks should be
analyzed. Strengthening way to improve risk management of financial resources and to increase
their willingness to accept risk.
Conclusion
Investment is very important to economical development of our country. But it needs
investment to be on stable level. Too much investment to create rapid growth, but likely to create
too much loss. Current situation of distribution of investment is in appropriate that is observed
during the research. Investment inflow of wrong distribution made significant reductions in our
country‘s economic growth
For example: Researchers said that Decision makers have to consider the following issues.
Included:
1. The long-term benefit and then give with construction, trade and services, transport and
communication, real estate, health care, public administration and defense in these sectors
So that we believe that agriculture, industry, energy investment and distribution sectors such
as power and water supplies, re- allocation of revenues mineral extraction has positive as
well as the efficiency to create a sustainable development
Illegal funding, budget is not included investments:
Good fence is 300 billion tugrug , good stock is 495 billion and good student is 100 billion
These funds were investing in industry and business organizations to provide a certain number of
unemployed people working for our people unemployed in cash supplied by declining economic
growth and poverty reduction to be reduced. It means that investment policy is inappropriate in our
country.
2. Declining investment in that time dropped to 340 the number of registered companies with
foreign investment in our country at the end of 2014.
3. Political and legal instability has created an investor has significant difficulty to restore faith
in Mongolian. Despite agreement of Oyu-tolgoi interventions ongoing investment of positive
results started a mega-project international market collapse is affecting mainly raw materials
while increasing in foreign direct investment.
Therefore, the government of the Mongolian Government is thought to have a significant
impact on the foreign assets of high value to and to encourage support for external and internal
legal environment and foreign promotional measures taken to implement the investment growth,
access to foreign branches expand investment issues. And strategic reserves into the economy to
keep the circulation stable investment environment to attract foreign direct investment /FDI/
In addition to extraction of mining mineral are distributed to lesser extent agriculture and
industry found in the process of making a correlation analysis as well as income distributed to the
extraction of mining mineral.
During the research too much investment comes one sector to another one that means it
affect badly to other sectors. Investing capital re-allocation to agriculture, manufacturing, energy
and water supply sectors are coming from abroad that is the best way.
Any country for attracting investment in all sectors is the best allocation of sustainable
development. The country is expected to have a sustainable development of their economies to
93
develop without destroying environment and to encourage investment industries are coming from
abroad.
Since the agricultural sector priorities as identified as one of the pillars of sustainable
development essential to identify the problems and vulnerabilities and risks facing the sector in the
businesses, the ability to reduce the problem, which will be launched research study to help
researchers.
It included The current level of Agricultural sector‘s development, concluded on support
from government and focused on determination of risk level. The government implemented Virgin
Land Crusade III, artificially rain has been spent on budget investment Since 2009 increasing by
15,3-16,6 ton Harvest's 2009 hectares furthermore, but focus on reducing other costs can cut the risk
level of 1 ton crop .
Recommendation:
The agricultural sector, particularly following problems facing the grain industry.
Included:
The risk level of potential cereal production in our country, and further research is needed to
assess their vulnerability details.
Land is limited resource and can not be increased so that it is necessary to be implemented
and defined as available ways by Ministry and Businesses to raise harvest from hectare
Technological innovation needed to develop a plan to implement step-by-step problems into
resources and funding to organizations and countries, recognizing for calculate its efficiency.
Grain manufacturing staff is necessary to analyze the current situation of human resources.
The agriculture sector is needed to determine how their own systems for internal and
external environmental impact of the system reliability.
Every harvest exceeded the national average promotion to the government for every 1 ton crop
would assess the introduction of cost-effective technologies by providing a "national promotion".
94
References
1. Tserendorj, B. (2006). Risk management. Ulaanbaatar city.
2. Munkhzaya, B. (2013). Financial Risk management. Ulaanbaatar city.
3. Ganzorig, A., Baynsan, P. (2014). Risk management. Ulaanbaatar city.
4. Oyuntsatsral, Z. (2008). Financial Risk management. Ulaanbaatar city.
5. Balj, G. (1998). Risk management. Ulaanbaatar city.
6. Oyuntsatsral, Z. (2008). Financial Risk management. Ulaanbaatar city.
Reference to chapter in an edited book

7. www.1212.mn /The National Statistical Center customer information service center /
8. www.mongolbank.mn /State Bank of Mongolian/
9. www.asubi.mn/knowledge/ /Economic news /
10. www.economy.time.mn /Economic data/
11. Ministry of Food , Agriculture and Industry
95
Appendix.1 Dynamic data of Mongolian total grain manufacturing

Grain
Year Cultivating
Harvest /ton/ Unit harvest/cent/
field/hectare/
1982 529.1 551.3 10.4
1983 586.5 812.8 13.9
1984 619.6 597.9 9.6
1985 636.2 886.2 13.9
1986 629.7 869.4 13.8
1987 622.9 689.4 11.1
1988 641.6 814.3 12.7
1989 673.4 839.1 12.5
1990 654.1 718.3 11
1991 615.3 595.3 9.7
1992 592.6 493.4 8.3
1993 546.4 479.5 8.8
1994 449.1 230.7 7.4
1995 356.5 261.4 7.3
1996 332.6 220.1 6.6
1997 316.8 240.4 7.6
1998 306.9 194.9 6.4
1999 279.1 169.5 6.1
2000 194.4 142.1 7.3
2001 199.6 142.2 7.1
2002 263 125.8 4.8
2003 207.3 165 8
2004 172.9 138.5 8
2005 159.1 75.2 4.7
2006 126.2 138.6 11
2007 121.8 114.8 9.4
2008 155.4 205.8 13.2
2009 255.5 392.9 15.4
2010 284.1 366.3 12.9
2011 293.2 448.1 15.3
2012 306.3 476.1 15.5
2013 291.9 386.7 13.2
2014 440.6 518.7 16.6
2015 519.5 216.3 5.5
2016 505.3 483.5 12.8
Source: http://mofa.gov.mn/exp/blog/8/70
96
INDUSTRIAL PARKS AS A MECHANISM OF ATTRACTING

INVESTMENTS: EXPERIENCE AND PROBLEMS OF IMPLEMENTATION
IN THE REGIONS OF RUSSIA
Gennady Sakharov1, a*, Tatyana Burtsev2, b

1
Prof, Academician of RAN, Professor of "Economic security" K. F. Russian Academy of national economy
and public administration under the President of the Russian Federation
Kaluga State, Russia
2
Doctor (Ph.D), Prof, Department of management, Kaluga State University named. K. E. Tsiolkovsky
Kaluga State, Russia
1
g_sakharov@mail.ru
Abstract
The article deals with the problems of development of industrial parks as the main
mechanisms for attracting investments in the conditions of unstable economy and the existing
political and economic sanctions. The analysis shows that the sanctions have not achieved their goal
- the destruction of the Russian economy and a possible change in government policy. A new
mechanism for attracting foreign investments into the Russian economy suggests: 1. Masshtabnost
projects priority industries of economy of regions, providing economic growth: 2. Privlechenie
foreign technology and software infrastructure development in the regions. The article emphasizes
that it is necessary not only to create a mechanism to attract investment, but also an effective
regulatory mechanism to ensure maximum positive return on investment for the development
process and minimizes the associated risks by ensuring the protection of public interests.
Introduction
According to the UN, are listed in the "world investment Report" for 2015 Russia is among
the countries with the greatest inflow of foreign direct investment (FDI). However, due to the
destabilization of the political situation in the world, which led to the imposition of economic
sanctions against Russia, the volume of attracted FDI decreased by 70%, Russia has moved from
5th place to 16th place in the ranking of countries by FDI [1]. Many Russian experts believe that the
sanctions had a positive impact on the Russian economy, as imports decreased (by 1% in 2015 in
real terms, according to Rosstat [2]), which led to the growth of their own production. However, the
Russian economy is not able to grow as fast as falling imports, so there is a decline in GDP, but the
pace is slowing from 2.8 percent in 2015. to 0.2% in 2016 in real terms[2]. It should also be noted
that, despite considerable by Russian standards, direct investments in a wide range of industrial
sectors, the main purpose of transnational corporations (TNCs) investing in Russia, were not
investing in production, and a breakthrough on the Russian market with the products manufactured
by TNCs in third countries. Investments are realized primarily in the sphere of circulation. This
practice is a global trend, according to estimates by UNCTAD (United Nations conference on trade
and development) low efficiency of realization of investment policy measures in the world, taken in
2010-2014, confirms the fact that only a small fraction (about 8%) related to countries ' sustainable
development (infrastructure, health, education, mitigation of climate change). UNCTAD experts
97
believe that countries should intensify their efforts to promote the direction of more significant
investments in sectors of special importance for their sustainable development, for example,
manufacturing and services. Russia invests in the manufacturing industry is less than 15% (27% on
average in the world), the service is less than 64% (the world average estimated by UNCTAD).
Thus, the necessary approbation of the new mechanism of attracting foreign investments in the
Russian economy, which provides:
1. The scale of the projects for the priority industries of the regional economy,
providing economic growth;
2. The attraction of foreign technologies and ensuring the infrastructural development
of the regions. This article investigated the experience of creating industrial parks in
the regions of Russia as a new for the Russian economy mechanism, attracting
investment.
Industrial parks and their organization and management Industrial (industrial) Park is
managed by a specialized management company of a complex of objects of immovable property
consisting of land plot (plots) with the production, administrative, storage and other buildings,
constructions and buildings, provided with engineering and transport infrastructure necessary for
the creation of new industrial production, as well as with the necessary legal regime for the
implementation of productive activities [3]. That is, the industrial Park is prepared by the local
administration or private investor area in a nonresidential zone, equipped with engineering and
transport infrastructure for accommodation of industrial and warehouse facilities and enterprises.
Park resident is a company which has leased or purchased in the Park area or land for the
construction and operation of facilities within the Park. The intended use of the assets of the region
is dominant in the creation of the Park, so its establishment is to provide the first, we formulated the
requirement to the process of attracting foreign investment. It is also an important factor is that all
industrial parks are located near traffic arteries, have access to customs and logistics terminals.
Industrial parks are of two types:
1. Industrial Park type Greenfield (greenfield): industrial Park, created on previously
undeveloped land, as a rule, not provided with engineering and transport
infrastructure at the beginning of the project.
2. Industrial Park type brownfield (brownfield): industrial Park, based on previously
existing enterprises or production facilities, provided engineering and transport
infrastructure in respect of which, as a rule, carried out and/or are being
reconstructed and (or) repairs.
Large foreign companies mainly choose the option of Greenfield, as in this case, the system
construction of facilities, taking into account all the wishes of the resident and the pre-determined
conditions, this type of Park is widespread in Russia (82% parks) (see Fig. 1).
The efficiency of industrial parks in the world is confirmed quantitatively. "In the U.S. there are
more than 400 industrial parks in Germany – 200 parks in Turkey – 262 Park, Czech Republic –
about 140 in Japan – more than 70 in Poland – more than 60, Slovakia – 34 Costa Rica – 14 parks
in Romania – 9. Vietnam created about 200 parks, which accounted for 25% of GDP and 40% of
the attracted investment" [6, 79]. Over the last 40-50 years in China created about 400 industrial
parks. Experience of creation of parks in different countries have shown that it is as clear as
possible, advantageous and therefore sought-after investor product. In the regions of Russia created
444 industrial Park (see Fig. 1), which is comparable with countries such as China and the United
States, but their effectiveness is still far from industrial parks in these countries.
98
Fig. 1. Average indices of industrial parks of Russia in 2016. [4]

Existing in world practice models of management of industrial parks can be divided into three main
types [5]:
1. Special model: it infrastructure management company, which provides businesses with not only
space to accommodate their production, but also the infrastructure and range of services. This list of
services is usually called the management of the industrial Park. Infrastructure managing company
can also be the owner of the industrial Park. It can be not related to a particular industry, and a
subsidiary of the anchor investor or joint venture of several companies to locate their production
facilities in this Park. Services we provide are part of the free market, unless provided for by other
rules (e.g., mandatory consumption of residents of certain services).
2. Independent model: independent, often small industrial parks are not managed by a specialized
company, and firms to place their production on a single site, will provide all the necessary services
or attract to this company.
3. Hybrid model: in some industrial parks are one of the companies who have placed their
production, also acts as the management company.
The choice of model is determined by the scale and composition of participants Park in Russia is
the first model, as industrial parks are being established with the help of budget funds. According to
[4] for 2016 to attract investment in industrial parks of Russia - amounted 549.9 billion rubles,
while state support from the Federal budget amounted to 13.9 billion rubles.
The attractiveness of industrial parks for business lies primarily in the possibility to rent industrial,
office and warehouse space and to organize production in a much shorter time. In the industrial
Park management company takes care of all commitment to providing resident engineering
services, electricity, water, heat supply, can provide transport, security and consulting services. In
addition, it provides the proper condition of roads and driveways, while a resident enterprise can
engage in their main activity - production.
The interest of residents to industrial parks and is also called concentration, and cooperation,
complementary industries, making possible the creation of the cluster. Thus is saving on
transportation costs and engineering services, that allows to reduce the cost of production.
99
Thus, the creation of industrial parks gives investors advantages such as:
1. Significant reduction in the time from investment to commencement of production;
2. Low administrative risks;
3. Reducing the cost of products;
4. The extra profit due to tax benefits.
For the regional economy, the creation of industrial parks should result in:
1. Growth of investment attractiveness and investment;
2. The increase in tax revenues;
3. The creation of additional high-performance workplaces;
4. Improving the innovative development of the region.
Also the development of the Institute of industrial parks allows to minimize the risks of complex
development of regions and the country as a whole:
1. Involvement in industrial parks, modern production facilities using advanced technologies
reduces innovation risks in the region.
2. Involvement in the design, construction and management of industrial parks the
companies – international leaders, reduces the commercial and technological risks of the
region.
3. The application of mechanisms of public-private partnerships while investing in industrial
parks allocates the risks between the state and the private partner – investor.
4. Helps reduce social and personnel risks by means of internships, post-graduate training,
publication of instructional, informational and educational materials and programs.
The performance of creating industrial parks in the regions of Russia

In Russia the industrial parks market has already passed the initial stage of its formation and
is currently under intensive development. Currently, the growth occurs not so much due to the
increase in the number of projects, but because of the implementation of the announced projects and
the expansion of successful sites. In addition, the continuing process of improving regional and
Federal legislation in this area, fixing the terminology and the mechanisms for providing privileges
and subsidies. Increases the level of preparedness of the venues and the security of their
infrastructure necessary to start production.
According to the Association of industrial parks [4] for the period from 2013 to 2016 the
number of industrial parks in Russia grew by more than 80%, from 80 to 146. Growth occurs at the
expense of existing parks, the amount of which for three years increased more than doubled, from
45 to 92. In turn, the number of the created parks remains stable from year to year and ranges 44
through 56 projects. This confirms the attractiveness of using the review mechanism for the
implementation of regional m:
the investment policy. The performance of investment activities of Russian industrial parks are
characterized in Fig. 2. According to him, only 18% of the investments involved in infrastructure
projects that speaks about insufficient efficiency of the mechanism used to attract investment for
infrastructure development of the regions of Russia.
Most industrial parks are located in the European part of Russia in the Central Federal
district and Volga Federal district. Subjects leaders in the implementation of such investment
projects are the Moscow region, Tatarstan, the Kaluga and Lipetsk region, the Leningrad region
(see Fig. 3).
100
Fig.2. Indicators of investment activities of Russian industrial parks [4]
Fig.3. The geography of Russian industrial parks [4]

Thus, not solved the problem of territorial imbalance in the development of Russian regions.
In Fig. 4 presents the attractiveness of industrial parks of Russia for foreign investors. 248 foreign
companies from 27 countries have localized their production in the industrial parks of regions of
Russia, 14% of all residents, which also indicates a low effectiveness in the use of industrial parks
to solve the problem of reducing the level of foreign investment in the Russian economy.
Countries Number of the companies
Germany 74
USA 35
Japan 19
Turkey 17
France 14
Italy 11
Finland 10
South Korea 8
China 7
others 43
Fig.4. Localization of foreign companies in industrial parks of Russia [4]
101
For 2015 "occupancy" industrial parks amounted to exactly 50%, compared to 53% in 2014. The
increase of the total area of industrial parks during this period was close to 20% (see Fig. 1-2). In
their report, the Association of industrial parks of Russia identifies two problems that strongly
impede the creation of new industrial parks in Russia:
an average of 2 million RUB per 1 ha. This is two times less than the specified standard value, it is
not surprising that the region's industrial parks lack of residents, on average, 8 one Park, while the
average for the regions of Russia and 14 (see Fig. 1).
Conclusion
Contemporary international policy makes all investments very risky, and Russia can be
attractive for investment only if the capital will bring a very high income. As practice shows
potentially Russia and its regions have the opportunity to raise capital in the manufacturing
industry, and in agriculture and in many other areas, but we need a unified program of development
and a common approach, understandable to foreign investors. This approach has become standard
technology of creation of industrial parks, but you have to understand that we need those
investments, which will bring Russian high technology. Just the opening of the foreign proceedings,
which will crush domestic market for its goods, is not effective for the development of the country
and its regions. It is necessary not only to create a mechanism of attracting investments, but
effective control mechanism for maximum positive return on investment for process development
and minimise associated risks by ensuring the protection of the public interest.
102
References
1. [Electronic resource]. URL: http://unctad.org/en/PublicationsLibrary/wir2015overview_ru;

http://unctad.org/en/PublicationsLibrary/wir2016_en.pdf;
2. The official website of the Federal service of state statistics of Russia. [Electronic resource].
URL: http://www.gks.ru/bgd/regl/b15_56/Main.htm;
3. National standard GOST R 56301 – 2014 "Industrial parks" address:
www.indparks.ru/certification/NationalStandard/;
4. The Association of Industrial Parks (official site), sector review "Industrial parks of Russia",
edition 4, 2016, http://www.indparks.ru/ (26.10.2016);
5. Innovation management: Theory and practice: proc. allowance. / Vertakova Yu. V.,
Simonenko E. S. - M.: Eksmo 2008,. P. 127.;
6. About Belenov.N., Shurchkov Y. V., Smolyaninov, Y. T. Industrial parks in Russia and
abroad: experience of establishment and development// Modern economy: problems and
solutions. 2014. No. 7. P. 78-92. URL:
https://meps.econ.vsu.ru/meps/article/viewFile/1125/897.
Acknowledgments
Investigations were carried out with the financial support of
Russian Foundation for Basic Research and The Government of the Kaluga Region
(№ 17-12-40003а(р) " The impact of the financial and economic activity of the commercial
sector an attractive investment in the region to achieve the objectives
of its social and economic development (on the example of the Kaluga region)")".
Исследования проведены при финансовой поддержке Российского фонда фундаментальных

исследований и Правительства Калужской области (№ 17-12-40003а(р) "Влияние
результатов финансово-хозяйственной деятельности предприятий коммерческого сектора
экономики инвестиционно привлекательного региона на достижение целей его социально-
экономического развития (на примере Калужской области)")».
103
IMPLICATION OF PATENT AS A NON-FINANCIAL INDICATOR
Masaaki Aoki1, a*, Takashi Manami2, b

1
Doctor (Ph.D), Prof, Director, Tohoku University Accounting School
Sendai City, Japan
2
Kanto-Kaguen University, Japan
Ōta, Gunma, Japan
1
maoki@econ.tohoku.ac.jp
Keywords: Non-financial Indicator, Patent, Balanced Scorecard (BSC), R&D activities, R&D expenditures.
Abstract
Many researchers in management accounting have recognized the importance of non-
financial indicators. Previous research shows that non-financial indicator plays an important role in
BSC application. We show that patent application is a promising non-financial indicator by
demonstrating empirically the existence of the relationship between corporate value and patent
application. This result is more reliable because we have examined ten industries for ten years.
Because our models and analysis procedure are simple and easy to manipulate, they can be applied
to test another non-financial indicators. In addition, our models include dummy variables. The
analysis of dummy variables provides us with clear understanding of sample data‘s characteristics.
Thus, we can easily extend our research with the information obtained by this analysis.
1. Introduction
In the research area of financial accounting, there are a number of studies discussing the
relationship between R&D expenditures and corporate value or profit.3 These studies focus mainly
on the relevance of financial accounting information and discuss how R&D expenditures should be
treated in terms of shareholders or stakeholders. While some researchers in this area examine non-
financial information, their main interest is also the value of this information from the standpoint of
financial accounting information users.4
Recently, the importance of non-financial indicators has been recognized in management
accounting research.5 In particular, non-financial indicators play an important role in Balanced
Scorecard(BSC). In BSC application, it is essential to find some cause-and-effect relationship
between perspectives. Non-financial indicators are used as measures in three perspectives except
financial perspective. It would be necessary to find the relationship between financial and non-
financial indicators to execute BSC successfully. In other words, such a non-financial indicator is
important in practical application of BSC.
The purpose of this paper is to propose patent application as a promising non-financial
indicator and to show that this indicator relates to corporate value. We show the above by relatively
3
For example, see Sougiannis(1994), Lev and Sougiannis(1996), Kothari et al.(2002), and Shi(2003).
4
See Amir and Lev(1996), Hughes(2000), and Xu et al.(2007).
5
Banker and Mashruwala(2007) examine the role of non-financial measures in decision making and control systems.
104
simple models. The examination procedures adopted in this article may be useful for finding
another non-financial indicators because our model is simple and it is easy to construct the variants
of our model depending on situations. There has been no management accounting tool that verifies
whether or not a non-financial indicator relates to corporate value. In this sense, our research may
contribute to the practical application of BSC.
Finally, we mention the organization of this article. In Section 2, we examine the
implication of patent application in terms of R&D activity. In Section 3, the data, analysis model,
and analytical procedures employed in this paper are accounted for and the hypotheses tested are
represented.
We show the main result of this paper in Section4. That is to say, we show the significant
relationship between corporate value and patent application. In addition, we explain the procedures
to demonstrate the plausibility of the models in this paper and examine the implication of dummy
variable. In final section, we summarize the discussion, analysis, and results in this paper and touch
on the future research problems.
2. Patent as Non-financial Indicators

Almost all companies are involved in R&D (Research and Development) activities in
competitive environment. The objective of R&D activities depends heavily on corporate strategies.
For example, a company adopting differentiated strategy devotes much effort to the R&D activities
for creating new products and technologies. If a company adopts cost leadership strategy, its R&D
activities may be dedicated to the development of technology for reducing cost. In any case, there is
no reason to deny that R&D activities are essential for adding value to firm and retaining
sustainability.
In this paper, we regard R&D ratio, which is the ratio of R&D expenditures to
sales(revenue), as the intensity of R&D activities.6 Let us turn to Exhibit 2-1 to confirm that
intensity of R&D activities varies from industry to industry. Though we explain the data at length in
the next section, the descriptive statistics(mean, medium, standard deviation, and number of
sample) of R&D ratio are summarized in Table 1.
Table 1. R&D ratio in Japanese Industry Classification
Number of
No. Industry Mean Medium Std. Dev. Sample
1 Pharmaceutics 10.36% 8.59% 0.060 181
2 Electronics 4.77% 3.73% 0.044 739
3 Fiber 3.71% 1.85% 0.055 126
4 Chemicals 3.59% 3.41% 36.019 519
5 Machinery 2.67% 2.19% 0.024 461
6 Automobile 2.37% 1.99% 0.020 209
7 Foods 1.93% 1.15% 86.459 119
8 Nonferrous 1.86% 1.42% 0.028 190
9 Ceramics 1.36% 1.26% 0.007 139
10 Steel 0.74% 0.51% 0.006 100
6
There is a different definition of R&D intensity. For example, see Eberhart et al.(2008).
105
We can easily see that R&D ratio differs in industry. Let us consider this table to examine
the nature of R&D ratio in detail. The highest value of this ratio is 10.30%(Pharmaceutics) and the
lowest one is 0.74%(Steel). From the fact that the standard deviation in each industry is relatively
large compared to its mean, the range of R&D ratio is very wide within industry. Because mean is
always larger than medium in Exhibit 2-1, each industry‘s distribution of R&D ratio is skewed and
there are a small number of firms whose R&D ratio is extremely high in each industry.
We can easily conceive of the relationship between R&D activities and corporate value. If a
company devote its resources to R&D activities, it is likely that this company can obtain big fruits,
for example, new products, innovative technology, and so on. As a result, it is expected that
corporate value of this company will be increased. There are several previous studies in which the
significant relationship between corporate value and R&D expenditures is discussed.7
Kaplan and Norton (1992) proposed Balanced Scorecard(BSC) as a new performance
evaluation tool and have extended its function to communication and strategic management tool.8
There are four perspectives(Financial, Customer, Process, and Learning and Growth) in BSC.
Strategic objectives are developed in each perspective and these objectives are related to achieve
final success, namely to achieve financial success. Some measures are established for strategic
objectives. These measures represent quantitative indicators of how performance on a strategic
objective will be assessed (Atkinson et al.(2012), p.48). The measures in the three perspectives
except Financial perspective are non-financial indicators. We can regard BSC as a framework that
continues to measure financial outcomes but supplements these outcomes with non-financial
measures derived from the company‘s strategy (Atkinson et al.(2012), p.43).
It is important to find some non-financial indicators relating to corporate value within the
BSC framework. So we propose patent application as a promising non-financial indicator here. Let
us consider the relationship between corporate value and patent application in the following.
It is possible to interpret a patent application as one outcome of R&D activities.9 Therefore,
the same reasoning regarding R&D activities is also true of patent application. That is to say, if a
company engages in intensive R&D activities, it is likely that the outcome of these activities will be
increased. As a result of this, the number of patent application will also be increased. The difference
between R&D expenditures and patent application is that the former is the input of R&D activities
while the latter is the output of R&D activities.
Let us next consider the nature of patent application in terms of uncertainty. The patent
application is less uncertain than R&D expenditures because some ideas about new technology take
form in patent. Hence, patent application may be more closely related to corporate value than R&D
expenditures. We can expect that the number of patent application will have more plausible
explanatory power than R&D expenditures. If we can show the relationship between corporate
value and patent application, this non-financial measure will be applied to internal business
perspective in BSC.
3. Data, Model, and Hypotheses

3.1 Financial and Patent Data
7
For example, see Lev and Sougiannis(1996) and Chan et al.(2001)
8
For example, see Kaplan and Norton(1996, 2004, and 2008)
9
For example, see Xu et al. (2007), p.1294.
106
We analyze Japanese manufacturing companies listed first section of Tokyo Stock Exchange. The
period of analysis here is ten years, namely fiscal year from 2004 to 2103. We collect the relevant
financial data from ―Nikkei NEEDS,‖ which includes about 20,000 Japanese companies‘ financial
information and is a standard financial data-base in Japan
The companies in this data-base are classified according to Nikkei NEED‘s industry
classification. We adopt this classification in our analysis. The classification identifies seven-teen
industries but we focus on ten industries of them. The reason is as follows; 1) the number of
company in six-industry classification is less than ten, hence, the number of sample seems to be
small as sample. 2) one category is classified as ―Miscellaneous manufacturing company,‖ so it is
inappropriate to treat the companies in this category as one classification. As a result, we examine
the manufacturing companies in the category of Pharmaceutics, Electronics, Fiber, Chemicals,
Machinery, Automobile, Foods, Nonferrous, Ceramics, and Steel industries.
In this paper, stock price is used as a proxy for corporate value. We collect these data from
―Stock Price CD-ROM‖ published by Toyo Keizai Inc. The information of patent is disclosed on
the Web site of Japan Patent Office(https://www.jpo.go.jp). This Web site provides us with data
base of patent information and we can collect the relevant information about patent application from
this site.
Finally, we select the company in which all the necessary data, namely R&D expenditure,
stock price, and patent application, are available in fiscal year from 2004 to 2013. We define the
outlier as follows; the observation value is not within the range between sample average minus
three times of standard deviation and sample average plus three times of standard deviation. Outlies
are exclude from our sample.
3.2 Model and Hypotheses

In previous research, the relationship between corporate value and R&D expenditures has
been discussed in the context of financial accounting information relevance. Though the models
employed in those studies are elaborate, they seem to be too complex.
The main purpose of this paper is to examine the relationship between corporate value and
patent application. We don‘t need a complicated model. If we can demonstrate it with a simple
model, the applicability of our model in future research will grow because simple model is easy to
manipulate and extend.
The other characteristic of our model is inclusion of dummy variables to identify the
difference in fiscal years and industries. There are two reasons for this. First, the financial
crisis(2008) may have enormous influence on stock prices in Japan. Second, the number of patent
application is dependent on the intensity of R&D activities, therefore, this number varies with
industry.(Manami and Aoki (2009))
In this paper, three models are proposed. These models referred to as Models 1, 2, and 3 and
each model plays a specific role in our analysis. Model 1 is a simple model to account for corporate
value.10 Our analysis begins with verifying plausibility of Model 1 because we attempt to explain
corporate value in detail by adding an variable to Model 1. If this model is not plausible, proceeding
to Model 2 is meaningless.
10
Amir and Lev(1996) adopt a similar model. Hughes’s(2000) is somewhat complex but has basically a similar structure.
107
Model 1:
∑ ∑
(3.1)
where
: stock price of company i at the end of June in fiscal year t (t=2004, …, 2013)
: book value per share of company i at fiscal year t
: earning per share of company i at fiscal year t. We use profit before tax as earnings
here.
: company i‘s dummy variable for fiscal year t. For example, if the data are
taken from fiscal year t, this dummy variable is equal to 1. Otherwise, this variable is equal
to 0. This variable is defined in all the fiscal years except 2013.
There is one fiscal year to which no dummy variable is added. We define this year as ―non-
dummy year.‖ Choice of non-dummy year is arbitrary but Fiscal year 2013 is non-dummy
year here.
The explanation above is applicable to IndustryDummy.
: company i‘s industry dummy variable at fiscal year t. For example, if a
company belongs to industry j, this dummy variable is equal to 1. Otherwise, this variable is
equal to 0. This variable is defined in all the industries except Chemistry. Chemistry is non-
dummy industry here.
: residual term
We can test the hypothesis below with Model 1:
H1: Book value and earning per share are positively related to corporate value.
If we confirm that Model 1 is plausible in our data, it can be extended to account for corporate
value in Model 2.
Model 2:
∑ ∑
(3.2)
In this model, a new variable(RDCPS) is added to Model 1. Because this variable plays an
important role in our analysis, we explain it in depth here. We regard R&D expenditures as asset
because R&D expenditures may provide some benefit to company in the future and the worth of
R&D expenditure decreases as time goes by. It is rational to regard R&D expenditures as
investment and amortize R&D expenditures. It is supposed that this investment is amortized by
straight-line method, its useful life is four years,11 and its scrap value is zero.
11
In general, the useful life of R&D investment depends on industry. For example, ―Pharmaceutics‖ and ―Chemicals‖ have long
useful life compared to other industries. See Lev and Sougiannis(1996).
108
If we as R&D expenditures of company i in fiscal year t-k (k=0,1,2,3), the amount of

company i‘s R&D asset is calculated as follows:12
(3.3)
Using , the new variable RDCPS is also defined. That is to say, is company i‘s
R&D asset per share in fiscal year t. The following hypothesis is tested with Model 2:
H2: R&D expenditure is positively related to corporate value
This hypothesis confirms the findings in previous research. If the coefficient of RDCPS is
statistically significant, we can extend this model to obtain the final result.
Model 3:
(3.4)
The new variable PATA is also important in our analysis and its definition and implication are
accounted for here. Because it can be expected that patent application will provide some benefit to
company for several years and this benefit will be gradually decreased, we treat the number of
patent application with the same manner as R&D expenditures. To put it another way, the
capitalization procedure defined for R&D expenditures is applied to patent application.
Let be the number of patent application of company i at fiscal year t-k (k=0,1,2,3). In
like manner, the effective patent application of company i at fiscal year t is defined as follows:
(3.5)
is the natural logarithm of because the distribution of patent application is
skewed and there exist a small number of company applying quite large number of patent.
We can test the last hypothesis with Model 3. This is the final result in this paper.
H3: The number of patent application is positively related to corporate value.
4. Analysis
4.1 Descriptive Statistics of Sample
The total number of samples is 2,783. The descriptive statistics of our sample is summarized in
Table 2.
12
This procedure is the same as Chan et al.(2001) and Kothari et al.(2002). Lev and Sougiannis(1996) propose the elaborate
procedure to amortize R&D expenditures. We tried this procedure but we cannot obtain significant results.
109
Table 2. Descriptive Statistics of Sample

ln
P BVPS EPS RDCPS PATA PATA
Mean 1,047.21 729.96 49.58 81.12 680.22 4.79
Medium 668.00 562.89 33.48 49.29 111.00 4.71
Standard
1,103.81 557.82 80.98 90.57 2,078.15 1.85
Deviation
Maximum 7,550.00 3,243.39 534.24 481.41 19,444.25 9.88
Minimum 43.00 21.07 -383.72 0.17 0.50 -0.69
The mean of all the variables in Exhibit 4-1 is larger than the corresponding medium. The
distributions of model‘s variables seem to be skewed. The standard deviation is quite larger than the
mean. It implies that the distribution of the variables in in Exhibit 4-1 has a similar tendency of
R&D expenditures. Let us turn to the variable PATA, which is the effective number of patent
application. In particular, the tendency mentioned above seems to be true of this variable. As
accounted for in the previous section, it is reasonable to employ the natural logarithm value of
PATA, namely, lnPATA.
In this section, we estimate the regression coefficients in Models 1, 2, and 3 and test the
significance of these coefficients.13 The result is summarized in Table 3.
Table 3. Estimated regression coefficients in Models 1, 2, and 3
Panel A: The estimated coefficients in Model 1
BVPS EPS
Estimated
0.9526 4.6395
Coefficient
t-value 21.9408 12.4389
Coefficient of
0.5890
Determinant
Panel B: The estimated coefficients in Model 2

BVPS EPS RDCPS
Estimated
0.8026 4.7096 2.0222
Coefficient
t-value 17.8135 12.8434 6.6533
Coefficient of
0.6040
Determinant
Panel C: The estimated coefficients in Model 3

BVPS EPS RDCPS ln PATA
Estimated
0.8352 4.7773 1.5372 84.1907
Coefficient
t-value 18.4651 12.9297 4.984 10.8957
Coefficient of 0.6198
13
As we examine various kinds of industries, the variance of residual term may heterogeneous. We employ the regression
procedure proposed in White(1980) to treat heterogeneity of variance.
110
Determinant
*All the p-values are nearly zero. These are abbreviated.
4.2 Analysis of Models 1 and 2

See Panel A of Exhibit 4.2. It is clear that the coefficients of BVPS and EPS are statistically
significant and their significance levels are less than 1%. Therefore, H1 is supported. It is confirmed
that corporate value can be explained by the simple model with two independent variables. This
implies that Model 1 is plausible for explaining corporate value and there is no problem to extend
this model to Model2
Panel B of Exhibit 4-2 shows that all the coefficients of three variables in Model 2 are
statistically significant and their significance levels are also less than 1%. Because the sign of
coefficient RDCPS is positive, H2 is also supported. This suggests that the finding in previous
research can be reaffirmed with our simple model. We can extend this model to obtain the final
results.
4.3 Analysis of Model 3

From Panel C in Exhibit 4-2, it is clear that all the coefficients of independent variables are
statistically significant and their significance levels are less than 1%. Because the coefficient of
lnPATA is statistically significant and is positive, H3 is supported. That is to say, there is positive
relationship between corporate value and the number of patent application. This is the main results
of this paper.
Patent application has not been discussed in terms of non-financial indicators in accounting
research. Though we have found the useful finding above, we need to examine the plausibility of
this finding for future application.
We have cautiously constructed our analytical models so far. After we verify that there is no
statistical problem with Model 1 (basic model) and Model 2 (extended model), Model 3 (final
model) is derived from Model 2 by adding one variable regarding patent application. The reason
why we take notice of patent application is summed up as in the following way; R&D expenditure
is considered as a proxy for R&D activities and patent application is output of R&D activities. If
R&D activities are intensive in some company, it is expected that the number of patent application
will also be increased.
If this reasoning is convincing, it may be likely that there is a specific relationship between
R&D expenditures(RDCPS) and the number of patent application(lnPATA). If such a relationship
exists, we have to doubt about multicollinearity in Model 3. The table of correlation coefficients in
Table 4. is referred to check multicollinearity.
Table 4. Correlation Coefficients in Model 3
BVPS EPS RDCPS lnPATA

BVPS 1.0000
EPS 0.5389 1.0000
RDCPS 0.5293 0.2921 1.0000
lnPATA -0.0175 -0.0886 0.1508 1.0000
111
This table shows that the correlation coefficients between BVPS, EPS and RDCPS are
relatively high except between EPS and RDCPS. The highest value of the correlation coefficients is
0.5389 (between BVPS and EPS). This value is less than ―Rule of thumb‖ criterion 0.7.
Contrary to our initial guess, the correlation coefficient between RDCPS and lnPATA is
sufficiently low(0.1581). The facts above suggest that there is no serious multicollinearity problem
in Model 3. Thus, it can be concluded that our results from Model 3 are reliable.
4.4 Analysis of Dummy Variables

As mentioned in the previous section, we add two kinds of dummy variables (YearDummy
and IndustryDummy) into regression model. Let us consider the case to account for the meaning that
the estimated coefficient of a dummy variable is statistically significant. For example, suppose that
the coefficient of year 2012 is statistically significant. This means that there are some differences
between the data in 2012 and the rest of this period‘s data.14 Analysis of dummy variable gives us
insight into the nature of data. Thus, this analysis may provide us with the useful suggestion for our
future research. Let us now turn to the analysis of fiscal year‘s dummy variable.
In general, stock price is volatile and susceptible to economic condition. 15 As Japanese
economy is globalized, stock price in Japan is also influenced by global economic condition. There
was the financial crisis in USA(2008). If this event had an enormous effect on Japanese stock price
market, our result here may be lose plausibility. We examine this by the dummy variable of fiscal
year(YearDummy).
As the effect of stock market on YearDummy seems to be common in Model 1, 2, and 3, we
examine t-values of YearDummy‟s coefficients in these three models. We can specify the fiscal year
where its estimated coefficient is statistically significant at significance level less than 5%, namely,
2006, 2007, 2011, and 2012. This finding may represent that it is necessary to investigate economic
events in these four years.
Furthermore, it is possible to obtain useful information about fiscal year‘s data by changing
non-dummy variable year. For example, if non-dummy year is fiscal year 2007, all the coefficients
except year 2006 are statistically significant. When non-dummy year is fiscal year 2012, all the
coefficients except year 2011 are statistically significant. These results show that four significant
years above can be divided into two groups, namely, Group 1(2006 and 2007) and Group 2(2011
and 2012).
See the table in Table 5. This table summarizes the average stock prices in Japan from year
2004 to 2013.
Table 5. Average Stock Prices in Japan from year 2004 to 2013
Year 2004 2005 2006 2007 2008

Average Stock Price 11,488.76 16,111.43 17,225.83 15,307.78 8,859.56
Difference from the
next year 4,622.67 1,114.40 -1,918.05 -6,448.22 1,686.88
Year 2009 2010 2011 2012 2013

Average Stock Price 10,546.44 10,228.92 8,455.35 10,395.18 16,291.31
14
This interpretation holds for the dummy variable of industry(IndustryDummy).
15
Stock prices may be influenced by another factors. For example, Fung(2006) examines the impact of R&D and knowledge
spillovers in stock volatility.
112
Difference from the

next year -317.52 -1,773.57 1,939.83 5,896.13
Note that there are large variations at the next years of Groups 1 and 2. These may lead to
the significance in these groups. In other words, the significance in Groups 1 and 2 may be due to
the effect of economic situation in 2008 and 2013. This finding lends partial support to our initial
concern that the financial crisis in USA(2008) may have influence on the stock prices in Japan. If
the effect of the financial crisis is enormous, it would be necessary to control data or to remove the
problematic fiscal year data from analysis. It depends on the situations under consideration.
Let us next consider the differences between the industries of our sample. As we have
already known that the corporate value and patent application in Chemistry is likely to be captured,
it is assumed that Chemistry is a non-dummy industry.16 Exhibit 4-5 shows the industries whose
estimated coefficients of dummy variable are statistically significant at 5% level.
Industry
Model
1 Electronics, Automobile, and Foods
Model Electronics, Automobile, Foods, and
2 Machinery
Model Electronics, Automobile, Foods,
3 Machinery, and Fiber
Exhibit 4-5: Significant Industries in Models 1, 2, and 3
From the above table, three industries, Electronics, Automobile, and Foods, appears at all
the models. Even if non-dummy year is changed, the coefficients of these three industries‘ dummy
variables are statistically significant in most cases. It suggests that each industry may have
characteristics peculiar to industry. But it does not mean that all the industries have the same
characteristic. For example, let us consider Foods industry.
See Exhibit 2-1 again, the R&D ratio in Foods is relatively low compared to Electronics and
Automobile. It means that R&D activities in Foods are not so intensive. In this sense, Foods may be
different from Electronics and Automobile because R&D activity of these two industries are
intensive.
When R&D investment variable is added to Model 1, the dummy variable of Machinery
becomes statistically significant. This suggests that Machinery industry may have some
characteristics regarding R&D investment. Model 3 is obtained by adding a patent application
variable(lnPATA) to Model 2. In addition to four industries, the coefficient of Fiber‘s dummy
variables becomes statistically significant. This suggests that Fiber may have some characteristics
relating to patent application.
For reasons of space, we have not comprehensively examined dummy variables here. But
the analyses above seem useful to identify the characteristics of sample data. Thus, such an analysis
may show the direction of future research. In this sense, the analysis of dummy variable is useful.
16
See Aoki and Manami(2005).
113
Concluding Remarks and Future Research

A number of management accounting researchers have recognized the importance of non-
financial indicators since Kaplan and Norton published a series of their works on BSC. Because
non-financial indicators are employed as concrete measures of objectives in BSC perspectives and
are essential in BSC application.
We show that patent application is a promising non-financial indicator by demonstrating the
existence of the relationship between corporate value and patent application. We had shown the
existence of this relationship by our past research models that are somewhat different from the
models proposed here.17 But there have been several limitations with our research. For example, the
term of analysis was relatively short(five years) and the number of industries was also relatively
small(four or five) in our past research. While we obtained similar results in our past study, the
findings in this paper is more reliable because we have examined ten industries for ten years.
In addition, we use simple models here. These models are a result of our trial and error and we
have accumulated many kinds of variants in our analysis model. The models in this paper are the
results of abstraction from our past models. Thus, our model is applicable to the situation where we
look for another non-financial indicator. In fact, we applied a similar procedure to show the
relationship between corporate value and green gas emission.18
As our models include dummy variables, we have dummy variable analysis in this paper. This
analysis helps us to understand the characteristics of the data used in our analysis. For example, we
can get two insight into our data. One is the concern about stock prices in Japanese market and the
other is another option of industry classification. The former suggests that it may be necessary to
investigate closely economic condition around the years of Group 1(2006 and 2007) and Group
2(2011 and 2012). The latter suggests that some specific industries may need to be analyzed in
isolation from the population of our sample.
We adopt the dummy for constant in this paper. Though this method is simple and easy to
manipulate, there is one limitation. As stated in the previous section, the analysis of dummy
variable provide us with the industry distinguished from other industries but the specified industries
are not always homogeneous. For example, Foods industry is different from Electronics and
Automobile. We have to examine these to find differences among them. To avoid such a difficulty,
it may be useful to introduce to dummy into independent variables but this method is more
complex.
As another option, it is possible to apply Bayesian model to our research problem. As is well
known, we can input additional data into the Bayesian model. Thus, if we get new data every year,
we can update the results of analysis and obtain the latest findings.
We would like to our model to practical situation in the future and utilize the results in BSC
application.
17
See Aoki and Manami (2005) and Manami and Aoki(2009)
18
See Aoki and Manami (2015).
114
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Communication Industry. Journal of Accounting and Economics 22(1-3):3-30.
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of Patent Application as a Non-Financial Indicator. Kaikei(Accounting) 168: 629-
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Operations for Competitive Advantage. Boston, MA: Harvard Business School Press.
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115
SOME ISSUES ON SALARY AND REMUNERATION ANALYSIS
Gotovdorj Chuluuntsetseg1, a*
1
CPA, CPTA, Auditor, Senior Lecturer, Accounting Faculty, School of Business and Economics,
Mongolian University of Life Sciences
a*
G.Chuluuntsetseg.@muls.edu.mn
Key words: Productivity, Salary and Remuneration System, Labour Productivity.
Summary
Transition of Mongolia into market-oriented economy has resulted in breakdown of salary
and remuneration system built-up during the previous regime, thereby allowing employers or
management of industries and corporate entities to decide salary issues at their discretionary power.
This is one of the key reasons causing violation of employees interest, reduction in labor
productivity, and hike in unemployment in the labor market. International best practice shows that
salary and remuneration system and productivity outcome is highly dependent on the capacity to
deal with core issues of ―Business triangle‖ in salary and remuneration. For instance, organization‘s
end-results depends upon how it has appropriately come with solution on three issues: for investors,
amount of funding invested into salary, remuneration and labor force, and its utilization results; for
managers, ensuring balanced cohesion between returns gained to organization and employees‘
contribution to derive this income; and for employees, ensuring stable workplace to sustain their
key necessity that motivates towards work and labor.
Preamble
Despite of globalization and intensification of wide deployment of information intensive and
high intellectual capacity technology in agricultural farming industry the governments in any
country have been making big efforts towards resolving food security issues on its own and
minimizing food dependency.
According to scientists the world population will approach 7.6 billion by 2020 giving rise to
an emerging need to increase current production volume by 40-50 percent in order to reach crop
demand of the world population up to 70 percent of food supply.
Mongolia at present has reached to a level to provide full supply of domestic needs of crop
and potatoes by virtue of ―Atar (Virgin Land) III‖ campaign implemented by the Government of
Mongolia in a support of this industry development, making it possible to strengthen food safety
and economic independence and even to export to food-scarce countries. For moving up the
currently achieved level of this sector and providing full guarantee there arise an essential demand
to develop export-oriented agricultural farming, particularly crop production. This requires
intensifying technical upgrades in agricultural sector, appraising value of labor force that is
inexhaustive resource, and increasing its productivity.
116
Objective of Study
This Study aims to assess salary and remuneration system of employees in wheat production
entities and to propose recommendations on possible solution to challenging problems identified
herewith.
In the fulfillment of aims of Study the following objectives have to be met in this Study:
 Conduct baseline analysis of salary and remuneration system focusing on the case of wheat
producers in the Central region;
 Determine future trends of average salary and wages of employees in wheat production;
 Assess employees satisfaction on their salary and wages, and provide conclusion.
Assumption of Study
1. Co-relation between the salary of wheat producing individuals and entities and the work
actual output is weak;
2. Low income earned by entities and low salary induces migration into region and sector
where labor resource is abundant and salary is higher, and puts negative impact on labor
productivity.
Novelty and Significance of Study
To date, analysis on salary and remuneration of crop production sector particularly wheat
producers is scarce. The results of this Study can hence be utilized by the managent of this sector or
industries in enhancing their salary and remuneration system tailoring to their own circumstances
and improving its legal framework.
Methodology of Study
Data necessary for Study has been collected in a way of multi-stage statistical sampling of
data and questionnaire approach. The analysis has accordingly been made using statistical
classification, index, regression, correlation and panel models as well as forecasting methods.
Application tools such as SPSS-17 and E-views 8 were used.
Results of Study
Salary system is implemented in two forms: output-based and time-based along with
combination of various types of remuneration based on salary system of the former regime.
Comparision of average monthly salary of agricultural sector employees against one of other sectors
employees shows following results:
117
AVERAGE MONTHLY SALARY
Олон улсын байгууллага, суурин … 1,143.9

Хүн хөлслөн ажиллуулдаг өрхийн үйл… 0
Үйлчилгээний бусад үйл ажиллагаа 423.9
Урлаг, үзвэр, тоглоом наадам 529.4
Хүний эрүүл мэнд ба нийгмийн халамжийн … 653
Боловсрол 641.8
Төрийн удирдлага ба батлан хамгаалах үйл… 702.5
Удирдлагын болон дэмжлэг үзүүлэх үйл… 536.4
Мэргэжлийн, шинжлэх ухаан болон… 685.3
Үл хөдлөх хөрөнгийн үйл ажиллагаа 606.4
Санхүүгийн болон даатгалын үйл ажиллагаа 1,346
Мэдээлэл, холбоо 752.5
Зочид буудал, байр, сууц болон нийтийн … 489.1
Тээвэр ба агуулахын үйл ажиллагаа 794.3
Бөөний болон жижиглэн худалдаа; машин,… 703.1
Барилга 581.3
Ус хангамж; бохир ус зайлуулах систем, хог,… 517.5
Цахилгаан, хий, агааржуулалт 774.5
Боловсруулах үйлдвэрлэл 591.6
Уул уурхай, олборлолт 1,050.2
Хөдөө аж ахуй, ойн аж ахуй, загас барилт, ан… 302.6
Улсын дундаж 692.3
Source: National Statistical Office
Fig. 1. Average monthly salary of employees in entities and organizations, 4th quarter of 2015, in
thousand tugrugs
In Figure 1 the salary level is compared by industries using 2014 data. As seen in this Figure
salary paid to employees in mining sector and banking sector is more than twice the state average
while average salary of agricultural sector is less than 60 percent of the state average salary.
Economic activities of wheat producers are generally of seasonal nature. For obtaining
average salary information the data applicable to 545 employees of 52 crop production entities in
Selenge aimag is captured from Social Security Return submitted by these entities and the
forecasting for 2015-2020 is made accordingly using a model reflecting seasonal impacts as seen in
Table 1 below:
Table 1. Salary Forecasting for 2017-2022 / in Tugrugs/

No 2017 2018 2019 2020 2021 2022
I quarter 378782 428088 477395 526701 576008 625314
II quarter 422501 471807 521113 570420 619726 669033
III quarter 439858 489165 538471 587778 639084 686394
IV quarter 445663 494969 544276 593582 642889 692197
Total 1686804 1884029 2081255 2278481 2477707 2674955
Average 421701 471007 520314 569620 619427 668738
Source: Researcher‘s estimation
118
The estimation shows that salary of wheat producers in 2nd quarter of 2020 will approach to the
state average of 2022 (669.3 thousand tugrugs) (of 10-49 employees in employees classification).
800000.0
700000.0
600000.0
дундаж цалин
500000.0
1-р улирал
400000.0
2-р улирал
300000.0
3-р улирал
200000.0 4-р улирал
100000.0
0.0
12341234123412341234123412341234123412341
Fig. 2. Future trend for average salary, Source: Researcher‘s estimation
As seen in future trend of employees‘ salary, highly skilled professionals seem highly probable to
migrate into sectors with more earnings. For determining level of dependence of salary paid by
wheat producing entities to their employees upon the production volume, the entities are classified
into 5 groups according to their size of land, and their salary level is compared accordingly (Table
2).
Table 2. Clasification of wheat producing entities

Number of entities
№ Size of land Annotation
selected for sampling
1 Up to 50 hectar 30
2 51 – 300 hectar 51
3 301 – 600 hectar 15
4 601 – 1000 hectar 12
5 1001 – more 9
Sum 117
For analysis, wheat producing entities in the Central region are selected according to criteria such as
carrying out business activities successively over recent three years and in regular cooperation with
local treasury and tax authority etc. 117 entities in following 3 aimags are selected in the analysis
(Table 3).
119
Table 3. Wheat producing entities in the Central region
Individuals and entities

Individuals
running continuous
Wheat and entities Level of
д/д Aimag business activity in wheat
producers selected in dependency
production in recent 3
analysis
years
1 Selenge 322 296 42 14.19

2 Tuv 142 137 59 43.07
Darkhan-
3 42 38 16 42.11
Uul
Sum 506 471 117 24.84
In the classification of entities, sampling distribution illustrates 7 percent in land with more than
1001 hectare, 10 percent in 601-1000 hectare, 13 percent in 301-600 hectare, 44 percent in 51-300
hectare, 26 percent in land up to 50 hectare. Table 4 demonstrates the number of employees with
fixed and output-based salary, and contractual employees in each group of entities selected in the
analysis.
Table 4. Number of employees with fixed pay, output-based pay, and contractual employees
Up to 301- 601- 1001- Total
51-300 Percentag
Classification 50 600 1000 1500
hectare e
hectare hectare hectare hectare
Fixed pay employees 15 64 16 62 42 199 49.1%
Output-based pay employees 15 44 24 24 8 115 28.4%
Contractual employees 47 5 15 15 9 91 22.5%
Total 77 113 55 101 59 405 100%
Totally 405 employees are employed in 117 entities analyzed and out of which 199 are fixed pay
employees, 115 are output-based employees, and 91 employees are contractual workers. Depending
on distinction of crop production sector the contractual workers account for 22.5 percent.
Table 5. Average salary in these 3 classification group

Average salary
paid to output- Average salary paid Average salary of Average
based pay to fixed pay contractual salary
Year employees employees employees amount
2014 295,519 289,079 302,836.82 295,812
2016 459,536 286,740 352,491.64 366,256
2016 443,034 306,915 355,484.30 368,478
Average 399,363 294,244 336,937 343,515
Average salary paid to wheat producers appears to be 343,515 tugrugs. Share of salary in household
income is about 20-35 percent in local provinces while remaining share consists of pension,
120
allowances, household business income, free give-aways from others, foodstuff consumed from
private farming. Correlation between farmers‘ salary and crop yields shows following results:
Fig. 3. Correlation between direct labor cost and crop yield amount
Above chart shows that the the total crop yield the lesser the direct labor cost per 1 tonnes of crop.
This is because of the fact where the production volume is large the human labor cost gets lower
employing tech-intensive devices. Let‘s analyze this correlation through simple regression:
where –
Looking at the regression analysis, there is weak relationship between salary of output-based pay
employees and their actual work performance.
For assessing employees‘ satisfaction on their salary amount, a survey was conducted through
questionnaire from 57 employees of 15 wheat production entities in Selenge aimag.
Information necessary for the analysis was gathered using standardized survey and questionnaire,
and processed using SPSS 17.0 application.
The survey covered individuals at ages between 15-60.
According to number of employment years, 43.6 percent of the survey respondents is employed for
up to 6 years, 32.8 percent is for 7-15 years, 14.5 percent is for more than 25 years. As for
professional specialization, they acquire up to 25 types of specialization, namely 16 percent is
agronomist, 7 percent is driver, and 5 percent is engineer, zoologist and accountant respectively.
Below is the summary of responses to questions such as how much they are getting paid, and how
long they have been employed.
121
Table 6. Average monthly salary of crop farmers and number of service years
1-3 4-6 7-10 10-15 15-20 More
Criteria years years years years years than 25 Percentage
years
201.0-300.0 8,3% 18,2% 11,1% 12,5% 20,0% 50,0% 18,9%
301.0-400.0 41,7% 9,1% 11,2% 25,0% - 25,0% 20,8%
401.0-500.0 - 36,4% - 12,5% 20,0% - 11,3%
501.0-600.0 - 9,1% 44,4% 25,0% 20,0% - 15,1%
601.0< 50,0% 27,2% 33,3% 25,0% 40,0% 25,0% 34,0%
Total 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0%
From the results of the survey, we can see 20 percent of those respondents accounting for 18.9
percent who answered as getting paid 201.0-300.0 thousand tugrugs is employed for 15-20 years,
and 50 percent is in employment for more than 25 years. Furthermore, 41.7 percent of those
respondents accounting for 20.8 percent who answered as getting paid 301.0-400.0 thousand
tugrugs is employed for 1-3 years, and 36.4 percent of those respondents that accounts for 11.3
percent who answered as getting paid 401.0-500.0 thousand tugrugs is in employment for 4-6 years.
50 percent of those respondents accounting for 34 percent who answered as getting paid more than
602.0 thousand tugrugs is employed for 1-3 years while 40 percent is in employment for 15-20
years. This survey confirms there is no logic where amount of salary increases in line with the
number of employment years.
According to responses to questions how much the employees are satisfied with their salary, 9
percent expressed as very satisfied, 16 percent as satisfied, 58 percent as moderately satisfied
whereas 13 percent expressed as somewhat satisfied and 9 percent is unsatisfied.
Salary
Маш хангалуун
13%4%9%
16% Хангалуун
Боломжийн
58% Бага зэрэг
Үгүй
Fig. 4. Degree of employees‘ satisfication on their salary
To the question how much they are satisfied with their remuneration and bonuses, 15 percent
answered as being very satisfied, 28 percent as satisfied, and 38 percent as moderately satisfied.
122
Remuneration and bonus
9% 15% Маш хангалуун

10% Хангалуун
Боломжийн
28%
Бага зэрэг
38%
Үгүй
Fig. 5. Employees‘ satisfaction on their remuneration and bonuses
The survey responses shows that majority of the respondents are satisfied with their salary,
remuneration and bonuses.
To the question as to whether the salary is increased in line with growth in organizations‘ profits, 32
percent of the respondents replied ―Yes‖. This implies there is tendency of parallel increase of
farmers income to the organizations‘ profitability.
When the respondents are asked if they receive remuneration and bonuses, 19 percent answered
―No‖ while 50 percent answered they receive on semi-annual basis and 23 percent answered they
receive at end of the year.
To the question as to whether the type of remuneration and bonuses should be changed, 80 percent
of the respondents answered ―Yes‖.
When asked for factors having greatest impact on employees motivation towards work, 53.6
percent of the respondents answered ―monetary incentive‖ and 16.1 percent said ―psychological
incentive‖. To the question as to which extent the management‘s communication influences in work
performance, every 3 employee answered as having no impact. When asked whether employees
express their views freely to their management, 50 percent of the respondents said that they can
express themselves without obstruction. This shows there is closer, simple and frank
communication among employers and employees in agricultural sector compared to large-scale
businesses in industrial or service sector of the economy.
123
Conclusion
1. Among the employees working for farming entities the fixed-pay employees dominate major
parts. Fixed-pay staff at the entity usually comprises director, driver, guardian and barnyard
watchman whereas key employees including combine drivers and mechanic workers
performing crucial parts of work at wheat production entities are getting paid on output-
basis, however their monthly average salary is relatively lower than one of those in other
positions and other sectors.
2. Due to seasonal nature of agricultural farming industry the contractual workers employed
for temporary period account for major share in total number of employees. During crop
cultivating and harvesting periods they enter into contractual agreement on daily basis and
got paid in per hour-based form.
3. As a rule the salary should be increased in proportion to growth in production volume and
entities profits, however in practice the larger the size of entity the lower the salary is.
According to regression analysis there is weak correlation between volume of harvests and
salary amount of output-based pay employees.
4. Even though the employees participated in questionnaire responded as being satisfied with
their salary, the migration of farming industry workers is sizeable. Furthermore there exist
variety of drawbacks such as weak dependence of salary amount on nature of work,
significance of work, employment years, professional expertise, skills and the like. It is,
therefore, essential to undertake much efforts in relation to carrying out, and continuously
upgrading thorough studies on salary related issues with scientifical justification.
124
References
1. Baatartogtokh, Ts. (2010). Methodology for Social Science Research. Ulaanbaatar.
2. Bayarmaa, G. (2009). Productivity Motivation. Ulaanbaatar.
3. Lhamnyam, L., Saran, L., Lumjav, L. (2008) Labour Economy. Ulaanbaatar.
4. References and Research materials.
5. Law of Mongolia on Food Security.
6. Oyuntsetseg, L. (2004). Theoretical and Methodological Background of Productivity
Management. Ulaanbaatar.
7. Sodnomdorj, N. (2000). Modern Labour Economy. Ulaanbaatar.
8. Tsetsegmaa, Ts. (2009). Human Resource Management. Ulaanbaatar.
9. Chimgee, D. (2008). SPSS for Windows.
10. NSO, Information database, Electronic Sources.
11. Legal Acts.
12. Shurchuluu, P., Oyuntsetseg, L. (1999). Modifying Productivity Management in Business
Entities and Organizations. Ulaanbaatar.
13. Shurchuluu, P. (/99A). What is ―5S‖ of Japan. Ulaanbaatar.
14. Enkhsaikhan, S. (2010). State Productivity Management. Ulaanbaatar.
15. Erdenebuyan, Sh. (2000). Manufacturing Activity Management. Ulaanbaatar
16. Government Policy on Food Security.
17. Casey Jo Kuykendall "Key Factors Affecting Labor Productivity in the Construction
Industry", University of Florida, 2007.
Online Sources:
1. www.zasag.mn
2. www.mpo-org.mn
3. www.ubhealth.mn
4. www.nso.mn
5. www.ubstat.mn
125
A STUDY OF THE FACTORS AFFECTING THE GOVERNMENT

TREASURY BILL YIELD
Munkhtsetseg. Sandagsuren1, а*, Gantulga Jargalsaikhan2, b

1
Ph.D Candidate, Department of Economics and Business, Mandakh University
2
MBA, Department of Economics and Business, Mandakh University
a*
s_munkhtsetseg@mandakh.mn, b j_gantulga@mandakh.mn
Keywords: Treasury bill yield, Government budget, Inflation
Abstracts
The main objective of this study is to research an affecting factors of government bond
yield and raise a hypothesis based on conducting a research the theory and practices of bond
valuation. We concentrate on the government bond transactions of Mongolia has issued into
the domestic market and the affecting factors of this transactions. Trading government
treasuries regularly and remaining the sustainability of domestic market have an excellence
for determining a yield curve or benchmark rate. On this situation, it is a great advantage for
developing of stock market as it can be a risk-free rate for a given country‘s currency and a
base rate of financial and debt instrument. As a result of the study, we find out the factors
affecting the bond yield as well as provide essential facts for stock market agencies.
Introduction
Development and establishment of every country are mostly determined by financing
source. In our country, a great amount of bond has issued by selected bond investment like
other countries government. It was used initially by European countries for financing war that
started in 17th century. The government bond has been used as a tool for financing budget
expenditure of government of some countries in recent year.
Amassing debts resulted in financial crisis of a country as well as its affect has been
increasing in the recent years. For example, Denmark had no opportunity to pay debt that was
issued into financial market for financing Gunboat‘s war since 1807 and then they had a big
amount of budget deficit. In addition, we can name the financial turmoil caused as a result of
the Latin America lent debt to Mexico in 1980 and economic crisis caused by government
debts of some European unions such as Portugal, Ireland, Greece, Spanish, Belgium counties
in 2010. According to this, we can conclude that financing of bond has a risk of failing
financial system of a country. Therefore, aspiration of examining Mongolian government‘s
benefit and calculation of bond were the basis of study.
Literature review
Sreejata.B and Divya.S (2015) defined that macroeconomic indicators not only influence on
bond‘s interest but also are different in each country as a result of the comparative research
126
conducted in China, Japan and India. [ HYPERLINK \l "Sre15" 1 ] Salvador.B, Per.I,

Magdalena.L and Ralph.S (2009) studied that bond spreads change of countries in the euro
area strongly influences on conditions in global financial markets. Domestic factors like
liquidity and credit risk have become more important in the recent financial crisis to explain
yield differentials.2]}
Study of disbursement of Chinggis bond by Munkhzaya.B (Ph.D) (2014) stated the
impact of positive and negative sides for influencing the financial system. [ HYPERLINK \l
"Mun14" 3 ] Ganbat.E and Amgalan.U (2015) studied the impact of foreign debt for
economy of Mongolia using Solou‘s growth model. (Ganbat.E & Amgalan.U, 2015)
Tsogzolmaa.U (2015) defined interest of government bond yield in the research related to
defining discounted rate of government bond using Security market line. CITATION Tso15 \l
1033 [ HYPERLINK \l "Tso15" 5 ]
Methodology
Econometrics models, methods of scientific study and general method were utilized in the
research.
Main condition of the Model

Its aim is to identify what factor influences on government treasury bill yield and explain its
affect using model of econometric analysis. We used bulletin of Central Bank of Mongolia
which is from 2013.01 until 2016.12 in amount of sample, and 48 observations were utilized.
Table 1. Variables used for model

Sign Explanation Hypothesis
Dependent variable
YTM Government treasury bill yield
Independent variables
WALR Weighted average lending rates Positive
INF Inflation annual Positive
M2 М2 money Positive
USD Dollar exchange rate Positive , negative
GB Government budget deficit Negative
PR Policy rate Positive
TB Trade balance Positive
Method of least squares with Eviews 9.5 program of econometric analysis and VEC (Vector
Error Correction) were used to estimate assessment of relevance and equations.
Indicators of interest were expressed as follow: Government treasury bill yield
(YTM), weighted average lending rate (WALR), policy interest (PR), inflation annual (INF)
by percentage, total money supply (M2), government budget deficit (GB) by million dollars,
dollar exchange rate (USD) by a thousand dollars, and trade balance (TB) by a million dollars.
A result of empirical study of factors influencing government stock interest
127
Time series properties of quantitative indicators must be checked before calculating

regression. If indicators are unstable, shock creates change with constant property. And if
qualitative indicators are steady state, all shock‘s reaction go down to average level after
space of time. CITATION Gan04 \l 1033 [ HYPERLINK \l "Gan04" 6 ] For method of
assessment, there are two possible variations. For instance: To carry out regression analysis
by finding differentiation of first difference and converting it to stable indicator in terms of
unstable indicators or to conduct co-integration analysis as instability. CITATION Gan04 \l
1033 [ HYPERLINK \l "Gan04" 6 ] Co-integration has advantages such as show time
relations by deploying short and long time and calculate impact of both policy and external
factor‘s shocks. However, it may be inadequate to assess co-integration analysis since
indicator dynamic involving in the study is too short. Therefore, it is appropriate to assess an
equation by finding differentiation of first ranking.
Dynamic row of the above-given indicators was checked by ADF test for assessing if
they are stable or not and the result was shown in table 2. We have chosen Schwarz criterion
(SC)1 which can be an absolute minimum to choose suitable length of the lag. Graphical
analysis is conducted under each indicator before checking indicator stability. If indicator is
trend, time trend and intercept will be chosen. But if it is fluctuating, intercept will be chosen
while none will be selected when it fluctuates near the zero. Picture 1 shows that exchange
rate of dollar (USD) is trend and other indicators are fluctuating.
EMBED EViews.Workfile.2
Fig. 1.Dynamic row of Indicators
128
Table 2. Result of ADF test

No difference First level difference
Integration lag
Indicators
stable or not
stable or not
ADF test
ADF test
Whether
Whether
Critical
Critical
statistic
statistic
values
values
№
Lag
Lag
SC
SC
1 YTM I(1) 1 -6.27 -2.49 -3.51 Ү 0 -6.07 -4.48 -4.18* Т
2 WALR I(1) 1 -7.15 -4.41 -4.17* Т 0
3 INF I(1) 2 -6.34 -2.24 -3.51 Ү 0 -6.30 -4.56 -4.17* Т
4 USD I(0) 0 10.42 0.62 -2.93 Ү 0 10.32 -4.66 -3.58* Т
5 PR I(1) 2 -6.68 -3.76 -3.51** Т 1
6 M2 I(0) 2 27.90 -1.40 -2.93 Ү 1 27.86 -3.98 -3.58* Т
7 GB I(0) 2 28.51 1.90 -2.93 Ү 1 28.40 -6.91 -3.58* Т
8 TB I(1) 2 14.90 -0.97 -2.93 Ү 1 14.73 -6.48 -3.58* Т
 We estimated by including only intercept in the ADF test equation to check I(O)
 We estimated by including intercept and trend in the differentiation equation of first
difference of ADF test to check I(1)
 For responding yes/no, they were marked as T and Y on the table.
 *(**) – it shows repulsing of Ho prediction or it has unit radical and unstable on 1%
(5%) of relevance.
It is repulsing the H0:p=1 prediction that indicators of policy rate and weighted
average loan rate are stable on 1% and 5% of significance level and they have unit radical in
terms of other indicators. Therefore, these indicators are unstable. We stated that granger test
can be taken while performing Augment Dickey-Fuller test to check time series properties of
study indicators.Now, let‘s check if change of above-given indicator can be cause of others or
not using Granger Sims F test.
Table 3. Result of granger test
Prob
Null Hypothesis:
Lags: 1 Lags: 2 Lags: 3 Lags: 4 Lags: 5 Lags: 6 Lags: 7
WALR does not Granger Cause YTM 3%
M2 does not Granger Cause YTM 1% 1% 2% 4% 3% 2% 4%
USD does not Granger Cause YTM 1% 5% 9%
GB does not Granger Cause YTM 5%
PR does not Granger Cause YTM 8%
TB does not Granger Cause YTM 9% 10% 3%
From the above-given result, variables such as exchange rate of dollars (USD), government
budget deficit (GB), policy rate (PR) and M2 money (M2) lagged by 1-3 periods, variable like
Foreign trade balance (TB) lagged by 4, 6, 7 periods, weighted average lending rate (WALR)
lagged by 7 period as well as M2 money (M2) lagged by 1-7 periods can be not only
independent variables but also cause or change of government treasury bill yield.
From correlation matrix, we can see how each variable engaged in the study relates to
each other strongly after granger test.
129
Table 4. Correlation matrix of indicators

YTM WALR INF M2 USD GB PR TB
YTM 1.000 0.628 (0.477) 0.692 0.786 (0.487) 0.606 0.833
WALR 0.628 1.000 (0.407) 0.454 0.590 (0.319) 0.642 0.701
INF (0.477) (0.407) 1.000 (0.399) (0.582) 0.646 (0.359) (0.469)
M2 0.692 0.454 (0.399) 1.000 0.922 (0.688) 0.463 0.688
USD 0.786 0.590 (0.582) 0.922 1.000 (0.752) 0.634 0.752
GB (0.487) (0.319) 0.646 (0.688) (0.752) 1.000 (0.512) (0.533)
PR 0.606 0.642 (0.359) 0.463 0.634 (0.512) 1.000 0.701
TB 0.833 0.701 (0.469) 0.688 0.752 (0.533) 0.701 1.000
From the result of calculating, decrease of policy rate will reduce weighted average lending
rate of a commercial bank and it can increase money (M2) via inflation (INF) in economy.
When inflation goes up, money supply can be reduced using activity of open market by
increasing stock interest of government. As a result of this, deficiency of government budget
(GB) can be decreased.
The table 5 shows that Wald test‘s result which checked if government treasury bill
yield can be cause of other variables and is related to them in a short time.
Table 5. Government treasury bill yield and legitimacy of independent variables
Variable Coefficient t-Statistic
C -0.086079 -2.231183
YTM(-1) 0.607487 6.536032
WALR(-5) 0.525908 2.523143
GB(-3) -9.11E-09 -2.364991
INF(-3) 0.190001 3.914830
@TREND 0.000856 2.969913
R-squared 0.931171
S.E. of regression 0.008191
F-statistic 100.1128
Durbin-Watson stat 2.022151
YTM = 0.61*YTM(-1) + 0.53*WALR(-5) - 9.11*GB(-3) + 0.19*INF(-3) + HYPERLINK

"mailto:0.000856*@TREND" 0.000856*@TREND – 0.09
From assessment variable of parameters of regression function, government treasury
bill yield is changed, depending on 1 period which comes before YTM, 5 period of WALR, 3
period of government budget (GB) and 3 period of inflation (INF). From assessment result,
1% rise of indicator such as weighted average lending rate (WALR) and inflation can increase
government treasury bill yield by 0.5% and 0,2% after two or five months when other factors
are stable. But change of government budget (GB) influences on government treasury bill
yield slightly. For instance, we need to estimate influence of long term since change of
government budget cannot influence dramatically on government treasury bill yield in a short
time.
130
Table 6. Result of WALD test

Indicators An appropriate indicators Whether dependent or not P-value
D(WALR) Yes 0.0411
D(INF) No 0.3179
D(M2) Yes 0.0015
Government treasury
D(USD) Yes 0.0064
bill yield (YTM)
D(GB) Yes 0.0367
D(PR) Yes 0.0391
D(TB) Yes 0.0126
From P-value, it states that there is relations which can be cause since other indicators
except annual inflation (INF) have government treasury bill yield in the long term.
We conducted analysis in the frame of VEC model to see how other variables which
can influence on indicator or government treasury bill yield (YTM) influence in the short term
as well as showed estimation in table 6.
Table 7. Vector Error Correction Estimates
Vector Error Correction Estimates
Sample (adjusted): 2013M05 2016M12
Included observations: 44 after adjustments
Standard errors in ( ) & t-statistics in [ ]
Cointegrating Eq: CointEq1
D(YTM) -1.48 (3.83) [-3.86187]
D(YTM(-1)) 3.12 (1.43) [ 2.17427]
D(YTM(-3)) -3.01 (1.32) [-2.28105]
D(WALR(-1)) 7.19 (2.66) [ 2.70390]
D(M2(-3)) 2.05 (5.80) [ 3.53740]
D(USD(-3)) 0.000176 (5.00) [ 3.49494]
D(GB(-3)) -9.68 (4.40) [-2.17675]
D(PR(-2)) -0.65 (0.25) [-2.59914]
D(PR(-3)) -0.57 (0.23) [-2.49840]
D(TB(-3)) -1.08 (4.20) [-2.61152]
C -0.007562 (0.004) [-1.92464]
R-squared 0.868644
S.E. equation 0.005711
From above-given data expressing assessment result, we can write equation as follow:
D(YTM) = 1.48* D(YTM) - 3.12* D(YTM(-1)) + 3.01* D(YTM(-3)) - 7.19* D(WALR(-1)) - 2.05* D(M2(-3))
- 0.000176* D(USD(-3)) + 9.68* D(GB(-3)) + 0.65* D(PR(-2)) + 0.57* D(PR(-3)) + 1.08* D(TB(-3)) +
0.007562
To see equation expression long term relations, it is obvious that government treasury
bill yield depends on its previous 3 period‘s value directly and relates to 1 period value
reversely.
Indicators such as weighted average loan rate, M2 money and exchange rate of dollar
affect government treasury bill yield contrarily with time lag of one or three period. For
indicators such as policy rate, government budget (GB) and foreign trade balance (TB), they
affect directly with time lag of two and three period. Result of the above-given equation
proved that budget deficiency can be reduced if government increase stock interest.
131
Conclusion
We aimed to investigate the factors defining stock interest in the research. Government
treasury bill yield can be explained by variables such as inflation, weighted average lending
rate and government budget except policy rate, M2 money and dollar exchange rate reflected
on equation assessed by method of least squares in the short term. For the method of VEC,
other variables apart from inflation can be factors defining government treasury bill yield.
We are making following recommendations based on main proofs. Heroin:

1. It is suitable to study by comparing macro factors influencing on government treasury
bill yield of other countries.
2. We need to expand amount of sample and estimate using rational methods to improve
the quality.
References
1. Sreejata.B and S.Divya. (2015) Effect of Macroeconomic news releases on bond yields
in India China and Japan.
2. Salvador.B, Per.I, Magdalena.L, and Ralph.S. (2009) Determinants of intra-euro area
government bond spreads during the financial crisis.
3. Munkhzaya.B. (2014) Research on Chinggis Bond.
4. Ganbat.E and Amgalan.U. (2015) Effect and trend of external debts on Mongolian
economic growth.
5. Tsogzolmaa.U. (2015) Defining the discount rate of government bond.
6. Gan-Ochir.D and Borkhuu.G. (2004) Correlation between inflation and money
aggregates.
7. S. Bulletin. (2013-2016) www.mongolbank.mn.
132
KEY ELEMENTS AND ASSESSMENT STRATEGY TO MOTIVATE

STUDENTS LEARNING IN BUSINESS ENGLISH COURSE-ESP
Tugsuu Jargal1, a*
1
Senior Lecturer, Ph.D Candidate, Department of Foreign Language, Mandakh University
a*
HYPERLINK "mailto:jtogsoo@yahoo.com" jtogsoo@yahoo.com
Keywords: Student motivation, Teaching/learning materials, Classroom assessment, Self-assessment,

formative assessment, Summative assessment, Assessment criteria
Abstract
This paper highlights the importance of the self-assessment and student involvement into the
process of Business English courses. Motivation is a desire to achieve a goal, combined with the
energy to work towards that goal. Students who are motivated have a desire to undertake their study
and complete the requirements of their course. Business English has gained importance lately, as
more and more students prepare for a job in the business field nowadays. As a result, the Business
English courses offered by universities are usually designed on general topics such as management,
marketing, advertising, in order to provide the students with a minimum vocabulary and language
skills related to the field of business. The article summarizes that the role of assessment in
enhancing student motivation to learn English for specific purposes is analyzed. The research results
about student attitudes towards assessment strategies are presented and assessment types are
described.
Introduction
The intensive development of science and technology and considerable expansion of
business and cultural ties with scientists and businesspersons globally require university graduates
to have a corresponding language proficiency level to be able to communicate effectively in every-
day, business and professional environments. Therefore, there is a necessity to help students make
their learning process more effective, and student motivation should be the key to the successful
learning. Much has been doing in the classroom to motivate learning. Assessment as a critical part
of the students‘ study process should also help motivate students to learn. According to the credit
and transfer system requirements [3] the following types of assessment for university students are a
must: continuous, formative and summative.
Besides these conventional types of assessment, it is advisable to implement other methods
like peer and self-assessment. Elton states that changing assessment methods could have a positive
effect on enhancing student motivation to learn [10]. A key element in successful motivation is to
ensure that the students are not overloaded by assessment [18].
When teachers‘ classroom assessments become an integral part of the instructional process
and a central ingredient in their efforts to help students learn, the benefits of assessment for both
students and teachers will be boundless [12]. McMillan also discusses the importance of a teacher‘s
133
ability to integrate assessment and classroom instruction claiming that it gives the teachers clues as
to what lessons and level of teaching that may be appropriate [16]. In order for teachers to take full
advantage of assessments, they must be open and willing to view them as achievement gauges,
student motivators, and instructional guides and be responsible for the assessment of their students.
1. Motivation as an Incentive for Learning
Learners‘ motivation in Business English classroom in Mongolia has varied significantly for
various reasons. The search has been conducted among teachers and learners of Business English to
study this notion and it shows the following outcomes. Common motivational factors for learning
Business English in Mongolia:
 to get a better or well-paid job;
 to improve internal and external business communication skills;
 to make a major career change;
 to work for a foreign or multinational companies;
 to work and live abroad; and
 to get a higher business degree like MBA at home or abroad.
To enhance learners' intrinsic motivation, teachers can deliver feedback in the classroom,
provide content-based teaching, such as English for specific purposes or English for the workplace,
and design different kinds of assignments that engage students in cooperative learning instead of
competition in instructional activities [4]. Brown also suggested that, instead of tests and exams, the
use of peer evaluation, self-diagnosis, and level-check exercises could enhance students‘ intrinsic
motivation. Teachers can help students set their personal goals, short term and long term, to
motivate them to achieve self-actualization and strive for self-esteem and fulfillment.
Our study indicates that, learners of Business English classes are highly motivated compare
to learners of general or Communicative English. Most of them are well aware about their roles and
responsibility and determined to improve their performance by participating in all kinds of
classroom activities. It‘s a very common phenomenon that Mongolian learners are very good at
English grammar as most of them have started learning English at school but have little or no
communication skills as they hardly communicate with native speakers of the language at work or
personal life. On average students who study English as a second language at school and university
spend approximately over a thousand academic hours in the English language classroom. Recently
the situation has started to change as English is widely used and highly demanded at workplace in
many renowned national and multinationals organizations. As we know that motivated learners are
more likely to be successful in learning than not motivated. Beside those extrinsic and intrinsic
motivational factors of Business English learners, we can identify several critical factors which may
play a big part in motivating students:
 seeing immediate result i.e., can speak and express their feelings in English;
 interesting text-book;
 qualified and experienced teacher;
 methods of teaching;
 good atmosphere and comfortable learning environments;
 friendly and cooperative teacher; and
 friendly and helping group mates
134
 a rational assessment strategy.
Motivation is eagerness and willingness to do something without needing to be told or

forced to do it [15]. Many studies of human learning have shown that motivation is a key to learning
and researchers consider motivation as one of the main elements that determine success in
developing a foreign language; it determines the extent of active, personal involvement in language
learning [17]. Psychologists also believe that motivation as one of the major factors of academic
achievement and work productivity. Motivation is the most frequently used explanation for success
or failure in completing any complex task and has been considered a pivotal concept in most
theories of learning. Researchers have indicated that it is very important to examine the individual
differences in student motivation in order to describe and understand the connection between
students' personal characteristics and academic achievement. Maslow clearly indicated that intrinsic
motivation is superior to extrinsic motivation according to his hierarchy of human needs.
Motivation is characterized by two main types: intrinsic motivation that is described as when
students are seeking intellectual stimulation from their studies and extrinsic motivation that is when
students are more concerned about their grades or marks and their future employment prospects.
Therefore, in order to stimulate interest for a foreign language the teacher should develop in
students intrinsic motives relying on their personal experience, outlook, abilities, interests, emotions
and feelings revealing what students already know on the topic, finding out their gaps and lacks and
arranging a lesson based on students‘ needs. Besides, it will give a possibility to students to exhibit
their knowledge, life experience and ideas got from the previous learning experience and engage
their interest [11].
Elton [10] suggests that intrinsic motivation can be increased by assessment strategies which:
 to treat students as individuals;
 to expect students to show individuality, originality and creativity;
 to allow choices and preferences in their learning;
 to allow students to negotiate the means by which they are assessed.
In order to make learning motivating, it must:

 be meaningful;
 be challenging;
 be interesting arousing the intellectual curiosity of the learner;
 be relevant, in that it must contribute to the learner's goals in undertaking the process;
 give the learner an expectation of success;
 produce satisfaction in the learner in having achieved their goals.
2. Assessing Students: What, Why and How
By assessment we mean consideration of the results of individual learning. According to the

National Curriculum for Universities [2] teachers are to assess the students‘ achievements in
mastering the English language in accordance with the specified objectives and the target levels.
Black and Wiliam [4] define assessment broadly to include all activities that teachers and students
undertake to get information that can be used analytically to alter teaching and learning. This
definition considers assessment as an involved practice. Richard Stiggins describes classroom
assessment as the process of gathering evidence of student learning to inform instructional decisions
135
[21]. Teachers must discover, accept and apply this new understanding of classroom assessment to
continue to describe achievement and contribute to learning and motivation [21].
Assessment in an ESP course performs the following roles:
 to measure progress;
 to measure achievement/outcomes in terms of knowledge and skills;
 it provides the basis for decisions on whether a student is ready to proceed;
 it enables students to obtain feedback on their learning;
 it helps students to improve their performance;
 it enables staff to evaluate the effectiveness of their teaching.
Boud gives a set of criteria to judge assessment [6]. A number of these criteria have a significant
impact on motivation and raise the following questions.
 What is the contribution to learning made by the act of the assessment?
 To what extent does the totality of the assessment portray what is important for learning?
 What are the consequences of assessment on student learning?
 Does the assessment encourage learning?
 Are students able to shape their own assessments?
 Does the assessment lead to an outcome which properly indicates the accomplishments of
the student?
The common types of assessment mentioned above are continuous, formative, and
summative.
Continuous assessment is assessment by the teacher and possibly by the student of class
performances, pieces of work and projects throughout the course. This type of assessment implies
assessment which is integrated into the course and which contributes in some cumulative way to the
assessment at the end of the course. It normally includes a series of focused tasks. Continuous
assessment allows more account to be taken of students‘ creativity and different strengths [7]. All
this makes continuous assessment important among a half of the respondents.
Formative assessment refers to assessment that is specifically intended to provide feedback
on performance to improve and accelerate learning [18]. Formative assessment takes place as the
course is in progress and provides information about how well the students are doing – what they
have achieved, what they need to work on, and how well the course is meeting their needs. The key
focus of formative investment is on the learner, it answers the question ―how am I doing?‖ instead
of ―how did I do?‖ [20]. Formative assessment is an ongoing process of gathering information on
the extent of learning, on strengths and weaknesses, which the teacher can feed back into their
course planning and the actual feedback they give students. The strength of formative assessment is
that it aims to improve learning [7]. That is why most of the respondents consider formative
assessment important.
The best formative assessment technique in ESP course is case studies, which is considered
an ideal method of inducting students into their professional world. It improves students‘ motivation
to learn a language, develops responsibility, problem-solving skills as well as all the language skills.
It is aimed at achieving module learning outcomes [9] and demonstrating developed and
strengthened analytical and critical thinking skills. Case studies promote interaction and active
learning. Meaningfulness is also promoted when teachers use authentic tasks that place students in
meaningful, context-relevant testing situations. Case studies assess the readiness of learners to use
136
their skills in real world contexts. This allows the assessment to focus itself on either the process or
the product.
Students are willing to cooperate and they show great enthusiasm to practice when they
receive specific feedback on their errors. Such feedback should include specific suggestions for
improvement rather than vague comments. Teachers should give students some indication of how
well they have done and how to improve. Formative assessment is widely supported as an important
part of student development, with feedback being the critical component.
Feedback as a motivating element is a part of the teaching process. Teachers facilitate learning by
providing students with important feedback on their learning progress and by helping them identify
learning problems [12]. Feedback can be both positive and negative; the experience shows that
positive comments influence motivation. Praise builds students' self-confidence, competence, and
self-esteem. Negative feedback can lead to a negative class atmosphere. Whenever a teacher
identifies a student's weakness, he should make it clear that the comments relate to a particular task
or performance, not to the student as a person.
Informative feedback can also enhance intrinsic motivation. For someone to be motivated,
usually, a worthwhile, attainable goal is necessary. Typically, the grade or the summative
assessment at the end of the term is the extrinsic motivator. Positive feedback can motivate them to
greater effort because it makes their goal seem attainable.
Self-and peer-assessments are considered vehicles to improve learning. Self-assessment answers the
question "How am I doing?" [13]. It encourages the student to become part of the whole process of
language learning, and to be aware of individual progress, so that he/she can think about (goal
setting) what needs to be done in the future (planning), and can then reflect on achievement (further
self-assessment).
Self-assessment means judgments about a student‘s own proficiency. It can be an effective
compliment to tests and teacher assessment. The main potential for self-assessment is in its use as a
tool for motivation and awareness rising: helping students to appreciate their strengths, recognize
their weaknesses and orient their learning more effectively [7]. Combining self-assessment with
teacher assessment means that the latter can become more effective [13].
The introduction of self-assessment can lead to an open dialogue with students and give teachers a
better understanding of students‘ problems. To develop their learning skills, students use Language
Portfolio, which provides grids for self-assessment of language achievement and the setting of
personal learning goals.
3. The Role of Materials and Methods in Motivating Students’ Learning
Motivation is also enhanced by the way in which the instructional material is organized. The
Business English-ESP teaching/learning materials should be relevant to the objectives and outcomes
of the lesson/module/syllabus, thus meeting the needs of students.
Materials provide a stimulus to learning. Good materials do not teach: they encourage learning.
Materials need to contain challenging and interesting texts, enjoyable activities that stimulate the
learners‘ thinking capacities, offering opportunities for learners to use their previous knowledge and
skills, content which both learner and teacher can cope with.
Materials provide models of correct models of language use. Teachers should always keep in mind
that the materials they produce aim at students‘ better use of the language they have learned.
137
Effective materials offer a clear, systematic, coherent and flexible enough unit structure to allow for
creativity and variety. Variety is essential to practice a number of micro-skills; to introduce a range
of activity types; and to vary the type of interaction taking place during the class.
The learning materials are a good motivating factor. Besides using the teacher-generated
materials or already existing in textbooks, students working in groups can produce those for the
whole class to use. Each group can do a different task. The task of the teacher is to help groups with
advice and guidance in the preparation of the exercises. Student-based materials foster group
cohesion and a spirit of group solidarity.
The ultimate purpose of learning language is language use. Materials should be written in such a
way as to lead to a communicative task in which learners use the content and language skills they
have built up through the unit.
The assessment activities or tasks provided by the teacher should contain or reflect
characteristics that promote meaningfulness. They are meaningful if they are novel and diverse, and
if they promote excitement or pleasure. They should reflect the students‘ specialist world, have a
clear purpose and clear instructions, meet their needs, make students‘ think and share their opinions
and own experiences, and allow to develop their confidence and fluency.
Relevant Business English-ESP teaching/learning materials should integrate modern technology
with specialist content. They should provide a systematic means for independent self-study and
comprise a range of subject specialism-related (e.g. business correspondence and communication,
academic writing) materials in order to develop integrated skills. [2].
A key element of using assessment to motivate learning is the effective use of innovative
methods.
Different approaches should be used while designing the materials used in ESP classroom:
 Skills-based approach where students acquire such skills as generic job-related skills
(writing e-mails, CV, letters; giving presentations; socializing etc.), reflection, self-study,
self-assessment and self-evaluation;
 Communicative approach to teaching/learning a language in order to realize the practical
aim of the curriculum, i.e. to facilitate students to use the language in various academic,
social and professional contexts.
 Learner-centered approach where students have a more active and responsible role, and in
which they often need to work together to complete a task;
 Task-based approach: role plays, simulations, case studies, projects and oral presentations
are to be involved;
 Integrated approach for developing macro-skills (reading, listening, spoken interaction,
spoken production, and writing).
The methods mentioned above and the requirements for the ESP materials have been applied in
the course book for work [11] to meet the needs of ESP students majoring in business. Each unit of
the course book module starts with the objectives and expected outcomes. The tasks and activities
relate to the course content and students' interests and experiences and are aimed to develop a whole
range of competences – language skills and language knowledge, communicative, socio-linguistic,
pragmatic, socio-cultural competences and study skills.
138
4. Researching Student Attitudes to Assessment
The teachers being awarded of the role of assessment in the study process find it crucial to
know the students‘ opinion on this issue. For the research given, undergraduate students have been
chosen as they have more experience dealing with assessment. These groups of students are not new
to the teachers; they have taught them English before.
The research included three steps. First, the students were given two checklists, the former included
the following statements about assessment, asking them to express their opinion about whether they
agree or disagree:
1. Assessment should help you to learn.
2. Assessment must be consistent with the objectives of the course and what is taught and
learnt.
3. Variety in types of assessment allows a range of different learning outcomes to be assessed.
It also keeps you interested.
4. You need to understand clearly what is expected of you in assessed tasks.
5. Criteria for assessment should be detailed, transparent and justifiable.
6. You need specific and timely feedback on your work - not just a grade.
7. Too much assessment is unnecessary and may be counter-productive.
The latter focused on main types of assessment. The purpose of that part of the research was to find
out which types of assessment students consider very important, important or not important in
learning a language. The results are given in table 1.
Finally, the students were given an open question about whether they think assessment can be a
good motivating factor in their learning a language or not, and were asked to explain their point of
views.
The results of the research showed that the majority of the students agreed with the statements
concerning assessment. Most of them stated the fact that if there is no motivation, there is no result.
14% disagreed with the fact that assessment should help them to learn. They expressed their opinion
answering the open question writing that if there is no motivation, assessment will be pointless.
Another 14% of respondents disagreed with the last statement that claimed that too much
assessment was unnecessary and might be counter-productive (half of the students who disagreed
with statement 1). It is possible to draw the conclusion that intrinsically motivated students do not
find assessment as the main factor in their learning a language; it is just an additional one.
Table 1. Students Attitudes towards Assessment in Business English-ESP Course (in percentage)
№ Assessment Types Very important Important Not important
1 Continuous assessment 50 43 7
2 Formative assessment 36 50 14
3 Summative assessment 64 14 21
4 Peer assessment/assessment by others 7 50 43
5 Self-assessment 71 29 0
The analyses of the data obtained (see table 1) showed that 71% of the students found self-
assessment as the most important type of assessment. They proved that by answering the open
question writing that self-assessment could help them to learn. A half of the respondents believed
139
that continuous assessment could help them make progress in learning the language as the teacher
focused on student‘s strengths and weaknesses in order to improve. Compared to formative
assessment, continuous assessment, in the students‘ opinion, provides feedback. In their open
answer, the students wrote that if the feedback was constructive, it could encourage them to learn.
The authors were surprised by the fact that peer-assessment was the least important type of
assessment in learning a foreign language; 43% of Master students did not trust it. In a further talk,
it was clarified that that type of assessment had not been used as an assessment tool; so they did not
believe in its effectiveness.
The research showed that there was notable difference in students‘ attitudes to assessment.
Therefore, the main task of the teacher is how to make assessment positive and effective to motivate
student learning and, eventually, enhance learning outcomes. What is more, begin using assessment
in the first year of studies as a foundational tool to establish student study habits and skills.
To increase interest and motivation and give the students the feeling that they have some control
over the decision-making, they should be involved in the development of the assessment program
that will determine their progress in foreign language acquisition. The students suggestions can be
incorporated into the decisions of what to include and how and when to use the various components
of the assessment rubric. In addition, they can help set personal goals and be given the opportunity
to partake in self-assessment.
Students should be aware of assessment criteria without which teachers can neither teach nor
assess the required skills. Some teachers mistakenly believe that they must keep their assessments
secret [12]. To increase the value of self-assessment students need to be involved into designing the
criteria for assessing. For example, in the module ―Oral presentation‖ students decide individually,
in group discussion and then in panel discussion what the criteria are of a good presentation in terms
of its organization, delivery, content, and visuals. Their decisions then are used as the criteria for
self-assessment of the presentations conducted in the classroom.
It is advisable to start developing student self- and peer-assessment involvement since the first year
of studies. In fact most students find it easier to assess their communicative competence (oral skills)
than their mastery of grammar [5], so self-assessment is very useful in the conversation class. This
is justified by carrying out self-assessment of students‘ participation in a professionally oriented
discussion. It was simple for them to assess themselves whether they responded appropriately to the
speakers ‗main ideas and attitudes/points of view, but it was rather difficult to assess phonetics and
use of grammar.
Summative assessment sums up students‘ attainment at the end of the course with a grade. It
provides information about their overall achievements, i.e. whether they achieved the learning
outcomes, and the overall effectiveness of the course. It includes entry/placement test and end-of-
course test. The tests designed should encourage the kind of learning the teacher wants students to
achieve.
Traditional summative assessment techniques generally take the form of exams, in class
tests, and assignments. Such techniques when applied alone can often lead students to ―play a
strategic game‖ whereby the learning becomes secondary to completing the task and receiving a
grade. Summative assessment rarely includes qualitative feedback, which is a vital aid to personal
development [14].
140
Conclusions
Assessment is a multifaceted tool at the English teacher‘s disposal that can promote student
involvement in the learning process and encourage foreign language acquisition. There are various
ways of assessing students that can encourage their positive involvement in the learning process.
There is clear evidence that assessment can motivate learning in the intrinsic sense of stimulating
intellectual curiosity. Participating in self-and peer-assessment, students can become effective
judges of their own and their peers work, thus, leading to increasing their motivation to learn.
Students should be aware of assessment criteria. Moreover, their involvement into designing
assessment criteria makes a study process transparent. Peer assessment also motivates
improvements in student performance.
Formative assessment is a tool for achieving learning outcomes and it is based on the
individuals learning. It contributes in a meaningful way to the achievement of learning outcomes,
provides a more positive experience for learners and can also be invaluable for teachers, to see if the
lesson aims have been fulfilled and the overall objectives have been met. It also helps to assess
student strengths and weaknesses and give a strong indication as to which type of activities students
like and dislike. As quality feedback is the key to successful formative assessment and it encourages
students to become self-motivated independent learners, teachers should give frequent, early,
positive feedback to support students' beliefs that they can do well. Whatever feedback strategy is
used, it should help students develop a clear sense of their own progress.
As teachers begin to implement new strategies for using assessment as an instructional
device, they will recognize the ability of students to take control of their own success and accept
responsibility for their own learning. These empowering feelings will inspire and motivate students
toward greater achievement on Business English learning.
141
References
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in theory and Practice. New York: Cambridge University Press.
2. Brieger, Nick (1997) Teaching Business English Handbook. York: York Associates.
3. Donna, Silvie (2011) Teach Business English. Cambridge: Cambridge University Press.
4. Elis, Mark, Johnson, Christiane (2003) Teaching Business English. Oxford: Oxford
University Press.
5. Frendo, Evan (2005) How to teach business English. Edinburgh Gate, Harlow, Essex:
Pearson Longman.
6. Black P., & Wiliam, D. (1998) Inside the Black Box: Raising Standards through Classroom
Assessment.
7. Blanche, P. (1988) Self-assessment of foreign language skills: implications for teachers and
researchers.
8. Boud D. (1995) Assessment and learning: contradictory or complementary
9. Common European Framework of Reference for Languages: Learning, teaching,
assessment. Cambridge University Press, (2001)
10. Dickinson L., Carver D. J. (1987) Learning how to learn: steps towards self-direction in
foreign language learning in schools, ELT Journal.
11. Drea J., Tripp C., Stuenkel K. (2005) An Assessment of the Effectiveness of an In-Class
Game on Marketing Students‘ Perceptions and Learning Outcomes. Marketing Education
Review.
12. Elton L. (1996) Strategies to Enhance Student Motivation: a conceptual analysis, Studies in
Higher Education.
13. S. I. Kostrytska, I.I. Zuyenok, O.D. (2010) English for Study and Work.
14. Guskey T. R. (2003) How Classroom Assessments Improve Learning.
15. Harris, M. (1997) Self-assessment of language learning in formal settings. In ELT Journal
Vol.
16. Hinett, K., Knight, P. (1996) Quality and Assessment. Quality Assurance in Education.
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framework. The Modern Language Journal.
18. Race P., Collins J., Capon M., Ali A., Snell D., Parrish D., Salama A. (2000) How to
Increase Student's Motivation, Educational Developments.
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Prentice Hall.
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CONSUMER AND EMPLOYEE’S VALUE, FEATURES OF BEHAVIOR

IMPACT TO SERVICE QUALITY
Sainjargal Bayarsaikhan1,a*, Nasanjargal Purevsukh2, b

1
Ph.D Candidate, Department of Economics and Business, Mandakh University
2
MBA, Department of Economics and Business, Mandakh University
a
HYPERLINK "mailto:sainjargal@mandakh.mn" sainjargal@mandakh.mn , b HYPERLINK
"mailto:nasanjargal@mandakh.mn" nasanjargal@mandakh.mn
Keywords: Psychological segmentation, Market segmentation, Customer satisfaction measurement,

consumer behavior, Service quality,
Abstract
Company‘s three core functions, which are employees, service, marketing strategy,
should be assessed in order to analyze business operation. Business sector rivalry becomes
fiercer because of sector‘s astonishing growth; in this case companies prefer to identify
controllable situation and even uncontrollable situation, operation and perception in order to
take advantages. In this thesis, companies, that function at the telecommunication market
which is the Mongolian top-priority economical and business field, are assessed by
SERQVUAL model, service quality measurement, and VALS model, marketing segmentation
of customer psychology, and BIG5 model, employees behavior assessment of company, also
this thesis tend to determine coherence of these function and encouragement to each other. On
the other hand, this thesis investigated about opportunity to upgrade the quality which is rated
lower by segmented customers in order to enhance the whole service quality without spending
lot of time and money, moreover observed about the decision making information related to
human resource policy to select employees who have good personality to provide qualified
service.
Introduction
Any company looking for increasing its sales by expansion its market and wants to
become world‘s well-known brand has to go through the research process on the potential
market. So Companies plan core strategy to target market that is special behavior consumer.
First step is segmentation to market therefore choice to target market. Market segmentation is
one of the most important concepts in the literature of marketing and consumer behavior.
It is common for the marketing environment in which companies evolve to feature
fierce competition and high rates of dynamism. Under these circumstances, companies need
to provide quality service and to be able to react to the changes in their customers ‗needs and
behaviors. Thus, instead of submitting all subscribers to the same messages and incentives,
companies should pinpoint customers differently, depending on their needs, characteristics
and behaviors CITATION DrM12 \l 1033 [ HYPERLINK \l "DrM12" 1 ] .
143
Offering quality service is essential to getting to a powerful market position. Given the
high competition and the rapidly changing market, telecom companies cannot afford to simply
gather as many subscribers, an endeavor which has grown increasingly difficult. They need to
focus on preserving their current customers and develop the revenues generated by them
instead of just blindly pursuing the increase of their market share. Most of the times, retention
and increasing clients ‗profitability rates are equally important and easier to achieve then
attracting new clients from the competition CITATION Add111 \l 1033 [ HYPERLINK \l
"Add111" 1 ] . To develop a proper relationship with the subscribers, telecom operators need
to implement and apply the principles of customer relationship management.
In this thesis assessed by SERQVUAL model, service quality measurement, and VALS
model, marketing segmentation of customer psychology, and BIG5 model, employees
behavior assessment of company, also this thesis tend to determine coherence of these
function and encouragement to each other. On the other hand, this thesis investigated about
opportunity to upgrade the quality which is rated lower by segmented customers in order to
enhance the whole service quality without spending lot of time and money, moreover
observed about the decision making information related to human resource policy to select
employees who have good personality to provide qualified service.
144
Fig.1. Related VALS design, SERVQUAL and Big 5 design

In next part, we explain above theories and emphasize methodology.
1. Market Segmentation – VALS design

Market segmentation is one of the fundamental principles of modern marketing,
rooted in microeconomic theory, and pay particular attention to the needs of customers. In
segmenting the market, the potential customers are divided into several sections with similar
wants and needs. Dividing market into smaller segment was first suggested by two
researchers named Robinson and Chamberlain was introduced in 1933 CITATION WAKon \l
1033 [ HYPERLINK \l "WAKon" 2 ] . In 1956, Smith pointed to inconsistencies in the
demand for goods and services, based on the economic theory of imperfect competition, he
defined market segmentation as: Segmenting the market, is looking at a heterogeneous market
as a number of smaller homogeneous markets, in response to different customer preferences
towards a product, among significant segments of the market.
In general, in customer segmentation, marketers can use criteria that relate to
geographical, demographical, psycho-graphical, socio-economic, behavioral and
psychological attitudes to the respective product or service (Kotler &Keller, 2006;
McDonalds &Dunbar, 2004, Tsiptsis &Chorianopoulos, 2009) CITATION MMc04 \l 1033
[ HYPERLINK \l "MMc04" 3 ] . Most companies use segmentation based on demographics.
We used behavioral segment approach that include in VALS design for this paper.
VALS /Values and life style/ CITATION HHa14 \l 1033 [ HYPERLINK \l
"HHa14" 4 ] classify consumers into eight segments based on their responses to the VALS
questionnaire. The main dimensions of the segmentation framework are primary motivation
(the horizontal dimension) and resources (the vertical dimension).
Arnold Mitchel was a consumer futurist who wanted to explain the fragmentation of U.S.
society in the 1960s and the implications for the economy and society. His work led to
development of the original VALSTM system as the model to explain various attitudes towards
society and institutions. This work drew the attention of visionary marketers who encouraged
Mitchel to enhance and extend his work as marketing tool in 1989.
Values, Attitudes, and Lifestyles System are proprietary psychographic consumer
segmentation system that classifies people into eight basic lifestyle groups: Include:
Achievers have goal-oriented lifestyles and a deep commitment to career and family.
Their social lives reflect this focus and are structured around family, their place of worship,
and work. Achievers live conventional lives, are politically conservative, and respect
authority and the status quo. They value consensus, predictability, and stability over risk,
intimacy, and self-discovery.
Believers are motivated by ideals. They are conservative, conventional people with
concrete beliefs based on traditional, established codes: family, religion, community, and the
nation. Many Believers express moral codes that are deeply rooted and literally interpreted.
They follow established routines, organized in large part around home, family, community,
and social or religious organizations to which they belong.
Experiencers are motivated by self-expression. As young, enthusiastic, and impulsive
consumers, Experiencers quickly become enthusiastic about new possibilities but are equally
quick to cool. They seek variety and excitement, savoring the new, the offbeat, and the risky.
Their energy finds an outlet in exercise, sports, outdoor recreation, and social activities.
145
Innovators are successful, sophisticated, take-charge people with high self-esteem.

Because they have such abundant resources, they exhibit all three primary motivations in
varying degrees. They are change leaders and are the most receptive to new ideas and
technologies. Innovators are very active consumers, and their purchases reflect cultivated
tastes for upscale, niche products and services.
Makers are motivated by self-expression. They express themselves and experience the
world by working on it-building a house, raising children, fixing a car, or canning vegetables-
and have enough skill and energy to carry out their projects successfully. Makers are practical
people who have constructive skills and value self-sufficiency. They live within a traditional
context of family, practical work, and physical recreation and have little interest in what lies
outside that context.
Strivers are trendy and fun loving. Because they are motivated by achievement,
Strivers are concerned about the opinions and approval of others. Money defines success for
Strivers, who do not have enough of it to meet their desires. They favor stylish products that
emulate the purchases of people with greater material wealth. Many see themselves as having
a job rather than a career, and a lack of skills and focus often prevents them from moving
ahead.
Survivors live narrowly focused lives. With few resources with which to cope, they
often believe that the world is changing too quickly. They are comfortable with the familiar
and are primarily concerned with safety and security. Because they must focus on meeting
needs rather than fulfilling desires, survivors do not show a strong primary motivation.
Thinkers are motivated by ideals. They are mature, satisfied, comfortable, and
reflective people who value order, knowledge, and responsibility. They tend to be well
educated and actively seek out information in the decision-making process. They are well-
informed about world and national events and are alert to opportunities to broaden their
knowledge.
2. Employee behavior – Big 5 design
The five factor model describes personality on basis of five (5) basic dimensions
CITATION Edd10 \l 1033 [ HYPERLINK \l "Edd10" 5 ] : Extraversion, Agreeableness,
Conscientiousness, Neuroticism and Openness to Experience. Tubes and Christal (1961)
found five recurrent factors in analysis of personality ratings in eight different samples: ―In
many ways it seems remarkable that such stability should be found in an area which to date
has granted anything but consistent results. Undoubtedly the consistency has always been
there, but it has been hidden by inconsistency of factorial techniques and philosophies, the
lack of replication using identical variables, and disagreement among analysts as to factor
titles.‖ The five basic dimensions and a list of factor definers are listed in table 1 (Robert R.
McCrae, Oliver P. John, O. P., 1992).
The Five-Factor model was derived from statistical analyses of which traits tend to co-
occur in people‘s descriptions of themselves or other people. Not all aspects of personality are
included in the Five-Factor model. Motivations, emotions, attitudes, abilities, social roles and
life stories are just a few other items that are not specifically included in the Five-Factor
model. Some of these items may have theoretical or empirical relationships with the Five
146
Factor model, but they are conceptually distinct. The personality traits prescribed in the Five
Factor model can only be considered as a partial description of a personality.
 Openness to experience: (inventive/curious vs. consistent/cautious). Appreciation for

art, HYPERLINK "https://en.wikipedia.org/wiki/Emotion" \o "Emotion" emotion ,
adventure, unusual ideas, HYPERLINK "https://en.wikipedia.org/wiki/Curiosity" \o
"Curiosity" curiosity , and variety of experience. Openness reflects the degree of
intellectual curiosity, creativity and a preference for novelty and variety a person has. It is
also described as the extent to which a person is imaginative or independent, and depicts a
personal preference for a variety of activities over a strict routine. High openness can be
perceived as unpredictability or lack of focus. Moreover, individuals with high openness
are said to pursue HYPERLINK "https://en.wikipedia.org/wiki/Self-actualization" \o
"Self-actualization" self-actualization specifically by HYPERLINK
"https://en.wikipedia.org/wiki/Peak_experiences" \o "Peak experiences" seeking out
intense, euphoric experiences , such as skydiving, living abroad, gambling, et cetera.
Conversely, those with low openness seek to gain fulfillment through perseverance, and
are characterized as pragmatic and data-driven—sometimes even perceived to be
dogmatic and closed-minded. Some disagreement remains about how to interpret and
contextualize the openness factor.
 Conscientiousness: (efficient/organized vs. easy-going/careless). A tendency to be
organized and dependable, show HYPERLINK "https://en.wikipedia.org/wiki/Self-
discipline" \o "Self-discipline" self-discipline , act HYPERLINK
"https://en.wikipedia.org/wiki/Duty" \o "Duty" dutifully , aim for achievement, and
prefer planned rather than spontaneous behavior. High conscientiousness is often
perceived as stubbornness and obsession. Low conscientiousness is associated with
flexibility and spontaneity, but can also appear as sloppiness and lack of reliability.
 Extraversion: (outgoing/energetic vs. solitary/reserved). Energy, positive
emotions, HYPERLINK "https://en.wikipedia.org/wiki/Surgency" \o "Surgency"
surgency , assertiveness, sociability and the tendency to seek HYPERLINK
"https://en.wikipedia.org/wiki/Stimulation" \o "Stimulation" stimulation in the company
of others, and talkativeness. High extraversion is often perceived as attention-seeking, and
domineering. Low extraversion causes a reserved, reflective personality, which can be
perceived as aloof or self-absorbed.
 Agreeableness: (friendly/compassionate vs. analytical/detached). A tendency to be
HYPERLINK "https://en.wikipedia.org/wiki/Compassionate" \o "Compassionate"
compassionate and HYPERLINK "https://en.wikipedia.org/wiki/Cooperative" \o
"Cooperative" cooperative rather than HYPERLINK
"https://en.wikipedia.org/wiki/Paranoia" \o "Paranoia" suspicious and HYPERLINK
"https://en.wiktionary.org/wiki/antagonism" \o "wikt:antagonism" antagonistic towards
others. It is also a measure of one's trusting and helpful nature, and whether a person is
generally well-tempered or not. High agreeableness is often seen as naive or submissive.
Low agreeableness personalities are often competitive or challenging people, which can
be seen as argumentative or untrustworthy.
 Neuroticism: (sensitive/nervous vs. secure/confident). The tendency to experience
unpleasant emotions easily, such as HYPERLINK "https://en.wikipedia.org/wiki/Anger"
\o "Anger" anger , HYPERLINK "https://en.wikipedia.org/wiki/Anxiety" \o "Anxiety"
anxiety , depression, and HYPERLINK "https://en.wikipedia.org/wiki/Vulnerability" \o
"Vulnerability" vulnerability . Neuroticism also refers to the degree of emotional stability
and impulse control and is sometimes referred to by its low pole, " HYPERLINK
"https://en.wikipedia.org/wiki/Neuroticism" \l "Emotional_stability" \o "Neuroticism"
emotional stability ". A high need for stability manifests as a stable and calm personality,
147
but can be seen as uninspiring and unconcerned. A low need for stability causes a reactive
and excitable personality, often very dynamic individuals, but they can be perceived as
unstable or insecure.
3. Service quality – SERQVUAL design

The SERQUAL model is developed by Parasuraman et al. (1985) CITATION Par88
\l 1033 [ HYPERLINK \l "Par88" 6 ] . It is based on the gap model: the gap between
customers‘ expectations and their perceptions of actual performance drives the perception of
service quality. The original SERVQUAL model (1985) contains 10 key categories / factors
of service quality.
The revised SERVQUAL model (Parasuraman et al., 1991, 1994) contains five
dimensions /factors of service quality. The five service dimensions / factors consist of 22
items for expectation and perception: The five dimensions are:
a) Tangibles: the physical surroundings represented by objects (for example interior
design) and subjects (for example the appearance of employees).
b) Reliability: the service provider‘s ability to provide accurate and dependable
services.
c) Responsiveness: a firm‘s willingness to assist its customers by providing fast and
efficient service performances.
d) Assurance: several features that provide confidence to customers (such as the firm‘s
specific service knowledge and polite and trustworthy behavior from employees)
e) Empathy: the service firm‘s readiness to provide each customer with personal
service
Questionnaire has consisted of 4 questions and 35 basic questions. The main part of the
questionnaire is 35 questions which have evaluation of 1-4. Will check on the reliability of the
scale which has evaluated 35 indicators
Tablet 1. Research‘s conclusion
Cronbach's Cronbach's N of
Alpha Alpha Based on Items KMO and Bartlett's Test
Standarized Kaiser-Meyer-Olkin Measure of
Items Sampling Adequacy. 0.809
0.801 0.836 35 Bartlett's Test Approx. Chi- 3479.802
Cronbach‘s Alpha coefficient is 0.7> of Sphericity Square
appropriate with 4 point scale. Kaiser-Meyer- Df 435
Olkin Measure of Sampling Adequacy Sig. 0
KMO coefficient is 0.5> and the discrimination is affordable to represent the cumulus
completely.
As a result of the research: To see from the above chart, potential segmentation of the
Mobicom LLC consumers which are experiencers-believers (479), experiencers-innovators
(597), achievers-innovators (885), experiencers-makers (534), achievers-survivors (815),
innovators-makers(335), believers-experiencers (479), innovators-survivors (580), believers-
makers (480) are more than the competitors.
To see from the above tabular information, achievers-survivors (211), experiencers-
survivors (280), achievers-survivors (280), achievers-thinkers (395), makers-survivors (395),
experiencers-survivors (374), strivers-survivors (374), strivers-thinkers (255) are consisting of
potential segmentation of the Unitel LLC consumers.
148
For the Skytel LLC: To see from the above tabular information, potential segmentation
of the Skytel LLC consumers which have the following behaviors: experiencers-thinkers
(398), believers-strivers (455), innovators-thinkers (412), makers-strivers (498).
For the G-Mobile LLC: To see from a result of the above chart, potential segmentation
of the G-Mobile LLC consumers which have the following behaviors: achievers-believers
(536), achievers-experiencers (680), achievers-makers (419), experiencers-strivers (549),
believers-innovators (515), innovators-survivors (282), believers-thinkers (308), survivors-
thinkers (221)
Those results are integrated on the below chart. As result of the survey, the four
telecommunication competitors are divided into eight types of consumer behavior.
Tablet 2. Telecommunication industry target market

Mobicom LLC Unitel LLC Skytel LLC G-Mobile LLC
 Innovator  Surriver  Thinker  Achiever
 Makers  Experiencer  Striver  Believer
3.2 The second part of the research

On this part, SERVQUAL design which evaluates the service quality and VALS
design which segments customer value and psychology are filled out by 220 consumers,
achieving to concern about what correlation is with those evaluation factors in the target
market of G-Mobile which are achievers and believers.
149
Fig. 2.Hypothesis of research
Tablet 3. Research‘s result KMO and Bartlett's Test

Reliability Statistics Kaiser-Meyer-Olkin 0.8
Cronbach's Alpha N of Measure of Sampling
Cronbach's Based on Items Adequacy.
Alpha Standardized Items Bartlett's Approx. Chi- 1321.48
Test of Square
0.791 0.842 23
Sphericity
Cronbach‘s Alpha coefficient is 0.7> Df 253
appropriate with 5 point scale. Kaiser-Meyer-Olkin Sig. 0
Measure of Sampling Adequacy.
KMO coefficient is 0.5> and the discrimination is affordable to represent the cumulus
completely.
The below chart shows the correlation between 5 factors of the service quality.
Tablet 4. Correlation between 5 factors of the service quality.
Correlation
tangible reliabilit responsivenes assuranc empath
s y s e y
Pearson 1
Correlatio
tangibles n
Sig. (2-
tailed)
Pearson .438** 1
Correlatio
reliability n
Sig. (2- 0
tailed)
Pearson .348** .256** 1
Correlatio
responsivenes
n
s
Sig. (2- 0 0
tailed)
Pearson .570** .391** .371** 1
Correlatio
assurance n
Sig. (2- 0 0 0
tailed)
Pearson .494** .291** .376** .603** 1
Correlatio
empathy n
Sig. (2- 0 0 0 0
tailed)
150
Tablet 5. The methodology questions of SERVQUAL are integrated on the following factors.
Correlation
tangibles Reliability responsiveness assurance empathy
achievers Pearson .165* .134* .147* .251** .256**
Correlation
Sig. (2- 0.014 0.047 0.028 0 0
tailed)
believers Pearson .205** .184** 0.06 .154* .237**
Correlation
Sig. (2- 0.002 0.006 0.377 0.022 0
tailed)
expiencer Pearson .171* .228** .159* .291** .285**
Correlation
Sig. (2- 0.011 0.001 0.018 0 0
tailed)
innovator Pearson 0.057 0.087 0.1 0.109 .171*
Correlation
Sig. (2- 0.4 0.198 0.139 0.106 0.011
tailed)
Makers Pearson .165* 0.108 .140* .204** .264**
Correlation
Sig. (2- 0.014 0.11 0.037 0.002 0
tailed)
striver Pearson .168* .205** 0.095 .203** .187**
Correlation
Sig. (2- 0.012 0.002 0.156 0.002 0.005
tailed)
Survivor Pearson 0.057 .141* 0.121 0.092 0.126
Correlation
Sig. (2- 0.402 0.035 0.072 0.17 0.062
tailed)
thinker Pearson 0.121 .230** 0.116 .342** .278**
Correlation
Sig. (2- 0.071 0.001 0.085 0 0
tailed)
On the above spreadsheet data, what correlation is between 5 factors of service quality
with customer psychology and value which divide G-Mobile customers as well as it shows the
assessment of numeration how it works.
Tablet 6.Target market and service quality‘s correlation
Correlation
tangibles Reliability responsiveness assurance Empathy
achievers Pearson .165* .134* .147* .251** .256**
151
Correlation
Sig. (2- 0.014 0.047 0.028 0 0
tailed)
believers Pearson .205** .184** 0.06 .154* .237**
Correlation
Sig. (2- 0.002 0.006 0.377 0.022 0
tailed)
On the above table, offering the 2 segmentation that are achievers and believers from
G-Mobile LLC what correlation is between 5 factors of service quality and how it gives
priority is aim of the research. In conclusion, the achievers give importance mostly on
empathy, assurance after that tangible, responsiveness latterly reliability from the 5 factors.
Whereas the believers give importance mainly on empathy (237), tangible (205) after that
reliability (184), assurance (154) latterly responsiveness which is not barely noticed.
Sig. (2-tailed) except responsiveness all<0.5 shows those consequences are significant.
For the customers, determining the 5 factors of their satisfaction knowledge ability,
competitiveness, assurance (528) are the highest; empathy, understanding the customers
(522), tangible which is environment, using technology (473), performance ability to serve
properly (333), desire to help to the customers sincere (329) each are assessed. The result
shows the customer royalty is assessed by empathy and reliable service, understanding the
customers (493), knowledge ability of the employees and assurance (463).
3.3 The third part of research

The main objective of the research is existed on finding out correlation between personal
behavior of workforces and service quality.
Tablet 7. Research‘s result
KMO and Bartlett's Test Reliability Statistics (BIG 5)
Kaiser-Meyer-Olkin Measure Cronbach's Cronbach's N of
of Sampling Adequacy. .719 Alpha Alpha Based Items
Bartlett's Approx. Chi- 599.754 on
Test of Square Standardized
Sphericity Df 231 Items
Cronbac 0.777 0.789 66
Sig. .000 h‘s
Alpha coefficient is 0.7> appropriate with 5 point scale. Kaiser-Meyer-Olkin Measure of
Sampling Adequacy. KMO coefficient is 0.7> and the discrimination is affordable to
represent the cumulus completely.
The following tabular data indicates correlation between 5 measures of the service quality.
Tablet 8. Correlation between 5 measures of the service quality.
Correlation
Tangible reliabilit responsivenes assuranc empath
s y s e y
Tangibles Pearson 1
Correlatio
152
n
Sig. (2-
tailed)
Reliability Pearson .499** 1
Correlatio
n
Sig. (2- 0
tailed)
responsivenes Pearson .550** .277** 1
s Correlatio
n
Sig. (2- 0 0.001
tailed)
assurance Pearson .509** .459** .584** 1
Correlatio
n
Sig. (2- 0 0 0
tailed)
empathy Pearson .490** .323** .621** .492** 1
Correlatio
n
Sig. (2- 0 0 0 0
tailed)
Tablet 9. Foregoing table‘s information results:

Correlation
Openn Conscientiou Agreeable Neurotici Extravers
ess sness ness sm ion
Openness Pearson 1 .415** .420** 0.132 -0.073
Correlat
ion
Sig. (2- 0 0 0.117 0.385
tailed)
Conscientiou Pearson .415** 1 .294** 0.061 0.03
sness Correlat
ion
Sig. (2- 0 0 0.467 0.72
tailed)
Agreeablenes Pearson .420** .294** 1 .324** 0.125
s Correlat
ion
Sig. (2- 0 0 0 0.136
tailed)
153
Neuroticism Pearson 0.132 0.061 .324** 1 .504**

Correlat
ion
Sig. (2- 0.117 0.467 0 0
tailed)
Extraversion Pearson -0.073 0.03 0.125 .504** 1
Correlat
ion
Sig. (2- 0.385 0.72 0.136 0
tailed)
Demonstrating form the foregoing table, the most potent correlation of 5 factors of
workforce behavior is Conscientiousness, Agreeableness. For the employees, experiences
from workers which are openness report the conscientiousness with agreeableness,
conscientiousness with neuroticism, extraversion with neuroticism are positive correlations.
Tablet 10. Correlation of service quality and employee‘s behavior.
Correlation
Openn Conscientious Extravers Agreeable Neurotici
ess ness ion ness sm
Pearson
Correlati .194* .209* -0.054 0.096 -0.151
on
Tangibles
Sig. (2-
0.021 0.012 0.522 0.252 0.072
tailed)
N 143 143 143 143 143
Pearson
Correlati .223** .274** -0.034 .259** -0.054
Reliability on
Sig. (2-
0.007 0.001 0.684 0.002 0.518
tailed)
Pearson
responsive
Correlati 0.088 .280** -0.035 0.076 -0.129
ness
on
Pearson
Correlati 0.122 .225** 0.015 .213* -0.068
Assurance on
Sig. (2-
0.146 0.007 0.854 0.011 0.421
tailed)
Pearson
Correlati 0.053 .219** 0.001 .184* -0.053
on
Empathy
Sig. (2-
0.527 0.009 0.994 0.028 0.432
tailed)
N 143 143 143 143 143
154
Foregoing table appears the most prioritized factors which empathy with
conscientiousness and agreeableness, after that assurance measure with openness,
conscientiousness and agreeableness, latterly tangible with conscientiousness. Those types of
customers with their most correlative behavior prefer to serve.
The Big Five have been linked to occupational interests and career decisions. Individuals with
investigative interests tend to score high on Openness, whereas individuals who express
interest in artistic jobs score high on Openness and somewhat low on Conscientiousness and
Emotional Stability. Social interests are related to Extraversion, prosaically ones to
Agreeableness. Interest in enterprising jobs is associated with high Extraversion, low
Agreeableness, and low Openness. Individuals with interests in conventional jobs score high
on Conscientiousness and low on Openness. Students who score high on Conscientiousness,
Agreeableness, and Emotional Stability tend to be more decided about their career choices.
Interestingly, these three dimensions are often aggregated into a compound trait called
―integrity.‖ Studies have examined how the personality attributes clustered under the umbrella
of the Big Five relate to job performance. These studies have been summarized using a
quantitative-data-pooling technique called meta-analysis. The conclusions from meta-analyses
indicate that Conscientiousness is the Big Five dimension that is most consistently related to
task performance, overall job performance, and effectiveness across diverse jobs, settings, and
cultures. For jobs that require interpersonal interactions, such as management and sales,
Extraversion is also related to job performance. For both these job categories, the
assertiveness/dominance facet of Extraversion is responsible for the lion‘s share of prediction
of job performance. At times, some factors (e.g., Agreeableness) can be used to predict lower
performance in some domains (e.g., negotiation) and higher performance in others (e.g.,
teamwork). It is noteworthy that studies suggest that the validity and usefulness of personality
measures are not destroyed or even markedly degraded by motivated response distortion of
test takers in high-stakes assessments (e.g., personnel selection).
4. METHODOLOGY - Research method

In this study, the data collected and has been classified and processed using SPSS
software. Then with using descriptive analysis (frequency, percentage, mean, standard
deviation) and inferential statistics (Pearson, exploratory factor analysis and cluster analysis)
were analyzed. Based on the analysis conducted, research questions have been answered. And
this research has three parts.
4.1. First part of research

In total, over one month to customer satisfaction questionnaire on the
telecommunication‘s consumer 1000 people responded to the questions and Mongolian
telecom companies 284 employees.
Conclusion and Suggestion

Segmentation assessment: In the result of the survey which is conducted at G-Mobile
LLC, the most efficient segment was the customers who is enthusiastic and gullible, so the
company should introduce new products or services designed for this segment‘s psychology
and behavior; and this approach have to be inserted into company‘s internal strategy and
155
marketing concept. This kind of people have certain behaviors and features, which are active
and conservative, based on long-terms of traditional norms originating from their ethnicity,
social, religious and family from, as well as they are well-organized and well-planned people
for about their rhythm of life. Moreover, they just live around their families, friends, and
devotion to their religion and domestic products; although they prefer the family and career
than everything; and they have stable conservative political views those are reasons why they
choose timesaving products. To see the above behaviors, I would like to note that the current
G-Mobile users match the rural consumers‘ core values and behavior.
Service quality assessment: Two segments, mentioned above, of G-Mobile LLC
emphasize the below five significant service qualities: 1- feeling the customers need, 2- fast
and express service, 3- guaranteed safety, 4- employee‘s knowledge and skills, 5- the
equipment capacity. Thus, improving the service quality of feeling the customers‘ need and an
express service is the first priority issue for the company in order to retain current customers.
Therefore, employees should focus on their competitiveness, knowledge, and skills to support
customers sincerely and deliver an express service.
Employee’ behavior survey assessment:We have noticed that from the survey - feeling
the customer need, first ranked service quality measurement, is performed well by employees
who is consciousness, responsibility and compatible; and delivering quick and express
service, second ranked service quality measurement, is performed well by open-minded,
responsibility and compatible employees. So the company‘s human resource should be
assembled by these type of employees. In terms of workers, they have good relationships
depending on their character, for instance, openness to experience workers with
conscientiousness one, the people who responsible for work well fit with agreeableness
people, extraversion people work with neuroticism people effectively, so they become a
creative, positive and friendly team.
In my view, Mobicom segment- innovators can abuse Unitel segment- testers to make
a company‘s own segment. Therefore, G-Mobile should launch new products and services for
the users who use urban innovators and testers segment in order to obtain the advantage for
long-term.
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for measuring consumer perceptions of service quality. ," Journal of
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[9] M. W. a. W. Kamakura, Market segmentation Conceptual and
Methodological Foundations. 2000 second edition.
.
157
CULTURAL IDENTITY OF MONGOLIA THROUGH FIGURATIVE

LANGUAGE
Gantsetseg Sanjmyatav1, a*
1
Doctor (Ph.D), Associate Prof, Department of Foreign Language, Mandakh Burtgel Iniversity
a*
s.ganaa@mandakh.mn
Keywords: authentic culture, cultural diversity, figurative language, written literature, folktales
Abstract
Language is a communication tool and as such it portrays cultural activities at all levels
within communities. While, recognizing cultural environment, which includes the thousands of
different cultural practices, always opens an impressive language diversity especially through the
use of metaphor in the twin branches of culture and cognition respectively. Deeply implanted within
the Mongolian nomadic culture, the metaphorical language rises to describe Mongolian cultural
identity. The semantic meaning of figurative language, which describes the Mongolian authentic
culture, was transformed from and interrelated to ways of living. Therefore, the primary goal of this
research work is to identify Mongolian cultural identity through the use of metaphorical language.
In order to reach the goal the following objectives of this qualitative study were 1) to study
relationship between Mongolian culture and language; 2) to investigate cultural identity of
Mongolia through folk sayings and other metaphorical language.
The research data was collected from documentary reviews including historical literary
works, participants‘ observations, interviews and discussions with key, casual and general
informants. The data was collected, classified and analyzed using qualitative analysis tools in
accordance with the research objectives. Then the data was verified by a triangulation method and
by descriptive analysis. A range of cultural methods were used in analyzing the data; such as
observation of some daily activities, participation in the activities and events, communication in
daily life and relating the meaning in the coordination of the communications and activities. The
research results were analyzed with descriptive analysis focusing on folk sayings in written and oral
literature to identify how Mongolian culture is expressed through its language. The result of the
research was supported by structure functional, symbolic interactionism and cultural diffusion
theories.
Introduction
Today, the world has a powerful trend toward a nation‘s cultural uniformity in the
globalization era. The significant studies on language anthropology, which includes both cultural-
158
historical factors and the constraints of human cognition, are engaging in cultural studies with the
different points of view in terms of interdisciplinary researches.
The concept of ―cultural identities‖ has received sustained attention from scholars of
communication and culture for the past few decades. In fact, several recent reviews evidence the
persisting centrality of cultural identity as a construct in inter/cultural communication studies
CITATION Bar12 \l 1033 (Bardhan.N & Orbe.M, 2012) CITATION Chr01 \l 1033 (Christine,
2001)
Today research on cultural identity remains ubiquitous in intercultural communication and
celebrates multiple, pluralistic, and blurs the conceptions and approaches CITATION Yea16 \l
1033 (Yea-Wen Chen and Hengjun Lin, 2016) . According to their paper conceptions of cultural
identity consolidates three core understandings about cultural identity. First, cultural identity is
simultaneously an individual entity, a social category, and a system of communicative practices.
Second, cultural identity is both an individual choice and a group right. Third, cultural identity is
adaptive, evolving, flexible, negotiable or non-negotiable, distinct, communal, and discrete
CITATION Yea16 \l 1033 (Yea-Wen Chen and Hengjun Lin, 2016) .
The different approaches often make incommensurate assumptions about the nature of
cultural identity, and differ fundamentally on questions surrounding agency, choice, and the
relationship between cultural identities and social structures. For instance, scholars of the various
approaches would offer differing responses to questions such as: To what extent are cultural
identities such as race and ethnicity individual choices? How are cultural identities constituted, and
what role does communication play in the constitution of cultural identities?
Cultural Identity: Relationships between culture and language
In the beginning of 20th century the Sapir-Whorf Hypothesis held that there are certain
thoughts of an individual in one language that cannot be understood by those who live in another
language in linguistics. The hypothesis states that the way people think is strongly affected by their
native languages CITATION Pau84 \l 1033 (Paul Kay & Willett Kempton, 1984) .
Humans learn their culture through language, as the same meaning that culture is transmitted
through human language. The vocabulary found in any language tends to emphasize the words that
are considered to be adaptively important in that culture. The relationship between language and
culture varies because of different geographical location, climate, demography and ways of living
CITATION JBa11 \l 1033 (J.Bayansan, 2011) .
As a language is a communication tool, the context is great importance to recognize and
decode figurative languages such as metaphors, idioms and ‗proverbs‘ in different cultures. The
figurative languages, traditionally viewed as merely a literary device, pervade daily life of different
cultures. Contact between different cultural and linguistic groups contributes to an increased need to
develop symbolic expressions of identities and to the formation of identities that are hybrid and
complex. In cognitive linguistics, folk sayings and adages are seen as a cognitive instrument, as a
means to structure the thoughts CITATION GEO80 \l 1033 (G. Lakoff and M. Johnson, 1980) .
The conceptual meaning of these sayings is grounded on the cognitive structuring which makes
different understanding of one word relate to each other in a reasonable way. Applying and
recognizing sayings need some general knowledge on the background of the host culture because of
the flavor of these sayings have individual and national characteristics.
159
The use of ‗proverbial‘ analysis in cultural discourse emphasizes it is an excellent tool of

connection between languages and thought as well the mental representation of different cultural
identities CITATION Pro11 \t \l 1033 (2008-2011) . These colloquial expressions in
communication have been investigated in this paradigm as a tool to reveal both how we think about
abstract, complex phenomena and how we think, or are led to think, in a particular situation.
Colloquial expressions and speech are therefore part of an individual‘s lexical register: sometimes
the best ways to convey an idea that is hard to express otherwise, sometimes a deliberate way of
reaching a fixed goal (Golden 2005).
Cultural identity of Mongolia through figurative language
Mongolian language is national property, an integrated part of this world, it is a symbol of a

nation‘s mentality and intelligence. So language role is very important to preserve intellectual and
visible culture of Mongolia, inherit indigenous tradition and transfer it to young generation.
Mongolian language has a deep structure in lexicology, of great expanse, and contains word
roots with meaningful comprehension in the cultural context in much written literature. The
Mongolian famous epic poem is "The Secret HYPERLINK "http://www.everyculture.com/Ma-
Ni/Mongolia.html" History of the Mongols," a long poem describing Genghis Khan's rise to power
and the creation of the Mongol Empire. This poem describes way of living in the thirteenth century
and has been kept till present days. ―The Blue Chronicle‖, by Injinnash.V, a Mongolian philosopher,
historian and writer, covered thousands of metaphorical phrases and it is a valuable resource of
Mongolian written language. HYPERLINK
"http://www.everyculture.com/knowledge/Fairy_tale.html" \o "View 'folktales' definition from
Wikipedia" Folktales also played a major role in the development of Mongolian oral literature and
their subject matter ranged from love to heroism to supernatural acts in the history. In this research
paper, the Mongolian sayings, a favored device of expounding on the cultural world, were studied to
find out its reflection to Mongolian authentic culture by focusing on written and oral literatures.
This research focused on investigating how national mentality and cultural authenticity are
reflected in Mongolian proverbs through the following examples.
“Төрөөгүй хүүхдэд төмөр өлгий” (don‟t prepare iron diaper before new baby born) is an
equivalent of English‘s“Don‟t count your chickens before they are hatched” CITATION МБу17 \l
1104 (М.Булганцэцэг, 2017) . In Mongolian cultural context, the proverb has a meaning to
prevent from any risk. In more explanations it means that there would be no need to start something
new before the time comes.
The proverb ―Буруу эрхэлсэн хүүхэд бухын хүзүүнээс хатуу‖, which has the same
meaning as ―To spare the rod and spoil the child‖ CITATION МБу17 \l 1033 (М.Булганцэцэг,
2017) , is translated into English ―kids, who are not brought up well, are as firm as bull‟s neck
meat‖ in word by word. It is not clear for listeners who are from other culture to get what the
speaker means. The phrase ―as firm as bull‟s neck meat‖ has metaphorical meaning which expresses
the kids‘ character that they don‘t like to listen to others. This conceptual meaning is strange for
people who are from other cultures.
“Ялихгүй юмнаас ямааны гарз” is an equivalent ―Burn not your horse to rid of the mouse”
CITATION МБу17 \l 1033 (М.Булганцэцэг, 2017) . The examples have shown that Mongolian
160
proverbs consist of many phrases which are related to livestock which show that Mongolia is rooted
in a nomadic culture.
Similarly, meaning of sayings from Mongolian written literature and folktales were sampled
in the study and the data analysis has shown in following figures as below.
Fig. 1. Percentages of data sources and informants
The figure 1 illustrated the types of sources, which were used to collect data in the study. It showed
that proverbs from written literature and folktales were sampled in the percentage of 15.7%, and
58.3% respectively. Additionally, some impressions of foreign visitors about Mongolian culture
were collected from the travel notes online and through interview, which were occupied 25.9%. The
findings of data analysis have explained separately below.
Fig. 2. Proverbs from written literature
Mongolian ancient literary work ―Secret History of the Mongols‖, by an anonymous author
is about the Mongol royal family sometime after Chinggis Khaan‘s (Genghis Khan) death in AD
1227. The samples were taken from the chapter 78, 104, 252, The Secret History of the Mongols
CITATION ГМя04 \l 1033 (Г & В, 2004) . The historical novel ―The Blue Chronicle‖ (Khokh
sudar) by Injinasshi.V, describes the events of the 13th century, and upholds humanistic and
profoundly patriotic ideals CITATION ВИн09 \l 1033 (В.Инжиннаш, 2009) . The samplings were
selected from the Series 1- 112, 452, 487, 500, 572, 573; Series 2-744, 833, 962, 1124; Series 3-
128, 1531, 1968. Both of the literary works are rich of proverbs which express Mongolian lifestyle.
As research samples, 6 and 15 examples were selected from these two works respectively and
analyzed according to the research objectives in the figure 2. Proverbs from both literature sources
related to being tolerance took 66% and 53% respectively, as the highest percentages. This means
that proverbs taught people to have ability to overcome any difficulties in past.
Fig. 3. Categorized proverbs from Folktales
In the figure 3, Mongolian proverbs, which express daily activities, were categorized in
terms of hospitality, tolerance, friendship and labour, where were the most common, to find out the
cultural value of Mongolians. As shown, the proverbs expressing tolerance took account in of
32.7% and hospitality followed by 28.8%. The result showed that Mongolians are tolerant in
difficult circumstance and adjustable in different situations and have capacities to overcome any
obstacles as they face. The continental climate and surviving in such condition is highly influenced
to form such personalities. The geographical location and waste territory and nomadic way of living
have great deal impact to the impact to being hospitable. In the wide steppe, families live less
density so they have chances to see and visit themselves very often.
Fig. 4. Categorized Impressions from Foreign visitors
161
The figure 4 showed how foreign visitors express their value towards the Mongolian
identity. 89.3% or 25 out of 28, foreigners were happy and satified with Mongolian hospitability, for
instance, Psychic Mehdi Ebrahimi Vafa, Russian said that:
―I feel Mongolia is a country like a magnet. I was so much attracted to visit Mongolia.
People are very generous and hospitable. They like welcoming visitors as being at their
home. The way of living is very simple and worth‖ CITATION Мех15 \l 1104 (Вафа,
2015) .
The Ambassador of Germany expressed that ―Mongolians are very friendly and hospitable. They
offer milk tea to their hosts and some dairy products. Punctuality is low however they do their work
in easy ways even they don‘t have any plan‖ through interview CITATION Amb14 \l 1033
(Germany, 2014)
Irji Shima Scholar of Mongol Studies pointed about Mongolian lifestyle and people out that:
―I like to tell to Cheh people that Mongolian people can help you when you have hard time.
Last year, one of my friends, who visited to Mongolia, expressed his surprise when
happened with him in case of heavy rainy day in the countryside. One Mongolian man came
to him and asked him to come to his dwelling Ger, using some body language. When he
came his home, his wife prepared some food for my friend and lent him some dry clothes
and asked him to stay overnight‖ CITATION Irj16 \l 1033 (Shima, 2016) .
According to the impression of foreign visitors, the hospitable, friendship and tolerance occupied
the highest percentages.
Conclusion
1. Semantically, Mongolian language has a diversity which is rich of livestock vocabularies in
deep sematic structure to express many kinds of human activities and Mongolian way of life.
This feature is related to the analytic structure of the Mongolian in terms of the language system.
2. The Mongolian sayings act as the main tool for shaping the cultural identity. The proverbs play
an essential role to keep and transfer the Mongolian nomadic culture.
3. The hospitable and tolerant personalities of Mongolian people are determined as the identity of
Mongolian lovely culture.
4. The study of cultural identities should encourage reflexive understandings of nomadic way of
living in manners that promote productive intercultural encounters, interactions, and
relationships.
162
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163
COMMUNICATIVE APPROACH AND FOREIGN LANGUAGE TEACHING

METHODOLOGIES
Dashzeveg Sarantuya1, a*
1
Senior Lecturer, Department of Information Technology, Mandakh Burtgel Iniversity
a*
HYPERLINK "mailto:srn_d9@yahoo.com" srn_d9@yahoo.com
Keywords: interaction, encourage students, opportunity to focus, competence, integration, fluency and
accuracy, activities, learning strategies.
Abstract
The article discusses about language teaching approaches and methodologies, which being
used in higher education institutions and some of these approaches are also combined with others.
In English language teaching, an approach is a method of teaching which is based on a
particular theory of how languages are learnt. The most common approach nowadays is the
Communicative Approach. This is based on the idea that people best learn when they are involved
in real communications. The objective in the communicative approach is for students to be able to
produce the target language- either speaking or writing- in meaningful situations. The methods used
to do this are frequently the ones that lend themselves most to involving the students and giving
them something of interest to talk or write about.
Communicative language teaching makes use of real life situations that necessitate
communication. The teacher sets up a situation that students are likely to encounter in real life. The
communicative approach can leave students in suspense as the outcome of a class exercise, which
will vary according to their reactions and responses. The real-life situations change from day to day.
Students‘ motivation to learn comes from their desire to communicate in meaningful ways about
meaningful topics.
Introduction
All processes that lead to relatively lasting changes of capacity as motor, cognitive,
psychodynamic (emotional, motivational, attitudinal) or social character.
Second language learning refers to the learning of a new language besides the native
language. Learning language involves a conscious appearance and monitoring of the output. Simply
it refers to the ―conscious knowledge of a second language knowing the rules, being able to talk
about them‖. Thus language learning can be compared with learning about language.
Approach is set of assumptions dealing with the nature of language and the nature of
language teaching and learning. It refers to theories about the nature of language and language
learning that serve as the resources of practices and principles of language teaching. Design
specifies the relationship of theories of language and learning to the selection and organization of
164
language content (syllabus), to the types of tasks and learning activities and the role of the learners,
teachers and materials. Procedures comprises the classroom techniques and practices that are
consequences of particular approaches and designs.
Fig. 1. Concepts of method
Language is soon as a tool or medium for acquiring knowledge about other things instantly
proving its usefulness. An important factor is that the content itself determines what language items
need to be mastered not the way around. When students study science using English as the medium,
they are more intrinsically motivated to learn more of the language. Communicative competence
involves more than using language conversationally. It also includes the ability to read, discuss and
write about content from other fields.
Communicative approach aims primarily to enable the learner to become competence in the
processes of communication. It is a further development of the functional approach and similarly
places great emphasis on teaching basis communicative functions such as requesting describing and
expressing likes and dislikes etc. The communicative approach stresses the importance of using
language appropriately in social contexts. It is also focused on placing the learner in situations
where real information needed. The communicative language teaching uses problem solving and the
setting of tasks that actively involve the learner. This approach emphasizes the need for the
development of fluency and is less concerned with accuracy or the teaching of grammatical
structures. The communicative approach does a lot to expand on the goal of creating
communicative competence compared to the other methods that professed the same objective.
Teaching students how to use the language is considered to be at least as important as learning
itself. Brown (1994:77) aptly describes the ―march‖ towards CLT: ―Beyond grammatical discourse
elements in communication, we are probing the nature of social, cultural, and pragmatic features of
language. We are trying to get our learners to develop linguistic fluency not just the accuracy that
has so consumed our history journey. We are equipping our students with tools for generating
unrehearsed language performance ‗out there‘ when they leave the womb of our classrooms. We are
concerned with how to facilitate lifelong language learning among our students, not just with the
immediate classroom task. We are looking at learners as partners in a cooperative venture. And our
classroom practices seek to draw on whatever intrinsically sparks learners to reach their fullest
potential‖.
Communicative language teaching is a generic approach, and can seem non- specific at
times in parts of how to actually go about using practices in the classroom in any of systematic way.
It is assumed that the goal of language teaching is learner ability to communicate in the target
language. One of the main challenges of the communicative approach is to integrate the functions of
a language (information retrieval, problem solving and social exchanges) with the correct use of
165
structures. The question is how to combine communicative fluency with formal accuracy. Roles
teacher facilitates students‘ learning by managing classroom activities, setting up communicative
situations. Students are communicators, actively engaged in negotiating meaning. They regularly
work in groups or pairs. Classroom materials and activities are often authentic to reflect real-life
situations and demands.
What is Communicative Language Teaching and its advantages and disadvantages?
Communicative Language Teaching is usually described as a method of teaching. CLT is a

method based on the Communicative Approach theory. CLT is a method that can be used along
with other methods to achieve final goals. It is a set of principles about the goals of language
teaching. How learners learn language, the kinds of classroom activities that best facilitate learning.
The communicative approach is the theory that language is communication. Therefore the final aim
of Communicative Language Teaching is communicative competence. Communicative
competence:
 Knowledge of the grammar, vocabulary, phonology, and semantics of the language

 Knowledge of the relationship between the language and its nonlinguistic (social) context.
 Knowledge of how to begin and end conversation (Discourse competence: cohesion and
coherence)
 Knowledge of strategies to compensate other weak areas.
Communicative competence includes the following areas of language knowledge:
 Linguistic competence: knowing how to use the grammar, syntax, and vocabulary of a
language. This competence enables the speaker to use knowledge and skills needed for
understanding and expressing the literal meaning.
 Sociolinguistic competence: knowing how to use language appropriately, given the setting,
the topic, and the relationships among interlocutors.
 Sociocultural rules: rules of using language appropriately in a given social situation,
concerned with style.
 Discourse competence: knowledge of combining language structures to produce texts in
different modes: writing, speaking and knowing how to interpret the larger context and how
to construct longer stretches of language so the unity of a text is enabled by cohesion in
form and coherence in meaning.
 Strategic competence is composed of verbal and non-verbal communication strategies,
knowing how repair communication breakdown, work around gaps in one‘s knowledge of
the language, and learn more about the language and in the context. Ability to get one‘s
meaning across successfully when problems. These strategies include paraphrase,
repetition, guessing, changes of register and style modifications of messages.
The emphasis of the communicative approach is placed on using the target language to
accomplish a function such as complaining, advising, or asking for information. Attention is also
paid to the social context in which this function take place. All four language skills are taught from
beginning. In speaking skills the aim is to be understood, not to speak like a native. In the
sequencing of lessons, priority is given to learner interests and needs. This is in contrast to a
grammar driven method which may start with verbs tenses, and work through from present simple
to the conditionals. In the Communicative approach, if a learner needs to know how to give advice
166
(―If I were you, I would…..) then this conditional is taught. Interaction between speakers and
listeners or readers and writers is the roof of all activities. Pairs or groups for role play, information
sharing, or problem solving are favored.
Table 1. A comparison: Distinguishing features of three approaches to language teaching.
Grammar Audio-lingual Communicative language

Translation method teaching
Grammar rules Central feature Not explained Explained when necessary
Meaningful Not important Limited Central feature
communication
Pronunciation Target = native-like Target=comprehensible
Not considered
pronunciation pronunciation
Use of translation Central feature Forbidden Used when necessary
Sequencing of
Follows in linguistic Follows linguistic Follows learners needs
lessons complexity complexity
Teacher-Student Teacher facilitates student to
Teacher-centered Teacher-centered
roles student interaction
Accuracy Accuracy
Attitude to errors Errors part of learning process
emphasized emphasized
Reading and writing

Listening and Skills taught according to
Balance of emphasized speaking
language skills learners needs
emphasized
Advantages of Communicative Language Teaching:
 CLT is much more learner-oriented, because it is based on students‘ needs and interests.
 CLT seeks to personalize and localize language and adapt it to interests of students.
Meaningful language is always more easily retained by learners.
 Seeks to use authentic resources. And that is more interesting and motivating for students.
 The students acquire grammar rules as a necessity to speak so is more proficient and
efficient.
 Curriculum becomes more integrated (e.g. the connection between curriculum and text-
based learning, etc.)
 The students acquire thinking skills (i.e. higher-order thinking skills).
 The teachers become as co-learners.
 This technique increases the teacher-student relationship. It is an interactive relationship.
 CLT provides the opportunity for students to be aware of their abilities and exhibit them.
167
 The students in this way can learn the target language in an enjoyable way.
Disadvantages of Communicative Language Teaching:
 CLT approach focuses on fluency but not accuracy. The approach does not focus on error
reduction but instead creates a situation where learners are left using their own devices to
solve their communication problems. Thus they may produce incoherent, grammatically
incorrect sentences.
 It pays insufficient attention to the context in which teaching and learning take place.
 The requirements are difficult. Not all classrooms can allow for group work activities and
for teaching aids and materials.
 It is controversial whether it can be used in every level of students.
 The teacher should prepare the syllabus by taking students‘ interests and needs into account.
However, the energy and time of the teacher are limited.
Suggestions for a Communicative syllabus
Several new syllabus types were proposed by advocates of Communicative Language Teaching.
Fig. 2. The nature of syllabus

The Syllabuses:
 Grammar based
 Skills based (Listening, Speaking, Writing, Reading)
 Function based (Greeting, Introducing, Telling stories)
 Task based (Discover the differences, Solve the problem)
168
Table 2. Some Communicative Language Teaching Syllabuses
A functional syllabus A content-based syllabus A skill-based syllabus

sysysyllabus
-Communicative competence - It focuses on the integration
is viewed as a mastery of - The purpose is to teach of the four macro skills.
functions needed for specific information and
communication across a wide content using the language - The teaching of each skills
that learners are also is done through its component
range of situations.
learning. micro skills.
- The syllabus is organized
according to the functions the - The course is arranged - Skill-based syllabi merge
learners should be able to carry around topics related to linguistic competencies
out in English. the subject being taught. (pronunciation, vocabulary,
grammar and discourse)
- Grammar and vocabulary are together onto generalized types
chosen according to the of behavior, such as listening
function being taught. to spoken language for the
main idea, writing well-formed
- This syllabus is often used as paragraphs, delivering
the basis for listening and effective lectures, and so forth.
speaking courses.
English for specific Purposes
Communicative language Teaching recognized that university students needed English in

order to use it in specific occupational or educational settings. For them it would be more efficient
to teach them the specific kinds of language and communicative skills needed for particular roles,
(e.g., that of engineer, accountant, economist, doctors, etc.) rather than just to concentrate on more
English. This led to the discipline of needs analysis – the use of observation, surveys, interviews,
situation analysis, and analysis of language samples collected in different settings- in order to
determine the kinds of communication learners would need to master if they were in specific
occupational or educational roles and the language features of particular settings. The focus of
needs analysis is to determine the specific characteristics of a language when it is used for specific
rather than general purposes. Such differences might include:
 Differences in vocabulary choice

 Differences in grammar
 Differences in the kinds of texts commonly occurring
 Differences in functions
 Differences in the need for particular skills.
169
The principles of the Communicative Approach:

 Learners learn through using it to communicate
 Authentic and meaningful communication should be the goal of classroom activities
 Fluency is an important dimension of communication
 Communication involves the integration of different language skills
 Learning is a process of creative construction and involves trial and error
What‘s the teacher‘s role in this?
The teacher has two main roles:
 To facilitate the communication process in the classroom
 To act as an independent participant within the learning-teaching group
The teacher is also expected to act as a resource, an organizer of resources, a motivator, a
counselor, a guide, an analyst and a researcher. There are many other minor roles of a teacher, some
of these would include being an actor and an entertainer. The teacher has to assume the role of a
facilitator or monitor, rather than simply being the model for correct speech and the one with the
primary responsibility of making students produce plenty of error-free sentences. The teacher has to
develop a different view of students‘ errors and his/her own role in facilitating language learning.
After all, a good lesson must be interesting or the students will ‗switch off‘ and learn nothing.
Learner‘s role:
In the CLT, learners have to participate in classroom activities that are based on a
cooperative rather than in a individualistic approach to learning. Student have to become
comfortable with listening to their peers in pair or group work tasks, rather than relying on the
teachers for a model. Expected to take on a greater degree of responsibility for their own learning
.We concentrate on the following:
 Teacher- Student activities
 Activities
 Materials
Teacher- Student interaction
Since communicative competence is our aim, it is essential that students be given every
opportunity to practice communicating. In the communicative classroom teacher talking time (TTT)
must be kept to a minimum. This is not to say that the teacher shouldn‘t speak at all, but TTT
should be controlled and appropriated. The classroom should be learner centered. The teacher‘s role
is to facilitate student communication which is done through careful selection of materials and
activities relevant to the aims of the lesson in which they are used.
Communication can be divided into two categories:
The four communicative skills can be put into these categories.

 Whichever of these skills is being taught the main focus must be on the student and not on
the teacher.
 The interaction should usually be the student to student and should include the teacher only
where necessary.
170
 During most classroom activities the teacher will monitor and intervene only where
necessary.
STRUCTURALISM
BEHAVIORISM
Since the 1990s, the communicative approach has been widely implemented.
Communicative language teaching today refers to a set of generally agreed upon principles that can
be applied in different ways, depending on the teaching context, the level of learners, their goals,
and so on. The following core assumptions or variants of them underline current practices in
communicative language teaching.
1. Second language learning is facilitated when learners are engaged in interaction and
meaningful communication.
2. Effective classroom learning tasks provide opportunities for students to negotiate meaning,
expand their language resources, notice how language is used, and take part in meaningful
interpersonal exchange.
3. Meaningful communication results from students processing content that is relevant,
purposeful, interesting, and engaging.
4. Communication is a holistic process that often calls upon the use of several language skills.
5. Language learning is facilitated both by activities and organization, as well as by those
involving language analysis and reflection.
6. Language learning is a gradual process that involves creative use of language, trial and
error. Although errors are a normal product of learning, the ultimate goal of learning is to
be able to use the new language both accurately and fluently.
7. Learners develop their own routes to language learning, progress at different rates, and have
different needs and motivations for language learning.
8. Successful language learning involves the use of effective learning and communication
strategies.
9. The role of the teacher in a language classroom is that of a facilitator, who creates a
classroom climate conducive to language learning and provides opportunities for students to
use and practice the language and to reflect on language use and language learning.
10. The classroom is a community where learners learn through collaboration and sharing.
Process- Based communicative language teaching approaches

There are two current methodologies that can be described as extensions of the
communicative language teaching movement but which take different route to achieve the goal of
communicative language teaching – to develop learners‘ communicative competence. These
methodologies are content-based instruction (CBI) and task based-based instruction (TBI).
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Content-Based instruction
Advocates of Content –based instruction ( CBI) believe that the best way to do so is by using
content as the driving force of classroom activities and to link all the different dimensions of
communicative competence, including grammatical competence, to content. Krahnke (1987.65)
defines CBI as ―the teaching of content or information in the language being learned with little or
no direct or explicit effort to teaching the language itself separately from the content being taught‖.
Content-based instruction is based on the following assumptions about language learning:
 People learn a language more successfully when they use the language as a means of
acquiring information, rather than as an end in itself.
 CBI better reflects learners‘ needs for learning a second language.
 Content provides a coherent framework that can be used to link and develop all of the
language skills.
Content-based instruction can be used as the framework for a unit of work, as the guiding
principle for an entire course, as a course that prepares students for mainstreaming, as the
rationale for the use of English as a medium for teaching some subjects in an EFL setting,
and as the framework for commercial EFL/ ESL materials.
Task – Based Instruction
Task-based instruction, or TBI (also known as task-based teaching), is another methodology
that can be regarded as developing from a focus on classroom processes. In the case of TBI, the
claim is that language learning will result from creating the right kinds of interactional processes in
the classroom, and the best way to create these is to use specially designed instructional tasks.
Rather than employ a conventional syllabus, particularly a grammar based one, advocates of
TBI argue that grammar and other dimensions of communicative competence can be developed as a
by- product of engaging learners in interactive tasks. Of course, most teachers make use of different
kinds of tasks as part of their regular teaching. Task-based instruction, however, makes strong
claims for the use of tasks and sees them as the primary unit to be used, both in planning teaching
(i.e., in developing a syllabus) and also in classroom teaching. From the point of view of TBI, two
kinds of tasks can usefully be distinguished:
Pedagogical tasks are specially designed classroom tasks that are intended to require the use of
specific types of language (skills, grammar, and vocabulary). However the interactional processes it
requires provides useful input to language development.
Real-world tasks are tasks that reflect real-world uses of language and which might be considered a
rehearsal for real-world tasks. A role play in which students‘ practice a job interview would be a
task of this kind.
Willis (1996) proposes six types of tasks as the basis for TBI:
1. Listing tasks: For example, students might have to make up a list of things they would pack
if they were going on a a beach vacation.
2. Sorting and ordering: Students work in pairs and make up a list of the most important
characteristics of an ideal vacation.
3. Comparing: Students compare ads for two different supermarkets.
4. Problem-solving: Students read a letter to an advice columnist and suggest a solution to the
writer‘s problems.
5. Sharing personal experience: Students discuss their reactions to an ethical or moral
dilemma.
6. Creative tasks: Students prepare plans for converting to new programming system.
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Accuracy Fluency
 Exercises  Tasks
 Discrete  Integrative
 Form  Meaning
 Predictable  Unpredictable
 Close-ended  Open-ended
 Contrived  Realistic/life like
 Correctness  Message
 Full-class work  Closed-pair work
 Open-pair work  Group work
The characters of fluency-oriented
The characteristics of accuracy-oriented activities…
activities…
 Requests. Enquiries from students  Students‘ utterances are single
 Correction and discussion of sentences addressed to the teacher
written answers to comprehension  Students use paraphrase or other
question tasks communications strategies
 Practice in full class of new  Students make comments on other
structures, functions and lexis students contributions
 Oral answers to comprehension  The teacher uses prompts (suggests ideas)
questions of a literal type  The teacher uses clues (for guided
 Memorization and recitation of responses)
dialogs  The teacher asks for alternative answers
 Reading isolated sentences aloud  A students is asked to repeat
another students‘ response
Pre-communicative vs. Communicative activities
 Structural activities, functional communication activities, quasi-communicative

activities, social interactional activities, and functional communication activities
require students to use their language resources to overcome an information gap or
solve a problem.
 Social interactional activities require the learner to pay attention to the context and the
roles of the people involved, and to attend to such things as formal versus informal
language.
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Activity Types
The range of activities, tasks and exercises compatible with CLT is unlimited. Any
activity that can engage learners in communication and require the use such communicative
processes as information sharing, negotiation of meaning and interaction can be incorporated
into the CLT repertoire.
Functional communication activities Social interaction activities
- Learners compare sets of pictures and note - Conversation and discussion sessions
difference
- Dialogues and role play
- Learners work out a sequence of events out
of a set of events. - Simulations
- Learners solve problems using shared - Debates

clues.
Information gap activities
More authentic communication is likely to occur in the classroom if students go beyond

practice of language forms for their own sake and use their linguistic and communicative
resources in order to obtain information. In so doing, they will draw available vocabulary,
grammar, and communication strategies to complete a task.
Jigsaw activities
These are also based on the information-gap principle. Typically, the class is divided into
groups and each group has part of the information needed to complete an activity. The class
must fit the pieces together to complete the whole. In so doing, they use their language
resources to communicate meaningfully and part in meaningful communication practice.
Many other activity types have been used in CLT, including the following:
 Task-completion activities: puzzles, games, map-reading, and other classroom tasks

in which the focus is on using one‘s language resources to complete a task.
 Information-gathering activities: student-conducted surveys, interviews, and
searches which students are required to use their linguistic resources to collect
information.
 Opinion-sharing activities: activities in which students compare values, opinions, or
beliefs.
174
 Information-transfer activities: these require learners to take information that is

presented in one form, and represent it in a different form.
 Role plays: activities in which students are assigned roles and improvise a scene or
exchange based on given information or clues.
Materials fall into broad categories:
 Task-based
 Text-based
 Regalia
They can be used as the basis for classroom activities. Once again not only must the activity
be appropriate to the level of the students but the materials used must be appropriate too.
Text- based materials: for example practice exercises, reading passages, gap fills, recordings,
etc. can be found in almost any course book as well as in books containing supplementary
materials. They from an essential part of most lessons. These include game boards, role play
cards, materials for drilling, pair work tasks, etc. They might be used to support ‗real life‘
tasks such as role playing booking into a hotel, or a job interview.
175
Conclusion
We should now understand that the teacher‘s job is to get their students to
communicate using real language by providing them with instruction, practice, and above all
opportunities to produce English in activities which encourage acquisition and fluency.
Teacher were recommended to use a balance of fluency activities and accuracy. Students can
learn most readily about things that are tangible and directly accessible to their senses - visual,
auditory, and tactile.
With experience, they grow in their ability to understand abstract concepts, manipulate
symbols, reason logically, and generalize. These skills develop slowly, however, and the
dependence of most people on concrete examples of new ideas persist throughout life.
Concrete experiences are most effective in learning when they occur in the context of some
relevant conceptual structure.
Learners respond to their own expectations of what they can and cannot learn.
Students grow in self-confidence as they experience success in learning, just as they lose
confidence in the face of repeated failure. Thus, teachers need to provide students with
challenging but attainable learning tasks and help them succeed. Communicative Language
Teaching should be fun for both teacher and students. Enabling students to communicate
successfully is very rewarding.
176
References
1. Larsen-Freeman, D. (2000). Techniques and principles in language Teaching, (second

edition) Oxford University Press.
2. Jack C. Richards & Theordore S. Rodgers. Approaches and Methods in Language
Teaching. Cambridge University Press.
3. Nunan, D. (2004). Task based language teaching. Cambridge.UK: Cambridge
University Press
4. Richards, J.C. & Robert, T. S. (1986). Approaches and methods in language teaching:
A description and analysis. Cambridge University Press.
5. Richards, J.C. (2006). Communicative language teaching today. New York:
Cambridge University Press.
http://www.cambridge.org/other_files/downloads/esl/booklets/Richards-
Communicative-language.pdf
6. Jeremy, H. The practice of English Language Teaching. Longman. Ltd.
7. David, N. (1995). Second Language Teaching & learning. H&H.
8. Celce-Murcia, M. Teaching English as a second or foreign language. H&H.
9. http://www.academia.edu/4743392/ Communicative Language Teaching theories
lesson plan and application
177
ANALYZING THE CORRELATION AMONG WACC AND EQUITY VALUE
Khurelbaatar Barjargal1, a *, Bolor Buren2, b

1, 2
Lecturer, Accounting program, School of Business, National University of Mongolia
HYPERLINK "mailto:a%20khurlee2010@yahoo.com" a khurlee2010@yahoo.com , HYPERLINK
"mailto:b%20bolor_buren@yahoo.com" b bolor_buren@yahoo.com
Keywords: Book value, Market value, Market capitalization, Cost of capital, Mongolian stock exchange
(MSE), Ohlson model, Capital asset pricing model (CAPM).
Abstract
The objective of this study is to examine the degree of correlation between the cost of capital
from a side and shares market prices and their book values at Mongolian Stock Exchange from the
other side. The notion here is that correlation of some sort is transpiring which could affect
published financial information and decision making at large. The basic equity valuation model
used in the study is the one developed originally by James Ohlson (1995), which relates the firm‘s
equity market value to its book value adjusted for abnormal earnings. A sample of 49 Mongolian
firms listed on Mongolian Stock Exchange is used for testing this presumption for the period
between 2007 and 2016.
Introduction
Various types of securities are traded in the stock exchanges. Investors find intrinsic value of
a stock. The estimating the intrinsic value of a stock belongs among basic aims of fundamental
analysis. Investors usually buy undervalued stock, because stock price will usually rise in the future.
They also usually sell overvalued share which price will usually fall in the future. Fundamental
analysis assumes that under valuated and over valuated shares exist on the capital markets. In other
words, share price can be different from its intrinsic value, in the practice. Many factors effect
company‘s market price. Researchers focused one of them, the cost of capital. In other word, the
effect of the cost of capital on firms‘ book value and market value. This test is based on the equity
valuation model, which developed originally by Ohlson (1995).
Literature review
A large body of literature has developed on this subject over the past several decades.
Ohlson (1995) provided a research paper explains the relationship of the firm‘s equity value with its
book value and market value. Ohlson model has significantly improved the implications of the
178
empirical research in that field . Lundholm cited that ―Ohlson (1995) and Feltham and Ohlson
(1995) papers are landmark works in financial accounting. Ohlson and Feltham present us with a
very crisp yet descriptive representation of the accounting and valuation process‖. Bernard proved
that Ohlson model provided better prices of stocks compared to the other discounted cash flows and
dividends approaches. In addition he stated ―The Ohlson (1995) and Feltham and Ohlson (1995)
studies stand among the most important developments in capital markets research in the last several
years . Frankel and Lee considered that this model provides a complete approach to valuation
comparing to other valuation approaches . V. Khodadadi have used 21 listed companies from
Tehran Stock Exchange for a period of fifteen years and reviewed seven linear information models .
The research resulted that the Ohlson model (1995) is the best among the other models reviewed in
terms of the abnormal earning forecasting. There are a number of studies, which were conducted
using Ohlson (1995) valuation model, which have examined the company‘s earnings and book
value. Graham and King have investigated the relationship of earnings and book values to the stock
prices in six countries from Asia . They argued that this kind of test would be useful for settling the
international accounting standards. Pariente commented on Ohlson (1995) model and mentioned
that the empirical studies could not find any superiority of Ohlson (1995) over the discounted cash
flow method . In his study, he relied on Dechow‘s study, which concluded that using the Ohlson
model ―provides only minor improvements over existing attempts to implement the dividend-
discounted model by capitalizing short-term earnings forecasts in perpetuity‖. Mohamad H. Atyeh
and Wael Al-Rashed have tested the degree of correlation between the cost of capital and the market
value on the Kuwait listed companies. They concluded that the Ohlson (1995) model is considered
an advanced and improved model as it relates the stock price to its book value and cost of capital.
Hence and based on the studies mentioned above, it would be reasonable to use the same model of
Ohlson (1995) in testing the existence of correlation on Mongolian stock exchange companies
between the stock prices from a side and the book value and earnings from the other side.
Methodology
Equity valuation model defined by Ohlson 1995 is presented by following equation:
Where,
QUOTE - stock market value at t term
QUOTE - book value of equity at t term
QUOTE - abnormal earning during t term
QUOTE - non accounting information related firm‟s value
QUOTE - coefficients for the QUOTE and QUOTE
For estimating discount rate we used CAPM, which is presented by the following formula:
Where,
QUOTE – discount rate
QUOTE – risk free rate
QUOTE – beta of each company (security)
QUOTE – expected market return
179
WACC- weighted average cost of capital presented by following formula:
Where,
R- discount rate
D- market value of debt
E- market value of equity
I-interest rate
T- tax rate
Data
The sample of firms selected for this study is taken from the Mongolian Stock Exchange rank I and
II, which consists of 49 companies. Forty-nine companies were taken from the different sectors
detailed in Table 1.
Table 1. Sectors of sample companies
№ Sectors Number of companies Percentage
1 Food industries 8 16%
2 Light industries 7 14%
3 Heavy industries 1 2%
4 Mining 9 18%
5 Telecommunication 1 2%
6 Real estate 7 14%
7 Retail 2 4%
8 Tourism and hospitality 4 8%
9 Media and publishing 1 2%
10 Transportation and logistics 1 2%
11 Building material 1 2%
12 Construction 5 10%
13 Forestry 1 2%
14 Oil and gas 1 2%
Total 49 100%
Resource: www.mse.mn
The number of listed companies is decreasing year by year, as shown in graph 1. The main reasons
of decrease listed companies are bankruptcy, modification of companies‘ types, reorganization of
companies etc.
Fig. 1. Number of listed companies

Resource: www.mse.mn
Table 2. Some financial data of selected companies

Year Total asset total liabilities Total equity market value of equity P/B ratio
billion ₮ billion ₮ billion ₮ billion ₮
2007 435.2 277.5 157.7 38,007.9 241.00
180
2008 518.3 316.7 201.6 32,588.4 161.64

2009 613.7 359.4 254.4 18,318.2 72.01
2010 754.6 380.6 374.0 28,782.5 76.96
2011 885.2 414.6 469.7 40,983.6 87.26
2012 970.3 375.1 363.7 41,962.2 115.38
2013 1,263.3 541.8 372.0 28,344.4 76.19
2014 1,370.4 790.2 580.2 26,836.6 46.26
2015 1,495.9 758.0 737.9 22,871.3 30.99
2016 1,643.3 821.2 822.1 18,051.4 21.96
Average 995.0 503.5 433.3 29,674.7 68.48
Resource: consolidated by researchers
Data were collected for the period ten years, between 2007 and 2016. Book value per share was
calculated by information of company‘s yearend financial statements. Market values per share are
the yearly closing price for every company from the Mongolian Stock Exchange. For the risk free
rate, we assumed yield on Government bonds from Mongolian Central Bank‘s web site.
Results of the study
Table 3. Data descriptive statistics

Market value Book value WACC
Mean 6,748 5,501 0.25
Median 1,500 872 0.06
Standard Deviation 13,878 15,031 1.86
Minimum 54 (1,352) -32.20
Maximum 120,000 189,236 8.92
Count 49 49 49
Table 4 contains the results of correlation between book value and WACC. The results show a
negative correlation between the cost of capital and book values of Mongolian Stock Exchange
companies.
Table 4. Result of correlation between book value and WACC
Book value WACC
Book value 1
WACC -0.01783 1
The correlation between market value and WACC also was negative.
Table 5. Result of correlation between market value and WACC

WACC Market value
WACC 1
Market value -0.00984 1
These results show that the cost of capital, book values and market value are moving with different
direction. It is logically expected that some listed companies on MSE to be liquidated in the near
future or at least to get out of the MSE market. The survey may be affected by accuracy of used
181
information, such as financial statements. On the other hand, companies need to make some changes
in its capital structure.
References
1. Lundholm, R. J. (1995). A tutorial on the Ohlson and Feltham/Ohlson models: Answers to
some frequently asked questions, Contemporary Accounting Research, vol. 11, pp. 749-761.
2. Bernard, V. (1995)The Feltham-Ohlson framework: Implications for empiricists,
Contemporary Accounting Research, vol. 11, pp. 733-747.
3. Frankel, R. & Lee, C. M. C. (1998). Accounting valuation, market expectation, and cross-
sectional stock returns, Journal of Accounting and Economics.
4. Khodadadi et al, V. (2005). Design of linear information model in Tehran stock exchange:
Expansion of Ohlson model, Tehran University.
5. Graham, R. C. & King, R. D. (2000). Accounting practices and the market valuation of
accounting numbers: Evidence from Indonesia, Korea, Malaysia, the Philippines, Taiwan,
and Thailand,‖ International Journal of Accounting, vol. 35, no. 4, pp. 445-470.
6. Pariente, F. (2003). Revisiting Ohlson's equity valuation model,‖ Université Paris IX
Dauphine.
7. Mohamad H. A & Wael Al-Rashed, (2015). Correlation among Cost of capital, Book Values
and Shares Prices: The Case of Kuwait Listed Companies‖, Journal of Economics, Business
and Management, vol.3, No.1, pp.136-139.
8. Information on HYPERLINK "http://www.mse.mn" http://www.mse.mn
9. Information on HYPERLINK "http://www.frc.mn" http://www.frc.mn
THE CHALLENGES OF IMPLEMENTATION OF VALUE ADDED TAX

LAW
Undarmaa.E 1, a *, Khishigbayar.L2, b and Damdindorj.N3, c

1, 2, 3
Lecturer of Accounting Department, Business School of National University of Mongolia
a*
undarmaa.enhee@yahoo.com, b khishgee_8888@yahoo.com, c HYPERLINK
"mailto:maidaa0055@yahoo.com" maidaa0055@yahoo.com
Keywords: VAT, Implementation, Reporting.
Abstract
The VAT is an indirect tax which levy on customer‘s definitive consumption without any
difficulties to business. The indirect tax, the VAT has been developed and executed in many
countries around the world. As 2015, around 25% of total tax revenue has been concentrated by the
VAT over 160 countries.
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In Mongolia, the VAT has been implemented initially since July of 1998, the Mongolian parliament
has been drafting the law of VAT 40 time in last 2 decades. The last draft which has been executing
as 2016.01.01 was adopted at 2015.07.09. In Mongolian the VAT is contributing 20-24% of tax
revenue. Many countries have researched development and improvement of the VAT system so far.
Our goal is to determine Mongolian current situation of the VAT, law performance and to define
suggestion of problem solution which arises new law execution. This survey had been involved
around 150 entities, 350 individuals and survey data had been resulted with SPSS program.
According to the survey the entities and individuals have challenges which are recording, reporting
and promotion, with refund of the VAT due to scarcity of advertising, training and information of
the new law of VAT.
Introduction
The emergence and rapid spread of VAT is among the most important tax development of
the late 20th century. The concept of value added tax was generated in 1954 by a French economist
Maurice Laurie who was Joint director of the French tax authority.
Developed and developing countries generate most of their government‘s revenue from taxes. Tax
can be classified as direct and indirect taxes. Direct taxes that are suffered by tax payer and are one
cannot be shifted by other by the taxpayers to someone else, whereas indirect taxes are paid to tax
collector by some others and can be shifted by other taxpayers. VAT is one of the types indirect tax
levied on consumption where value of goods and services increases as they charge in course of
distribution and the sales of consumers.
VAT was implemented in China in 1984 and is administered by the State Administration of
Taxation. In 2007, the revenues from VAT was 15.47 billion yuan ($2.2 billion) which made up
33.9 percent of China's total tax revenues for the year. The standard rate of VAT in China is 17%.
There is a reduced rate of 13% that applies to products such as books and types of oils.
In 2015, HYPERLINK "https://en.wikipedia.org/wiki/Puerto_Rico" \o "Puerto Rico"
Puerto Rico passed legislation to replace its 6% sales and use tax with a 10.5% VAT beginning 1
April 2016, although the 1% municipal sales and use tax will remain and, notably, materials
imported for manufacturing will be exempted. In doing so, Puerto Rico will become the first US
jurisdiction to adopt a value-added tax. However, two states have previously enacted a form of VAT
as a form of business tax in lieu of a business income tax, rather than a replacement for a sales and
use tax.
The Value Added Tax Act, 1991 was enacted that year and VAT started its passage from 10
July 1991. The 10 July is observed as National VAT Day in Bangladesh. Within the passage of 25
years, VAT has become the largest source of Government Revenue. About 56% of total tax revenue
is VAT revenue in Bangladesh. Standard VAT rate is 15%. Export is Zero rated. Besides these
rates, there are several reduced rates locally called Truncated Rate for service sectors that are
available.
In Mongolia, purpose of VAT that imported product, produced product and service are
imposed to end consumption. The Trade Tax law as 1993 and the VAT law as 1998 had been
adopted in order to move indirect tax system then since 2016.01.01 we have been complying new
VAT. In Mongolia 20-24% of total tax revenues is contributed through VAT which is best
implemented tax system for the IMF and the World Bank. Advantages of new law are to reduce the
avoiding tax, tax dispute of revenue and expense, to improve a reporting.
183
In first section, we reviewed literature of international and Mongolian researchers that is

studied different side of VAT such as implementation, advantage and disadvantage of VAT. In
Section 2, Mongolian current situation of the VAT and result of law performance were defined by
statistic data. In last section, we showed the result of the survey covered 150 entities, 350
individuals and we inspected that the entities and individuals have challenges which arises new law
execution.
Literature review
Researchers have been observing tax system especially VAT system since it was introduced
in France, 1948. Literature on VAT is relatively small compared to its rapid spread and seemingly
attractive worldwide. Some of them are as follows:
Carl S.Shoup (1988) analyzed the reasons for the dramatic change and weights the advantages and
disadvantages of the VAT for developing countries. The authors pointed out the choices a
government
instituting a VAT must make with respect to taxing all final products or only consumer goods, and it
offers suggestions on how to treat export and imports, how to compute the VAT payable.
Masayuki Tamaoka (1994) reported that value added tax is often described as regressive tax
because it taxes consumption, and the propensity to consume tends to decrease as income rises.
These measures include (1) exempting food and social necessities and (2) taxing luxuries at high
rates and necessities at low rates. The author referred that VAT of the subtraction type has two main
variants, namely the tax credit method and the subtraction method. These two types of VAT have
theoretically the same effects on firm‘s liability for VAT and firm‘s decision on price in cases
where there is only one rate and there are no exemptions.
Likewise, Bird (2005) considers the significant implication of implementing a VAT in developing
and transitional economies. Basically the author noted that the VAT functions properly in most
developing and transitional economies and more effectively than any other kinds of general sales
taxes. Secondly, the application of VAT depends on the ―self-assessment‖. Moreover, when
designing a VAT, it is important to take into consideration the situation of the countries. Finally, the
main lesson derived is the ability to understand the political economy dimension of the VAT policy
and administration.
Helen and Ehrhart and Chiristian Hubert Ebeke (2011) used a large panel of 103 developing
countries data over 1980-2008 over the period with respect issue of VAT adoption, the authors
found out average, countries with value added tax experience tax revenue instability forty to fifty
percent lower than the countries which do not have a VAT system. Those effects decrease with
levels of economic development and trade openness.
Umeora (2013) taxation forms the most important sources of revenue to the government. Tax is a
compulsory payment imposed by various tiers of government on individuals and corporate
organization. The most basic things about taxation are that taxation is compulsory and, imposed by
authority of government on people within a territory. Since it is compulsory, and person who is
within the jurisdiction must pay or e given some form of punishment. Also there is no ‗quid pro
quo‘ between tax payer and how the government spends the tax paid. In other word the government
need to explain to a payer how his own particular payment will be utilized.
Literature review in Mongolia
184
In our country, students and lecturers of university and institute, tax inspectors had researched
papers and recommendations which are the effective implementation of the VAT law are as follows:
In 2010, the Taxation Authority Advisory O.Tsogt had defined the disadvantages of VAT law
which was adopted in 2008, had developed recommendation and suggestion which is way to resolve
these problems in his study that is ―Mongolian VAT law enforcement, and future trends‖.
Ch.Unurjargal, University of Finance and Economic, who has been researching continuously the
VAT structure, implementation of VAT law and taxation education with other lecturers since 2008.
Therefor in 2016, she has preferred to accomplish the mid-term policy which provides tax education
for public in ―Promoting a tax education through the implementation of VAT‖ study.
In 2016, L.Oyun and B.Bolor, National University of Mongolia, had studied the factors
which affect the tax education in ―Improving a financial education of public by tax‖ study.
Furthermore, they suggested that the VAT promotion system is able to develop a tax education and
need a government support in order to involve the public.
In 2017, M.Enkhsuren, B.Baatartsogt who are lecturer of Mandakh Burtgel Institute, seek to
identify the new law implementation is able accomplish its main purpose and they have resulted that
arise many problems in tax environment due to new VAT law cannot achieve the indirect tax
purpose in ―Result and Implementation of VAT law‖ study.
Current situation of VAT law implementation

In Mongolia, The Trade Tax law as 1993 and the VAT law as 1998 had been adopted in
order to move indirect tax system then since 2016.01.01 we have been complying new VAT. The
VAT law is one of the most unstable law in legal environment that have updated over 40 times and
the percentage of VAT was changed in 1998.08.28 as 13%, in 2000.11.17 as 15% and in 2006.06.29
as 10% which has been implemented so far. In Mongolia 20-24% of total tax revenue is contributed
through VAT which is best implemented tax system for the IMF and the World Bank.
The VAT law which was used between 2008-2015 is based on invoice method tax system.
According to the law of 2016, using the integrated information system and specific software which
whole database is concentrated in Tax Authority and Ministry of Finance are important decision to
develop a standard tax system. It gives to the tax payers who can refund 20% of tax, take part a
lottery to submit transaction in integrated system and the entity able to report sale revenue without
dodging a tax. Advantages of new law are to reduce the avoiding tax, tax dispute of revenue and
expense, to improve a reporting but there are few disadvantages that cancelled the former law‘s
good provision. For example; encouraging the export products due to the former law allows that
products of mining, wool, cashmere and leather are levied with 0% of VAT but according to new
law the semi-manufacture goods are encouraged more than finished goods. The advantages of new
law:
1. Increasing a tax threshold, allows tax payers to be voluntary
2. Tax payer can refund
3. Reporting a tax statement economically and spending time effectively due to use integrated
system
4. Able to control a sale revenue of entity owing to integrated system
Fig. 1 Fig.2
185
Source: www.mta.mn
The quantity of VAT payer and the VAT revenue has been increasing in total tax revenue. In 2016
the VAT revenue has increased by over 70 billion togrog and the VAT payer has risen through 2856
tax payer.
Performance of VAT promotion
186
Table 1
Promotion by
Promotion /MNT/ Winners of lottery
winners amount
20.000 159007 79076 1,537,800,000
100.000 15895 9453 945,300,000
500.000 1662 1003 501,500,000
4000.000 152 89 356,000,000
20,000,000 12 8 160,000,000
100,000,000 2 2 200,000,000
176730 89631 3,700,600,000
Source: HYPERLINK "http://www.mta.mn" www.mta.mn
The 4% of tax payer who is able to refund hasn‘t gained the refund owing to report their
information wrongly. In addition, the 38,825 tax payer have been reporting their information
through internet and standard registry machine.
Sample information
We have conducted a survey which is 12 question survey from 150 entities and 13 question survey
from 350 individuals in order to observe a new VAT law implementation. The 2/3 of entities who
had been surveyed have more than 50 million togrog annual sales revenue, 54% of individuals are
high education, 71% of individuals are aged between 17-35 years old. The individuals who family
average income is 500-1.500 thousand togrog are 66% of total and the rest of individuals have more
than 1.500 thousand togrog family average income. 3/4 of individuals are employee then residual is
unemployed, student and retired.
Fig. 3 Fig. 4
Source: Result of survey
The 9/10 of individuals and 80% of entities who were surveyed to obtain information how to
register in integrated system through television and internet. Thus 3/5 of individuals cannot take
VAT invoice every purchase and 70% of individuals to register constantly. The reason to register
the invoice is to refund as 65% and the goal of 35% of individuals is to take part a lottery.
The problems to register the VAT invoice are following:
 Software is stuck, registered invoice is not saved, network is unable in remote.
 Purchase amount is unequal, invoice is conformed slowly, lottery number is wrong.
 Scarcity of knowledge to use the internet
In result of survey, the 55% of survey participants think that goods price has been increasing due to
VAT law implementation then the 63% of participants prefer to buy goods and service without VAT
amount. The 3/4 of participants consider that new law information is insufficient, but rest of
participants it is sufficient. The 63% of entities had been trained in the VAT law training, the 36%
of entities have trouble to report the VAT statement owing to new VAT law. For example:
 Incomprehensible, not able to updated to statement, VAT invoice is registered unequally by
one of the both side.
 The sellers don‘t register an invoice on time, amount is unequal, software and network is
stuck, some invoice is not able to downloaded.
187
 Some entities have been increasing the goods price, reporting wrongly is not able to correct,
uncertainty and so on.
The one of the most critical issue is to conduct a business in black market without registering the
VAT administrational system.
188
Conclusion
In Mongolia, VAT law as 1998 had been adopted in order to move indirect tax system then
it has been changing many times. According to the new law of 2016, using the integrated
information system and specific software which whole database is concentrated in Tax Authority
and Ministry of Finance are important decision to develop a standard tax system. In the result of
new tax law, tax revenue will be increased and shadow economy will be reduced in current situation
of Mongolia.
According to the new tax law that the semi-manufacture goods are encouraged more than finished
goods and tax threshold is increased fivefold than former law.
The result of survey that is taken from entities and individuals has a few challenges such as;
 Incomprehensible, not able to updated to statement, VAT invoice is registered unequally by
one of the both side.
 The sellers don‘t register an invoice on time, amount is unequal, software and network is
stuck, some invoice is not able to downloaded.
 Some entities have been increasing the goods price, reporting wrongly is not able to correct,
uncertainty and so on.
According to survey, the entities and individuals have challenges which are recording, reporting,
promotion, and refund of the VAT. Based on the result of the survey, main factors that are
influenced to implementation of VAT law are lack of information about law, scarcity of training and
advertising, too expensive equipment and, poor network environment.
Suggestion
Improving implementation of VAT law:
 Improving information source that are television, social media and training of VAT law.
 Policy makers have to encourage medium sized entities to buy equipment that is used to
print VAT invoice.
 Reducing difficulties that is faced to reporting and VAT system.
 Decreasing price and size of equipment.
 Decreasing promotion then increasing refund of VAT.
 The new technology will be conducted to integrated system of VAT.
189
References
1. Helen Ehrhard, and Chiristian Hubert Ebeke (2011), Is VAT Stablizing? No6201124,
working paper from CERDI.
2. Graham Harrison and Russell Krelove (2005), VAT refund review of country experience.
3. Altanzaya G. ―Accounting of taxation‖ (2015).
4. Tsogt.O (2010), ―Implementation and Further Tendency of VAT‖.
5. Gantulga.G and Unurjargal.Ch (2010), ―Implementation of VAT law‖.
6. Sukhee.D (2015), ―The Disadvantage of VAT Law‖.
7. Information on http:// HYPERLINK "http://www.mta.mn" www.mta.mn
8. Information on http:// HYPERLINK "http://www.legalinfo.mn" www.legalinfo.mn
9. HYPERLINK "https://www.ifs.org.uk/uploads/mirrleesreview/design/ch7.pdf"
https://www.ifs.org.uk/uploads/mirrleesreview/design/ch7.pdf
10. https://www.ukessays.com/dissertation/literature-review/literature-review-on-value-added-
tax.php
190
KEY AUDIT MATTERS
Undrakh Ganbat1, a*
1
Lecturer, Department of Accounting and Analysis, Mongolian University of Life Sciences
a*
undrakh.g@muls.edu.mn
Keywords: Enhanced auditor‘s reporting
Abstract.
In January 2015, the International Auditing and Assurance Standards Board (IAASB) issued
its new and revised Auditor Reporting Standards, which require auditors to provide more
transparent and informative reports on the companies they audit. These standards have been issued
in response to demand from users of financial statements, in the wake of the financial crisis, for
more relevant information on audits. The aim of the standards is to provide auditor‘s reports that
increase the public‘s confidence in both the audit process itself and the financial statements of
companies. The IAASB also believes that enhancing auditor reporting will improve
communications between the auditor and investors, as well as between auditors and those charged
with governance. The new and revised Auditor Reporting Standards are effective for audits of
financial statements for periods ending on or after 15 December 2016.
Introduction
One of the challenges with the financial statements is that they are fairly complicated. As a
result, the audit is also quite complex and requires the auditor‘s assessment of risks of material
misstatement to those financial statements to drive the performance of the audit.
In today‘s boilerplate auditor‘s report, it is not possible for financial statements users to understand
where the greatest of those risks lie in the eyes of the auditor.
For this reason, a particular area of focus within the new standards is the requirements as set out in
the new ISA 701 Communicating Key Audit Matters in the Independent Auditor‘s Report.
For audits of listed entities, a new section in the auditor‘s report called Key Audit Matters (KAM)
will highlight those matters that, in the auditor‘s professional judgment, were of most significance
in the audit.
KAM are included in a separate section of the auditor‘s report explaining the nature and intent of
KAM.
However, KAM is not:
 A substitute for disclosures in the financial statements
 A substitute for the auditor to express a modified opinion
 A substitute for reporting any matters relating to going concern or
 A separate opinion on an individual matter
“The IAASB has responded to calls from investors and others that it is in the public interest for an
auditor to provide greater transparency about the audit that was performed. Increasing the
191
communicative value of the auditor‟s report is critical to the perceived value of the financial
statement audit.” Dan Montgomery, former IAASB8, Deputy Chair and Chair of the Auditor
Reporting project
From the matters that required the auditor‘s significant attention, the auditor determines which were
of the most significance in the audit of the current period. These matters are KAM.
In most cases, KAM relate to significant complex matters disclosed in the financial statements, e.g.,
valuation of goodwill and other long-term assets, valuation of financial instruments, difficult or
unique aspects of revenue recognition, or accounting for significant acquisitions.
The description of a KAM should be clear, concise, understandable and entity-specific.
KAM describes
“Why the matter was determined to be a KAM; How it was addressed in the audit; and Reference to
disclosure(s) in the financial statements”
KAM is defined in the standard as ―Those matters that, in the auditor‘s professional judgment, were
of most significance in the audit of the financial statements of the current period. KAM are selected
from matters communicated with those charged with governance‖.
In essence, KAM are drawn from matters that are communicated with those charged with
governance (TCWG).
ISA 701 includes a judgment-based decision-making framework to help the auditor decide which
issues from the audit would count as KAMs.
The auditor firstly narrows the matters communicated with TCWG to matters that required
significant auditor attention. In doing so, auditors will explicitly consider:
 Areas of higher risk of financial statements material misstatement
 Significant auditor judgments relating to areas in the financial statements that involved
significant management judgment, including accounting estimates that have been identified
as having high estimation uncertainty
 The effect on the audit of significant events or transactions that occurred during the period
The fact that these considerations are required does not imply that matters related to them are
always KAM.
Fig. 1 KAM Decision-making framework
Stakeholders are used to the binary ―pass/fail‖ opinion. With KAM reporting, the stakeholders
might perceive it as a piecemeal qualification on matters determined to be KAMs. The description
of auditor‘s procedures contained in the KAM section of the auditor‘s report might be
misunderstood without proper context.
The description of a key audit matter will be tailored to the company and will:
 explain why the matter was considered to be of most significance in the audit;
 describe how the matter was addressed in the audit; and
 provide a reference to any related financial statements disclosures.
With respect to how the matter was addressed in the audit, the auditor may describe any of the
following elements, or a combination of these elements:
Fig. 2 Audit elements

192
Other concerns are:

 Will KAMs make the auditor‘s report as the primary source of ―red flags‘, such as going
concern?
 How will KAMs be interpreted by stakeholders and the market?
 Would it trigger a negative market response?
 Will stakeholders perceive matters highlighted as KAMs as areas where management and
TCWG failed to discharge their responsibilities properly?
One very important message to be conveyed to the stakeholders is that KAMs are not an avenue for
the auditor to express qualification on matters highlighted as KAMs. KAMs are addressed in the
context of the audit of the financial statements as a whole, and the auditor does not provide a
separate opinion on these matters.
Therefore, stakeholder education is critical in addressing the potential consequences of

misinterpreting KAMs. The entities, the relevant professional bodies and authorities should actively
engage and educate the stakeholders so that they understand the objective of KAMs, and how a
matter is determined to be a KAM.
The changing audit reporting landscape

Many jurisdictions that use the ISAs have already issued exposure drafts or new auditing standards
to implement these new requirements. Some jurisdictions may extend the applicability of certain
requirements in the ISAs for audits of listed entities to audits of other entities, such as public interest
entities. As a result, additional jurisdiction-specific guidance may be issued to further address
auditor reporting requirements.
Regulators and standard-setters in several jurisdictions have also undertaken auditor reporting
initiatives, including the UK, the Netherlands, the US, and the European Union. For instance, the
UK measures were effective for audits for periods commencing on or after 1 October 2012 while
the Netherlands issued a standard in late December 2014 that applies to periods ended on or after 15
December 2014.
Recently, the UK Financial Reporting Council (FRC) conducted a post-implementation review. In a
survey of more than 150 auditor‘s reports, it was found that the top five KAMs most reported in the
UK were:
 Impairment of assets
 Tax
 Goodwill impairment
 Management override of controls and
 Fraud in revenue recognition
An illustration of the revised auditor‘s report that highlights the key changes introduced to the
auditor‘s report is following.
Enhancements to the auditor‘s Report
 Opinion first. The auditor‘s opinion-the ―pass/fail‖ statement that users have said they users
have said they continue to value is required to be positioned at the beginning of the report,
followed by the Basis for Opinion.
 Basis for Opinion section is required. Currently only required when the auditor‘s opinion
was modified.
 New affirmative statement about the auditor‘s fulfillment of independence and other relevant
ethical responsibilities requirements.
193
 The new KAM section is the centerpiece of the revised auditor‘s report.
 A separate section relating to other information is required under the revised ISA 720.
 New descriptions of management‘s responsibilities relating to going concern. Intended to
reflect the requirements of the applicable financial reporting framework.
 Identification of TCWG is required when a separate body exists that is responsible for the
oversight of the financial reporting process (in many cases, the audit committee). When
individuals responsible for such oversight are also responsible for the preparation of the
financial statements, no reference to oversight responsibilities is required.
 Expanded description of the auditor‘s responsibilities, including key features of the audit.
The auditor‘s responsibility section is intended to explain more fully the concept of a risk-
based audit, as well as to clarify the meaning of certain audit-technical terms. This approach
results in a more lengthy description of the auditor‘s responsibilities in relation to specific
matters, including fraud; internal control, accounting policies and estimates, evaluation the
overall presentation, structure and content of the financial statements and disclosures, group
audits, and communications with TCWG.
 New description of responsibilities relating to going concern. Reflects responsibilities under
ISA 570, which are required regardless of the applicable framework.
 Disclosure of the name of engagement partner for audits of listed entities. Already a
common practice in many jurisdictions, the name of the engagement partner is now included
in auditor‘s reports under the ISAs, but is only required for audits of listed entities.
194
Summary
KAM, some of the other changes introduced to the auditor‘s report are:
 Prominent placement of the auditor‘s opinion towards the beginning of the auditor‘s report
 New descriptions of responsibilities relating to going concern to be included in the
respective sections for management‘s and auditor‘s responsibilities
 Enhanced reporting requirements when a material uncertainty related to going concern exists
 Identification of TCWG within the management‘s responsibilities section who is responsible
for the oversight of the financial reporting process (in many cases, the Audit Committee)
 Revised auditor‘s reporting on other information applicable for entities issuing annual
reports, considering whether there is a material inconsistency between other information and
the auditor‘s knowledge obtained in the audit
 New requirement to state, at the date of the auditor‘s report, other information in the annual
report of the listed entity the auditor has obtained or expects to obtain
Significant efforts will be required to implement the enhanced auditor‘s reporting. Management,
TCWG and the auditors should align their goal of improving communications now so as to ensure
smooth implementation in 2016 calendar-year audits.
The introduction of KAM is a significant enhancement that will change not only the auditor‘s
report, but more broadly the quality of financial reporting by providing more informative value to
investors and other key stakeholders.
195
That said, it is important to emphasise here that it remains the responsibility of management, with
the oversight of TCWG, to communicate relevant information to users about the entity and its
financial performance, including providing adequate disclosures in accordance with the applicable
financial reporting framework.
References
1. Information on HYPERLINK "http://www.ifac.org" www.ifac.org
2. (2016). Международный стандарт аудита 701. Информирование о ключевых
вопросах аудита в аудиторском заключении.
3. Information on HYPERLINK
"http://www.pwc.ru/ru/events/2015/assets/iaasb_rus.pdf"
http://www.pwc.ru/ru/events/2015/assets/iaasb_rus.pdf
4. (2016). EY-enhanced auditor‘s reporting.
5. Information on HYPERLINK "http://www.kpmg.com" www.kpmg.com
6. IAASB press release
196
RESEARCH RESULT OF AGRICULTURAL ACCOUNTING IN

MONGOLIA
S.Oyunchimeg1,a*, B.Nyamdavaa2, b, B.Khaliun3, c

1
MBA, Lecturer, Department of Accounting and Analysis, School of Economics and Business, Mongolian
University of Life Sciences
2
MA, Lecturer, Department of Accounting and Analysis, School of Economics and Business, Mongolian
3
MBA, Lecturer, Department of Accounting and Analysis, School of Economics and Business,
Mongolian University of Life Sciences
a* b
HYPERLINK "mailto:oyunchimeg.s@muls.edu.mn" oyunchimeg.s@muls.edu.mn , HYPERLINK
c
"mailto:nyamdavaa.b@muls.edu.mn" nyamdavaa.b@muls.edu.mn , HYPERLINK
"mailto:khaliun.b@muls.edu.mn" khaliun.b@muls.edu.mn
Keywords: Agricultural accounting, card of technology

Abstract
The research work conducted surveys from accountants of the 21 entities which operates
agricultural production and service. The aim of the research work is to analyze current situation of
the agricultural accounting and make some recommendation. The survey included 51 questions, 10
out of them is focused on general information of the entity and the other 41 is focused on
accounting, cost classification and cost assessment.
The 38 percent of total responder operates only crop husbandry, the 28 percent of total
responders operates only animal husbandry and 34 percent of total responders operates crop and
animal husbandry.
According to the research, application of the international standards of the financial
reporting is not enough. For example, operation cost and product cost are incorrectly assessed due
to poor classification of the cost.
Research Methodolgy
The questionnaire survye consists of 51 questions that divided into 3 different parts and we
focused on 41 questions which relating to recording the accounting transactions.
Research Result
According to our study, some of the companies use Windows office programs for their
accounting transaction recording and some of them use accounting software. There are few
companies who has relatively higher income but do not use professional accounting software.
197
Fig. SEQ Figure \* ARABIC 1 . How to do accounting transaction and record?

The 62 percent of total entites who responded to our survey do not have document of accounting
policy which means that they do not provide correct financial infomation to the customer.
Fig. SEQ Figure \* ARABIC 2 . Do the companies have documents of accounting policy or not?
In other words, having document of accounting policy does not related to the amount of revenue or
the hiring the acountant by full-time. Even some of companies having the documents of acounting
policy however, they are not good and not applicable. We see this is the result of bad regulation of
the accounting because there are no guidebook on accounting policy for the entities, and also there
is no legislation on it.
Fig. SEQ Figure \* ARABIC 3 . Who prepares the Financial Statement and tax report?
It is clearly seen that the companies have accoutant as staff no matter how big is the company
(Figure 3).
We can see that how the accountant apply IFRS into their financial report from the Figure 4.
Fig. SEQ Figure \* ARABIC 4 . How records the operation income?

Most of the agricultural producers records their revenue however, 38 per cent of the total
respondents use cash basis of accounting which meant the agricultural producers do not apply IFRS
on their accounting.
According to Figure5, 56 per cent of total responders use bank account for accounting transactions
which proved that the companies started to follow the Regulation on payment system of Mongolia.
Fig. SEQ Figure \* ARABIC 5 . Does companies use bank account? Or not?
Fig. SEQ Figure \* ARABIC 6 . Can they classifying agricultural production costs and calculating
unit cost
When examining whether the costs are classified correctly, 32% of companies are not properly
classified, but the rest is incorrectly classified and don‘t know how to classify. This leads to a
further question whether how correct estimating the cost of product.
For instance, no one answered that is can classified very good production cost and 64% is
considered not good, and the remaining 36% is classifying bad and can‘t classifying production
costs.
Those agricultural company‘s accountants answered to question ―Do you use technological card and
movement calculation of livestock as follows:
The table below shows that accurate accounting records have been kept more of crop husbandry
than livestock husbandry.
198
Table SEQ Table \* ARABIC 1 . How many livestock husbandry using turn on calculation of
livestock
Frequency Percent Valid Cumulative
Percent Percent
accurately 5 23.8 45.5 45.5
review 5 23.8 45.5 90.9
Valid
uncalculating 1 4.8 9.1 100.0
Total 11 52.4 100.0
Total 21 100.0
Table SEQ Table \* ARABIC 2 . How many crop husbandry using Technological card
- Frequency Percent Valid Cumulative
Percent Percent
Accurately 2 9.5 12.5 12.5
Review 8 38.1 50.0 62.5
Valid
Uncalculating 6 28.6 37.5 100.0
Total 16 76.2 100.0
Total 21 100.0
The accountants appeared that they have proper knowledge or more then average in the following
questions for estimated by scores (responses estimated from 1 to 4 scores and they have
unsatisfactory knowledge or less than 2.5 and this score improved as more than 2.5 in the result of 8
questionnaires followings) in 30 questionnaires tested the ability of accountant profession from total
51 questionnaires in the survey.
Herein determined about applying of the International Financial Reporting Standards (IFRS) for
the products of animal husbandry and biological assets in the animal husbandry sector, the most of
four questionnaires followings are recording faithfully.
Fig. SEQ Figure \* ARABIC 7 . How are accountants recording the products of animal husbandry
and biological assets by the International Accounting Standards:
However, agricultural sector cannot record faithfully under IFRS for the products of agriculture and
biological assets in the four questionnaires.
Fig. SEQ Figure \* ARABIC 8 . How are accountants recording the products of agriculture and
biological assets by the International Accounting Standards:
Summary
- Agricultural companies cannot execute their basic obligations to provide true and right
information to customers‘ cause of have not documents of accounting policy.
199
- Comparing status, basic requirements of the accounting is unsatisfactory cause of being

considered as unlike of expenditure and price accounting in corporate, which run similar
operations. -
- Accountants of the sector have bad knowledge of theory about agricultural accounting
and the accounting of the sector is based on purely professional experience and practice.
- The most of corporate cannot classify faithfully the expenditure due to they cannot
estimate rightly the cost of goods.
- The companies, prepare detail of agricultural technological card and movement
calculation of livestock which are basis indicator of operations, occupied 1/3 of the
participated companies in the survey that means actuality status of the accounting
information have been a poor condition.
Proposal
- Provide continual educational training to the accountants of agricultural companies,
- Policy and decision makers such as Ministry of Finance and Ministry of Food,
Agriculture and Light Industry embed IFRS for preparing guideline, introduction and
direction of the accounting to the agricultural companies,
- Embed financial program which show the industrial characteristics of agriculture in the
necessities for processing it for the agricultural companies,
- Complete the opportunities to account faithfully under technology for recoding detail of
technological card in agricultural companies,
- Embed movement calculation of livestock to provide faithful information that need to
customers in the practice for preparing it detail by information of the companies, run
livestock industry.
200
COMPARISON OF AGRICULTURAL ACTIVITIES’ ACCOUNTING

PRACTICES IN MONGOLIA
Bayarkhuu Sainbayar1, a*
1
MBA, CPA, Lecturer Department of Accounting and Analysis
School of Economics and Business, Mongolian University of Life Science
a*
HYPERLINK "mailto:bayarkhuu.s@muls.edu.mn" bayarkhuu.s@muls.edu.mn
Abstract
IAS 41 is a short standard with a wide scope and a significant impact on those entities
within its scope. It applies to most entities that grow or rear biological assets for profit. The
principle of the standard is that increases in value are recognized as income as the asset grows and
develops.
All agricultural activity was in the scope of IAS 41, ‗Agriculture‘ until recently. In June
2014 the IASB issued an amendment moving bearer plants, but not the produce growing on the
bearer plants, from the scope of IAS 41 to IAS 16, ‗Property, Plant and Equipment.‘ Bearer plants
are plants which bear produce for more than one period, (for example oil palms, grape vines and
fruit trees).
IAS 41 requires biological assets to be measured initially and subsequently at fair value less costs to
sell (FVLCTS). Judgement is required to determine fair value and complex models are often
required. But agricultural producers in Mongolia have been reporting their agricultural activities on
cost basis until today and we can‘t apply IAS 41 properly. Therefore I am seeking to research
potential reporting methodologies for agricultural activities in our practices.
Theory
Scope
IAS 41 applies to agricultural activity which relates to biological assets, agricultural produce
and government grants.
„Agricultural activity is the management by an entity of the biological transformation and
harvest of biological assets for sale or for conversion into agricultural produce, or into additional
biological assets.‟ [IAS 41 Para 5]
Agricultural activity is distinguished by the management of biological transformation.
‗Biological transformation comprises the processes of growth, degeneration, production, and
procreation that cause qualitative or quantitative changes in a biological asset.‟ [IAS 41 Para 5]
Once harvested, agricultural produce becomes inventory and is accounted for in accordance with
IAS 2, ‗Inventory‘.
Biological assets fall into the following main categories: plants or animals; and consumable
or bearer assets. Consumable assets are those which are to be harvested as agricultural produce or
sold as biological assets – that is, they will be consumed (for example wheat and cattle for beef).
201
Bearer assets are those which bear produce over their productive lives, which exceeds one period.
For example, grape vines, where the vine is the bearer asset and the grapes are produce and dairy
cows, where the cow is the bearer asset and milk is the produce.
Bearer plants have been moved into the scope of IAS 16 under the new amendment, but the
produce growing on the plant remains within IAS 41. A bearer plant is defined in IAS 16 as a living
plant that:
a. Is used in the production or supply of agricultural produce;
b. Is expected to bear produce for more than one period; and
c. Has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales
A plant might have two uses: 1) it is cultivated for bearing agricultural produce, and 2) the
bearer plant will be harvested and sold as agricultural produce. For example, rubber trees might be
cultivated for both their latex and wood. If the sales from wood are not incidental scrap sales, the
tree does not meet the definition of a bearer plant.
Bearer plants that no longer bear produce are commonly cut down and sold as scrap at the
end of their life. Such incidental scrap sales would not prevent the plant from being a bearer plant.
Measurements
IAS 41 requires biological assets to be measured on initial recognition and at each balance sheet date
at their fair value less costs to sell, except in limited circumstances. Any movements in fair value are
recorded in the income statement.
There are two occasions where the standard permits departure from fair value: at the early stage of
an asset‘s life; and when fair value cannot be measured reliably on initial recognition.
In the event that the estimate of its fair value is deemed to be clearly unreliable, that biological asset is
measured at its cost less any accumulated depreciation and any accumulated impairment losses. [IAS 41 para
30]. Determining whether an asset is impaired requires an estimate of its value.
IFRS 13 „Fair Value measurements‟ defines fair value as ‗IFRS 13 para 9]. The price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date‟.
There are three approaches described in IFRS 13 to measure fair value: the market approach; the
income approach; and the cost approach. The market and income approaches are the most likely
methods used to measure biological assets. IFRS 13 does not have a preferred method of calculating
fair value however whichever technique is used observable inputs must be maximized. If there is a
market price it cannot be ignored.
Bearer plants in the scope of IAS 16
Bearer plants in the scope of IAS 16 are typically measured at accumulated cost until they
are mature. From maturity, any subsequent costs are expensed unless they enhance the future
economic benefits of the asset.
The entity has the choice of using the cost model or the revaluation model under IAS 16.
The model chosen must be applied to the entire class of asset. The plants must be depreciated over
their useful lives under both models.
I. Research
Firstly, shall we compare one of the biggest agricultural farm‘s accounting process for biological assets and
agricultural produce to IFRS accounting requirement (Table 1).
Table 1. Comparative journal entries (JE) between under IFRS and in Practices
Under IFRS In practice (Atarchandgana milk Ltd)
JE 1. Purchase of biological assets:
202
Dr. Biological assets – Immature cattle (at

Dr. Biological assets (at FVLCTS) хх хх
cost)
Dr. FV loss on initial recognition of
хх - -
biological assets
Cr. Cash ххх Cr. Cash хх
JE 2. Newborn calves:
Dr. Biological assets - Calves (at
хх Dr. Biological assets - Calves (at cost) хх
FVLCTS)
Cr. FV gain on initial recognition of
хх Cr. Work in process – Calves хх
biological assets
JE 3. Remeasurement of biological assets (price changes)

Dr. Biological assets (changes of
хх - -
FVLCTS)
Cr. FV gain on remeasurement of
хх - -
biological assets – price changes
JE 4. Remeasurement of biological assets (transfer from immature to mature)

Dr. Biological assets (changes of Dr. Biological assets - Өсвөр үхэр
хх хх
FVLCTS) (difference of stated price)
Cr. FV gain on remeasurement of
хх Cr. Gain from biological assets transfer хх
biological assets – transfer to mature
JE 5. Agricultural produce from Biological assets:

Dr. Inventories -Milk (at FVLCTS) хх Dr. Finished goods-Milk (at cost) хх
хх Cr. Work in process - Milk хх
inventories
JE 6: Sales of biological assets:

(а) Dr. Cash хх Dr. Cash ххх
Dr. Selling expenses хх Cr. Gain on disposal хх
Cr. Sales Revenue ххх Cr. Biological assets – Immature хх
(b) Dr. Cost of sales хх - -

Cr. Biological assets-Immature хх - -
JE 7. Slaughtering biological assets:

(a) Dr. Inventories-Carcasses (at Dr. Finished goods – Carcasses (at
ххх хх
FVLCTS) carrying amount)
хх Dr. Biological assets-Mature хх
inventories
Cr. Biological assets-Mature хх
(b) Dr. Inventories-Carcasses (cost of

хх Dr. Finished goods – Carcasses (at cost) хх
slaughtering)
Cr. Cash хх Cr. Cash хх
JE 8. Sales of carcasses:
(a) Dr. Cash хх Dr. Cash хх
Dr. Selling expenses хх Dr. Selling expenses хх
Cr. Sales Revenue ххх Cr. Sales Revenue ххх
(b) Dr. Cost of sales хх Dr. Cost of sales хх

Cr. Inventories-Carcasses хх Cr. Finished goods – Carcasses хх
JE 9. Production and operating cost:
203
Dr. Expenses / Production cost хх Dr. Work in process – Calves хх

Cr. Raw material / Supplies / Payable /
хх Dr. Work in process – Immature хх
Cash
Dr. Work in process – Milk хх
Cr. Raw material / Supplies / Payable /
ххх
Cash
Now shall we compare three cases of accounting for production and operating cost in practice. I chose three
agricultural farm‘s journal entries formats. In order to be comparative these cases I consider same amounts
for all cases.
Table 2. Comparative journal entries and reporting of Practice Cases (Cost based)
Case 1 Case 2 Case 3
“Atarchandgana milk” Ltd: “Tsegeen hust” Ltd: “Khishigten nuudelchin” Ltd:
Production and operating cost:
Dr. WIP-direct Dr. Material
250 Dr. Cost of sales
material expenses 350 600
Dr. Salaries Dr. Administration
Dr. WIP-direct labor 200
expenses 300 expenses 100
Dr. Distribution
Dr. WIP-overheads 150 Dr. Rental expenses
20 expenses 50
Dr. Administration
100 Dr. Utility expenses
expenses 35
Dr. Distribution Dr. Depreciation
50
expenses expenses 45
Cr. Material /
Cr. Material / Supplies Cr. Material / Supplies
750 Supplies / Payable / 750 750
/ Payable / Cash / Payable / Cash
Cash
Agricultural produce from Biological assets:

Dr. Finished goods 600 None None
Cr. WIP 600
Sales of agricultural produce:

Dr. Receivable 950 Dr. Receivable 950 Dr. Receivable 950
Cr. Sales revenue 950 Cr. Sales revenue 950 Cr. Sales revenue 950
Dr. Selling expenses 100 Dr. Selling expenses Dr. Selling expenses
100 100
Cr. Cash 100 Cr. Cash 100 Cr. Cash 100
Dr. Sales cost 600 None None

Cr. Finished goods 600
Profit or loss statement

By Function of expenses: By Nature of expenses: By Function of expenses:
Sales revenue 950 Sales revenue 950 Sales revenue 950

Sales cost (600) Sales cost (600)
Gross income 350 Gross income 350
Operating expenses: Production and operating expenses: Operating expenses:
Administration Administration
100 Materials used
expenses 350 expenses 100
Distribution Salaries Distribution
150 (250) (250)
expenses expenses 300 expenses 150
Rentals 20
Utilities 35
Depreciation 45
Selling
(850)
expenses 100
Profit before tax 100 Profit before tax 100 Profit before tax 100
Income taxes (10) Income taxes (10) Income taxes (10)
Net profit 90 Net profit 90 Net profit 90
204
I consider case 1 is better than others because production cost is capitalized in that case. Now I develop this
case along with IFRS.
Table 3. Comparative journal entries and reporting of Suggested Practice Case-1 and its Developed variation under
IFRS
Suggested practice case Developed variation of Suggested practice Differences
(Case 1 in Table 2) Case-1 Dr. Cr.
Production and operating cost:
Dr. WIP-direct material 250 Dr. WIP-direct material 250 - -

Dr. WIP-direct labor 200 Dr. WIP-direct labor 200 - -
Dr. WIP-overheads 150 Dr. WIP-overheads 150 - -
Dr. Administration expenses 100 Dr. Administration expenses 100 - -
Dr. Distribution expenses 50 Dr. Distribution expenses 50 - -
Cr. Material / Supplies / Cr. Material / Supplies /
750 750 - -
Payable / Cash Payable / Cash
- -
Agricultural produce from Biological assets: - -
Cost based Fair value based - -
Dr. Finished goods - Milk (at Dr. Finished goods – Milk (at
600 850 (250) -
cost) FVLCTS)
Cr. WIP 600 Cr. WIP 600 - -
Cr. Gain on initial
- 0 recognition of Agricultural 250 - (250)
produce -
- -
Sales of agricultural produce: - -
- -
Dr. Receivable 950 Dr. Receivable 950 - -
Cr. Sales revenue 950 Cr. Sales revenue 950 - -
- -
Dr. Selling expenses 100 Dr. Selling expenses 100 - -
Cr. Cash 100 Cr. Cash 100 - -
- -
Dr. Sales cost 600 Dr. Sales cost 850 (250) -
Cr. Finished goods 600 Cr. Finished goods 850 - (250)
- -
Purchase of Biological assets: - -
- -
Dr. Biological assets - Cow Dr. Biological assets - Cow (at
(at cost)
80
FVLCTS)
70 10 -
Loss on initial recognition of
- 0 10 (10) -
Biological assets
Cr. Cash 80 Cr. Cash 80 - -
- -
Newborn of Biological assets: - -
Dr. Biological assets - Dr. Biological assets -

Calves (at cost)
30
Immature (at FVLCTS)
25 5 -
Cr. Biological assets - Cow 30 - 0 - 30
Gain on initial recognition of
- 0 25 - (25)
Biological assets
- -
Remeasurement of Biological assets: - -
Dr. Biological assets -

None Immature (change of 15 (15) -
FVLCTS)
Dr. Biological assets - Cow
(change of FVLCTS)
12 - (12)
Gain on remeasurement of 3 - (3)
205
biological assets
- -
Profit or loss statement - -
By Function of expenses: - -
Sales revenue 950 Sales revenue 950 - -

Sales cost (600) Sales cost (850) - 250
Gain of loss on initial
0 recognition of agricultural 250 - (250)
produce
Gross income 350 Gross income 350 0 0
Change of value of Biological assets: - -
Gain or loss on initial
- 0 15 (15) -
recognition of biological assets
Gain or loss on
- 0 0 remeasurement of 3 18 (3) (18)
biological assets
Operating expenses: Operating expenses: - -
Administration
100 Administration expenses 100 - -
expenses
Distribution expenses 150 (250) Distribution expenses 150 (250) - -
Profit before tax 100 Profit before tax 118 0 (18)
Conclusion
 Our companies apply usually cost basis reporting. Although company‘s managements try to report under
fair value model, fair value isn‘t determined properly. They use stated amounts instead of fair value for
biological assets during all periods (Table.1).
 Some companies capitalize production cost such as case 1, some companies expense such as case 2 and
some companies expensed directly to ―Cost of goods sold‖ such as case 3. Even though impact to net
profit is exactly same in all cases (Table.2).
 All cases in Table 2 are based cost model. I tried to convert it to fair value model. Fair value based
reporting supports more valuable and useful information. In fair value model net impact to gross profit is
same in both cases but net income is not same (Table.3).
References
1. IASB, IFRS redbook 2016, IAS 41 ―Agriculture‖, IAS 16 and IFRS 13.
2. PwC, Agriculture in depth, 2015.
3. Agromisa Foundation, Farm accounting, 2006.
4. Bayarkhuu.S, Features of accounting and reporting for Agricultural activities, MonICpa 2016. FFSC,
Financial guidelines for agricultural producers, 2011.
206
CONSIDERING NEEDS FOR MASTER PROGRAM
Bindirya Dugersuren 1, a*, Banzragch Mijiddorj 2, b

1, 2
Doctor (Ph.D), Associate Prof, Graduate School of Business,
Mongolian University of Science and Technology
a*
HYPERLINK "mailto:bindirya.d@must.edu.mn" bindirya.d@must.edu.mn , b HYPERLINK
"mailto:banzragchm@must.edu.mn" banzragchm@must.edu.mn
Keywords: Graduate education, Higher educational institution, Graduate degree
Abstract
Consideration demand needs of students intending to upgrade their educational degrees as
well as needs of employers are crucial for development of academic plans, improvement of capacity
of graduate school and further, competitiveness of graduate schools of national universities. This
article aims to find out what bachelor students and graduates suppose about their further educational
degrees and how employers expect from graduates of master programs, in order to improve
graduate programs of Graduate School of Business of Mongolian University of Science and
Technology. The findings of this online survey are useful to improve quality of services of other
higher educational institution in Mongolia.
1. Introduction
Contrary to the findings of behavioral science and decision-making theory, a number of
researchers assume that the consumer satisfaction assessment depends merely on the quality of the
product or service that is consumed by customer [1]. This article illustrates findings of online
questionnaire responses of bachelor students and graduators who gained bachelor degrees on
business administration and others. Participants in this questionnaire are current students and
graduators from national level universities and from higher educational institutions, which prepare
bachelor degree professionals on business administration. Besides, this paper shows results of 2016
online questionnaire responses of different managers. Questionnaire was sent to employers as well
as top and medium level managers from both government and private sectors of Mongolia.
2. Findings of questionaire involved bachelor students and graduates

Majority of participants (95 percent) in this study are graduators rather than currently studying
students (5 percent) even though this study invited both existing students and graduators to
voluntarily participate in survey. Female participants were actively participated compare to male
participants as 61 percent against 39 percent respectively. This is because of women are more
educated than men in Mongolia by national statistical data. 57 percent of respondents were
completed their universities and higher educational institutions 2 years ago and recently, while 30
percent of respondents were completed 3-5 years ago and others were graduated before 2010.
207
Figture 1. below shows majors of all respondents who have studied nowadays and who obtained
their bachelor degrees (Source: Annual Report- 2014/5 Academic Year GSB, MUST [3]).
Fig.1. Majors of respondents

In order to seek the respondents‘ needs to obtain their further educational degrees a question
was asked whether they are planned to study on master degree programs in the near future [2].
Majority of them, specifically 71 percent of respondents answered that they would like to study on
master degrees and further. In-depth question about what kind of professions are most preferred for
their further educational degrees, was asked and responses are shown below in Figture 2.
Fig. 2.Most preferred majors for graduate degree
Definitely, the graph shows that Master of business administration, financial management,
and marketing management are topped among different professions produced by business profiled
universities and higher educational institutes. This large number of willingness needs to addressed
concerning on executive programs for business people [4]. The study shows that trends to obtain
master on HRM cannot be increased compare to existing a number of master students studying on
HRM.
The study sought respondents‘ choices of universities and higher educational institutions if
they would have chances to complete graduate degrees. More than a half (55 percent) prefer to
study in overseas and remaining respondents prefer national universities and higher educational
institutions. From respondents who would choose national universities 50 percent named MUST, 30
percent named Institute of Finance and Economics and 5 percent of them preferred NUM. From the
youth perceptions about universities of developed countries suggest that national universities need
to seek ways to implement joint programs with other countries‘ universities, which are ranked
higher among others. Data also suggest that reforms within our university adopting CDIO approach
of MIT needs to be informed broadly among the public.
Most frequent causes remarked by respondents who would choose national university or higher
educational organization are summarized in table 1.
Table SEQ Хүснэгт \* ARABIC 1 : Most frequent causes to choose national universities and
higher educational organizations by respondents
1. Teaching processes
 Quality of education
 Highly qualified staff & lecturers
 Well organized educational processes
 Good educational system
2. Learning processes
 Speedy delivery of services
 Support of foreign languages
 Implementation of joint program i.e. 2+2 MBA and others
 Short period of program
 Carrying out national competition or events
 Accessibility to lecturers and tutors
 Running lectures in English
3. Learning environment
 Accessibility to facilities and training equipment
208
 Low tuition fee

 Favorable learning environment
 Management of school
 Adoption of international experiences
4. Prestige
 Prestige of public universities
 Prestige of top universities among employers
 Top ranked in Mongolia
 Employers‘ attitude to hire graduators from top universities and higher educational institutions
 Internationally recognized because of getting international accreditation
5. Learning outcome
 High employability of graduators from top universities
 Opportunities to study further and work abroad
 Preparation of good professionals
 Achievement of graduators from our university
 Specialization on particular science (i.e. Institute of Finance and Economics is topped to
prepare economists and financial experts)
 Opportunity to enter in world market
6. Others
 Familiarity of previous university and lecturers
 Believes in former school
3. Findings of managers’ survey
Main respondents are human resource managers or staff in charge of human resource
development and training. 38 percent is male participants while 63 percent is female participants
out of total respondents.
Involvement of managers in their organizations particularly in making decisions about the
development and training their staff are vary. Therefore, the criteria for selection of responses to
open-ended questions within the questionnaire are year of work experience of managers in their
organizations. Considering this, perceptions of informants who work for 6-10 years are more
valuable than who work for 3-5 years as well as up to 2 years for their organizations. 25 percent of
informants is considered as key informants and a half of total informants has been worked for 3-5
years, whereas 25 percent comprises of managers working up to 2 years within their organizations.
Majority of managers are representing medium enterprises that have more than 50 employees and
operating more than 10 years in mining, agricultural, infrastructure, construction and banking
sectors. (Enterprise, which has more than 50 employees, is considered as medium size enterprise in
Mongolia due to its small population and not long development of private enterprises in the
country).
In order to find the needs of staff with graduate education in organization a question was
asked managers whether they need master or doctoral degree staff. 38 percent of respondents
answer that they need these kind of staff whereas remaining managers responded that no need so
far. Most of medium or top level managerial job places are required to recruit candidates who have
graduate degree/s, however, graduators from developed countries are likely to be selected. These
findings suggest all national educational institutions to advocate the nature of national universities‘
capabilities, ranks among universities as well as universities adopting best experiences and good
teaching approaches of world top-level educational organizations.
Figture 3 illustrates managers‘ attitudes to select candidates who graduated from most preferred
national higher educational organizations.
209
Fig. 3. Most preferred candidates‘ universities

Note: MUST- Mongolian University of Science and Technology; NUM- National University of Mongolia; MULS- Mongolian University of Life
Sciences, IFE- Institute of Finance & Economics, IZU- Ikh Zasag University, MNU- Mongolian National University, HU- Khan-Uul Institute
Major responses by employers and managers are personality, self-esteem, communication skills,
academic writing skills, application of various computer programs, team building skills,
responsiveness and etc. in question regarding most required skills of candidates as well as newly
entered staff. These data are represented from key informants‘ responses concerned with the
managerial skills of job applicants or candidates and junior staff.
The study focuses on how our graduators from MUST are satisfying employers. Majority of
graduators obtain the following job places such as, HRMs, economist, tellers and others. However,
62 percent of employers and managers are satisfying not sufficiently graduators from MUST. Only
13 percent of employers and managers show that they are highly satisfactory for our graduators and
approximately a quarter of total respondents are satisfactory for our graduators. These results
explore that quality of graduate education of MUST needs to be improved in order to prepare
skilled and knowledgeable professionals.
In-depth question was asked what universities could be selected if they would have
opportunities to educate their staff in graduate schools. A half of respondents prefer MUST, 13
percent prefers University of Life Sciences as same as respondents prefer Institute of Finance &
Economics. 24 percent of total participants prefer other universities and universities of foreign
country as well as some of them are not ready to answer this question.
Most surprising data is regarding short-term training or refresher course. Approximately 88 percent
of managers share their interests in such short-term training program and on-the-job training. This
data is analyzed that short training programs such as executive programs need to be introduced and
advocated among employers.
Conclusion
Number of bachelor students would like to study on master degrees and further. Master of
business administration, financial management, and marketing management are most popular
among different majors within business profiled universities and higher educational institutes.
However, trends to obtain master on HRM cannot be increased compare to existing a number of
master students studying on HRM. Besides, a number of respondents prefer to study in overseas in
addition to national universities such as, MUST, Institute of Finance and Economics and NUM. It
can be concluded that master programs are still demanded in coming future. Their assessment about
learning environment proposes further improvement in national universities.
Reference
1. Kolesnikova, N. (2009). From Community College to a Bachelor‘s Degree and Beyond:
How Smooth Is the Road? The Regional Economist, July 2009. pp.10-11
2. Kane, T.J. and Rouse, C.E. (1999.) The Community College: Educating Students at the
Margin between College and Work. Journal of Economic Perspectives, Vol. 13, No. 1, pp.
63-84.
3. Annual Report- 2014/15. Academic Year GSB, MUST
4. Long, B.T. and Kurlaender, M. (2008). Do Community Colleges Provide a Viable Pathway
to a Baccalaureate Degree? The National Bureau of Economic Research. Working paper
210
14367. HYPERLINK "http://www.nber.org/papers/w14367"

http://www.nber.org/papers/w14367
211
THE RELATIONSHIP BETWEEN OWNERSHIP CONCENTRATION AND

EARNINGS MANAGEMENT: EVIDENCE FROM MONGOLIA
Narantsetseg, Amarsanaa 1, a*
1
Lecturer, Department of Accounting and Finance, Mandakh University
a*
HYPERLINK "mailto:narantsetseg@mandakh.mn" \t "_blank" narantsetseg@mandakh.mn
Abstract
This study examines ownership concentration and earnings management of the Mongolian
listed companies. Mongolian governance structure is characterized by the dominance of the largest
shareholders who typically exercises significant influence on management decisions directly or
indirectly. The study used the modified Jones model for a sample 673 firm-year paneled
observations for years from 2009-2015. The study find that discretionary accruals as a proxy for
earnings management is negatively related to ownership concentration. The research‘s results
suggest that ownership concentration improve the quality of earnings by reducing the levels of
earnings management.
I. Introduction
Mongolia had a centrally planned economy over 60 years and in 1990 it has transformed to
free market economy. Since transition to free market economy, privatization of state-owned
companies has started. One of important goals for the privatization was to develop the stock market
during the transition period (1991-1994). Thereby, the MSE was established in 1991 and pink
voucher was distributed to every person free of charge in the first stage. Since 1995, when the
second security trading has started, shares were concentrated in people who have knowledge about
market economy and stock. As the result of the concentration, company‘s function was changed.
For instance, building and industrial equipment was sold out and leased, instead of carrying out
production, factories has become department stores, service etc. The trend to voluntarily delist has
become popular between companies. The number of listed companies has decreased from 475 to
235 since the establishment of Mongolian stock exchange. This trend will be continued in the
future. During the 2009-2014, 2 companies have issued stocks on the MSE, whereas 125
companies have been delisted.
In international practice, it is considered as an appropriate ratio of shares concentration if
40% of shares are owned by related parties, 30% - by institutional organizations and remaining 20-
30 % are traded on stock exchange. However, in Mongolia, related parties and institutional
organizations own 80-90% and trade on stock market is 10-20%.
On the basis of the above, the purpose of the study is to examine the relationship between
ownership concentration and earnings management in Mongolian listed companies during the
period between 2009 and 2015. Using data on discretionary accruals, the study documents
negatively significant relationship between ownership concentration and earnings management.
212
II. Ownership concentration

Ownership concentration is an internal device that allows the largest shareholder to gain
control over management behavior and decisions. Firms with concentrated ownership are cause of
conflicts between minority and majority shareholders. Large shareholders can exercise their control
rights to create private benefits, sometimes expropriating minority shareholders. Ownership
concentration includes shareholders, who own at least 5% of the company‘s share.
Table 1: Owners, who possess at least 5% of shares

Average of owning
Number Percent
outstanding share
1 shareowner 13 9.15 79.96
2 shareowner 23 16.20 78.28
3 shareowner 34 23.94 82.13
4 shareowner 35 24.65 81.81
5 shareowner 21 14.79 86.11
6 shareowner 12 8.45 88.03
7 shareowner 4 2.82 90.81
Total 142 100 83.88
Table 1 shows that most of the companies have 3 and 4 shareholders and average ownership is
83.88% which is very high.
Table 2: Company‘s ownership concentration
Ownership Number of Percent
companies
1 More than 90% share concentration 75 36.2
2 80-89% share concentration 64 30.9
5 Less than 59% share concentration 10 4.8
Table 2 shows that 84.0% of companies are with concentration more than 70%.
III. Literuture review

Prior studies showing the relationship between ownership concentration and earnings
management are divergent. Some studies support how that linear relationship exist between
ownership concentration and earnings management whereas others show an existence of non-linear
relationship between them.
Regarding the negative relationship, Sandra Alves (2012) found for a sample of 34 Euronext
Lisbon firms from that both managerial ownership and ownership concentration improve the quality
of annual earnings by decreasing the levels of earnings management. Also, it suggested that
managers owning a major percentage of the equity in a firm have less incentive to manipulate
213
reported accounting information and large shareholders decrease the scope of managerial
opportunism. Fan & Wong (2002) found for a sample of East Asian 977 firms (South Korea, Hong
Kong, Indonesia, Taiwan, Malaysia, Thailand and Singapore) that concentrated ownership is related
to low earnings informativeness. Researchers recommended two reasons for this negative
association. First, associated with the entrenchment hypothesis, the ownership concentration
increases agency conflicts between owners and outside investors. The owners lose reliability of
reported earnings to outside investors because of accounting information disclosure while
promoting their own interests. Second, related to the information effect hypothesis, the information
content of earnings disclosed to outside investors is weakened as a result of the ownership
concentration allowance to prevent leakage of specific information to competitors and to limit the
information disclosure to the public. Donnelly & Lynch (2002) found out that the informativeness
of accounting earnings is negatively influenced by concentrated outside ownership in the UK. The
researchers suggest that firms having a concentrated outside ownership lose information content of
accounting earnings when they collect and disseminate more non-accounting information. Firth et
al. (2006) explained the negative relationship between ownership concentration and earnings
management by the entrenchment hypothesis. The quality of accounting earnings is decreased when
firms are influenced by large shareholders to adopt accounting policies that reflect the needs and the
interests of owners rather than the economic substance of transactions. Ellili reported, based on a
sample of 29 listed companies on the Abu Dhabi Securities Exchange, the level of discretionary
accruals is negatively influenced by the blockholders ownership. Therefore, a better quality of
accounting information is guaranteed by the presence of blockholders in the ownership structure of
the company.
Regarding the positive relationship, Jung & Kwon (2002) proved that the convergence of
interest hypothesis explains the relationship between earnings and holdings of the owner largest
shareholder: if holdings increase, earnings become more informative. They stated that the increase
of largest shareholder holdings contributes to a decrease of agency costs. Moreover the largest
shareholder focuses on maximizing firm value and imposing fewer contractual constraints to the
firm. Consequently, the practice of earnings management will be reduced, resulting in higher
earnings quality and informativeness. A positive relationship between earnings informativeness and
ownership concentration was found by Ben Slama et al. (2007) in the American context; however,
relationship between these two variables isn‘t noticeable in the French context. Alves (2012), based
on a sample of 34 Portuguese firms, informed that in firms with lower earnings management
ownership concentration is high. The efficient monitoring hypothesis suggesting that the largest
shareholders are more likely to decrease the level of managerial opportunism is verified by the
author. Haliou & Jerbi (2012) examined that the presence of blockholders improves the quality of
accounting earnings through decrease of the level of earnings management. However, the
blockholders encourage the managers to manipulate earnings upward in order to hide the declining
indicators if premanaged earnings are declined. Usman & Yero (2012) noted that A negative
relation between the ownership concentration and the magnitude of earnings management. Shleifer
and Vishny (1986) suggest that large shareholders have a strong incentive to actively monitor and
influence firm management to protect their significant investments. Therefore, ownership
concentration may reduce agency costs by increasing monitoring and alleviating the free-ride
problem.
Regarding the non-linear relationship, Kammoun & Bouazizi (2011) reported that the
214
relationship between earnings management and ownership concentration is negative, regarding the
information effect argument. According to the entrenchment hypothesis, this relationship becomes
positive from a definite point of ownership concentration. But researchers argued that when the
level of ownership concentration is high, the concentrated ownership is associated with high
earnings informativeness and when the level of ownership concentration is low, the concentrated
ownership is related to high earnings informativeness.
IV. Research hypothesis development

Small shareholders are not interested in a company‘s monitoring because they do not have any
impact on earnings management. Shleifer and Vishny (1986) argued that large shareholders have a
strong incentive to support and influence the firm monitoring management in order to protect their
significant investments. Dechow; Sloan & Sweeney 1996 argued that managerial behavior actions
are effectively monitored by large shareholders, which decrease the scope of managerial
opportunism to engage in earnings management. Furthermore, controlling shareholders are more
focus on the long term, whereas there will be less pressure on management to meet short term
earnings expectations. However, concentrated ownership firms might be having an argument of
interest between majority and minority shareholders. Majority shareholders can exercise their
control rights to create private benefits due to expropriating minority shareholders. In fact,
controlling shareholders may impose their personal preferences even if those preferences run
contrary to those of minority shareholders (Shleifer &Vishny 1997). In order to maximize private
benefits, large shareholders may intervene in the firm‘s management and encourage managers to
engage in earnings management (Jaggi & Tsui 2007).As managers may also have a strong
motivation to engage in earnings management and they fear negative impacts for declining
performance from large shareholders. Therefore, the study suggests the following hypotheses:
H1 :The percentage of ownership concentration in the firm is related to earnings

:management.
H1a :There is positive relationship between shareholders, who own more 50% of
:the share and earnings management.
H1b :There is some relationship between shareholders, who own 5%-50% of the
:share and earnings management.
V. Research methodology and research model

The study applies following regression research model (Eq.1) to test the relationship
between ownership concentration and earnings management, with earnings management proxy
DACC as the dependent variable and varied types of ownership concentration OWN, MORE, LESS
and other control variables SIZE, LEV, ROA as independent variables.
This paper used the Modified Jones model introduced by Dechow et al., (1995) and Bartov
et al., (2001) to identify and calculate discretionary accruals. To estimate discretionary accruals, I
did following steps. The first step of this analysis will be the calculation of the total accruals (TA).
QUOTE (1)
Where:
TAi,t : Total accruals
215
△CAi,t : change in current assets

△CLi,t : change in current liabilities
△Cashi,t : change in cash and cash equivalents
△STDi,t : change in debt included in current liabilities
Depi,t : depreciation and amortization
Ai,t : total assets
t : year index, range from 2009 until 2015
i : firm index, range from 1 to 122.
Following the calculation of the total accruals, the second step of the research methodology will be
commented, which is the estimation of the industry-specific regression parameters α1, α2, α3 by
employing a time-series model for each firm using 7 firm-year observations on the below formula.
QUOTE (2)
Where:
TAi,t : Total accruals
△REVi,t : change in revenue
△PPEi,t : gross property, plant and equipment
Ai,t : total assets
QUOTE : error term
After estimating the regression coefficients, the third step of the research methodology is
calculating nondiscretionary accruals. According to the adjustment of Dechow et al. (1995), the
nondiscretionary accruals will be estimated as follows:
QUOTE (3)
Where:
NDAi,t : nondiscretionary accruals
△REVi,t : change in revenue
△RECi,t : change in net receivables
△PPEi,t : gross property, plant and equipment
Ai,t : total assets
â1,â2,â3 : estimated regression coefficients from formula (2)
Following the calculation of the non-discretionary accruals, the fourth step of the research design
will be performed. The fourth step is to subtract formula (3) from formula (1) in order to find the
discretionary accruals which are the proxy for earnings management as following.
QUOTE (4)
Where:
DACCi,t : discretionary accruals
TAi,t : total accruals
216
NDAi,t : nondiscretionary accruals
Using DACC, the study‘s research model is following equations.
QUOTE (5)
QUOTE (6)
QUOTE (7)
Where:
DACC : discretionary accruals
OWN : ownership concentration measured as the percentage of shares held by
: shareholders, who own more than 5% of share
MORE : percentage of shareholders, who own more than 50% of share
LESS : percentage of shareholders, who own equal and equal to or less than 50% of
: share
SIZE : the natural logarithm of total assets
LEV : total liabilities divided by total assets
ROA : net income divided by total assets
VI. Empirical research
A. Data selection
The sample comprising 1356 firm-years observation for the period between 2009 and 2015 is used
to investigate the relationship of earnings management and ownership concentration. Firms with
incomplete data will be excluded from the sample (80 firms). Ownership concentration data of
some firms were not available, so those firms were eliminated from the sample (15 firms). The
financial firms such as commercial banks, investment brokerage, insurance, etc. are excluded from
the sample because the nature of accruals for financial firms differs from other firms. Thus, the
study has the initial sample composed of 122 firms. Finally, in order to control the influence of
extreme value, dependent variable (DACC) and independent variable (SIZE, LEV, ROA) are
winsorized in the empirical analysis. The final simple consists of 673 firm-year observations used to
test the hypothesis.
B. Descriptive Statistics
Table 3 provides descriptive statistics of dependent and independent variables. The mean of
earnings management proxy DACC is -0.0067, with a minimum -0.0006 and maximum of 0.1078.
The negative mean indicated that DACC is income–decreasing. The average of ownership
concentration (OWN) is 36.6 percent. Company‘s ownership structure is divided into two parts such
as shareholders, who own equal to or less than 50 percent and more than 50 percent. Mean of
shareholders, who own equal to or less than 50 percent (LESS) is 19.3 percent, whereas mean of
shareholders, who own more than 50 percent (MORE) is 72.8 percent. The logarithm of total assets
(SIZE) has a mean of 16.5 thousand MNT. Firm‘s average leverage ratio is 43.4 percent whereas
the sample firms are profitable with a mean ROA of 9.3 percent.
Table 3. Descriptive statistics
217
VARIABLE N MEAN Std Dev MIN MAX
DACC 673 -0.0067 0.1676 -0.0006 0.1078

OWN 673 0.3665 0.2796 0.1130 1.0000
LESS 673 0.1934 9.7908 0.0000 0.4840
MORE 673 0.7281 19.5709 0.0000 1.0000
SIZE 673 16.5052 2.4349 10.8910 21.2343
LEV 673 0.4342 0.2795 0.0059 1.0839
ROA 673 0.0932 0.0402 0.0132 0.1878
C. Correlation Test
Table 4 reports Pearson correlation coefficients for the research variables. Earnings management
proxy DACC is negatively and significantly correlated with ownership concentration (OWN), and
shareholders, who held more than 50 percent of share (MORE) at 1% levels with coefficient -0.139,
and -0.135. Moreover, DACC is positively and significantly related to shareholders, who held equal
to or less than 50 percent of share (LESS) at 10% levels with coefficients 0.067. In contrast, all
control variables (LEV, SIZE, ROA) are positively and significantly related to earnings
management at 1% levels. The correlation coefficients indicated that there is no serious
multicollinearity problem.
Table 4. Pearson Correlation coefficient

DACC OWN LESS MORE SIZE LEV ROA
DACC 1
-0.139***
OWN 1
0.000
0.067* -0.625***
LESS 1
0.079 0.000
-0.135*** 0.663*** -0.651***
MORE 1
0.000 0.000 0.000
0.146*** 0.287*** -0.164*** 0.263***
SIZE 1
0.000 0.000 0.000 0.000
0.131*** 0.149*** -0.025 0.151*** 0.282***
LEV 1
0.000 0.000 0.507 0.000 0.000
0.113*** 0.041 -0.061 0.149*** 0.245*** 0.251***
ROA 1
0.003 0.292 0.111 0.000 0.000 0.000
Note:. *,** and *** indicate significance at 10%, 5% and 1% level, respectively.
D. Regression result
Table 5 reported results for the regression of DACC on ownership concentration using equation 5,6
and 7.
Model 1 shows the association between ownership concentration and the earnings management.
The coefficient on OWN is negative (-0.122) and significant at 1% level (p value = 0.0001) based
on DACC. So shareholders, who held at least 5% are negatively related to earnings management.
Results indicate that earnings management decreases with the percentage of shareholders. The
result supports the hypothesis 1.
218
Model 2 shows the relationship percentage of shareholders, who own more than 50 percent of share
and the earnings management. The coefficient on MORE is negative (-0.001) and significant at 1%
level (p value = 0.0000) based on DACC. So shareholders, who held more than 50% are negatively
related to earnings management. The result supports the hypothesis 1a.
Model 3 shows the relationship percentage of shareholders, who own equal to or less than 50
percent of share and the earnings management. The coefficient on LESS is positive (0.002) and
significant at 5% level (p-value = 0.0148) based on DACC. So shareholders, who helds equal to or
less than 50 percent are positively related to earnings management. The result supports the
hypothesis 1b.
Table 5. Regression result

MODEL 1 MODEL 2 MODEL 3
Variables t-statistic t-statistic t-statistic
Coefficient Coefficient Coefficient
(p-value) (p-value) (p-value)
Intercept -5.89*** -6.16*** -5.90***
-0.255 -0.269 -0.279
(0.0001) (0.0001) (0.0001)
OWN -5.19***
-0.122
(0.0001)
MORE -5.18***
-0.001
(0.0001)
LESS 2.44**
0.002
(0.0148)
SIZE 3.94*** 3.73*** 2.98***
0.01112 0.01040 0.00835
(0.0001) (0.0002) (0.0030)
LEV 2.56** 2.48** 2.04**
0.06095 0.05896 0.04919
(0.0108) (0.0136) (0.0420)
ROA 1.44 2.08** 1.73*
0.23481 0.34027 0.28618
(0.1513) (0.0381) (0.0849)
F Test : 12.85 (0.0001) *** 12.82 (0.0001) *** 7.43 (0.0001) ***
R2 : 0.0715 0.0713 0.0426
Ad R2 : 0.0659 0.0657 0.0368
N: 673 673 673
Note:. *,** and *** indicate significance at 10%, 5% and 1% level, respectively
219
Conclusion
As Mongolian listed companies have unique ownership structure, this study developed three
hypothesis to analyses whether different percent of shares can affect earnings management.
Empirical tests use data in the annual report of Mongolian listed companies from 2009 to 2015. The
study finds that earnings management is negatively associated with ownership concentration and
percentage of shareholders, who own more than 50% of shares whereas positively related to
percentage of shareholders, who own less than 50%.
These findings make several contributions to the ownership structure reform in Mongolian
corporate governance systems. Firstly, this study conducts analysis on a sample of large, listed
Mongolian companies with unique ownership structure that is remarkable different with developing
countries. Secondly, this paper also contributes to the literature on discussion of the relationship
between ownership concentration and earnings management. With high shareowner, ownership
concentrations are found to maintain a higher level of earnings management. Therefore, for
mitigating earnings manipulation, Mongolian listed companies are suggested to transfer more shares
to the stock market. Finally, these findings also have policy implications.
220
References
1. Abdoli, M. (2011): ―Relation of Non-executive Director and Ownership Concentration, with

Discretionary Accruals Accounting‖, Australian Journal of Business and Management
Research, Vol.1, No.4.
2. Aharony, J., Lee, C. W. J. & Wong, T. J. (2000): ―Financial Packaging of IPO Firms in China‖,
Journal of Accounting Research, vol. 38, pp.103–126.
3. Claessens, S., Djankov, S., Fan, J. P. H. & Lang, L. H. P. (2002): ―Disentangling the Incentive
and Entrenchment Effects of Large Shareholdings‖, Journal of Finance, No.57, PP. 2741–2771.
4. Dechow, P.; Sloan, R. & Sweeney, A. (1995): ―Detecting Earnings Management‖, The
Accounting Review, Vol. 70, No. 2, pp. 193-225.
5. Ding, Y., Zhang, H. & Zhang, J. (2007): ‖Private vs State Ownership and Earnings
Management: Evidence from Chinise Listed Companies‖, Journal of China Europe International
Business School, Vol. 15 No.2.
6. Dougherty, P. (2006): Introduction To Econometrics, Oxford University Press, London.
7. Halioui, K. & Jerbi, A. (2012): ―The Effects of Blockholders on Earnings Management: The
Case of Tunusian Listed Firms‖, International Journal of Multidisciplinary Research, Vol.2,
Issue 2.
8. Ramsay, I. & Blair, M. (1993): ―Ownership Concentration, Institutional Investment and
Corporate Governance: An Empirical Investigation of 100 Australian Companies‖, Melbourne
University Law Review, Vol. 19, pp. 153-194.
9. Roodposhti, F. R. & Cnashmi, A. N. (2010): ―The Effect of Board Composition and Ownership
Concentration on Earnongs Management: Evidence from Iran‖, World Academy of Science,
Engineering and Technology, No. 66.
10. Stulz, R. (1988): ―Managerial Control of Voting Rights: financing policies and the market for
corporate control‖, Journal of Financial Economics, vol. 20, PP. 25–54.
11. Thomsen, S. & Pedersen, T. (2000): "Ownership structure and economic performance in the
largest European companies ", The Strategic Management Journal No. 21, pp. 689-705.
221

List of Participants
HYPERLINK
The identity of
№ "javascript:void(0) Institution E-mail
participants
" Graduation
Accounting Policy
Bolormaa Doctor (Ph.D), CPA,
1 Department, Ministry of bolormaa_bu@mof.gov.mn
Budsuren Senior officer Finance Mongolia
HYPERLINK
"mailto:narankhuu.l@muls
Мongolian National .edu.mn?subject=e-
2 Naranhuu. L Doctor (Ph.D), Prof Defense University mail&body=narankhuu.l%
40muls.edu.mn"
narankhuu.l@muls.edu.mn
HYPERLINK
Yumaajav Мongolian National "mailto:yumaa_bhis@yaho
3 MBA, CPA Defense University
Byambaarai o.com"
yumaa_bhis@yahoo.com
Doctor (Ph.D), Department of Foreign
Gantsetseg
4 Language, Mandakh Burtgel s.ganaa@mandakh.mn
Sanjmyatav Associate Prof Iniversity
Department of Foreign HYPERLINK
Senior Lecturer,
5 Tugsoo Jargal Language, Mandakh "mailto:jtogsoo@yahoo.co
Ph.D Candidate University m" jtogsoo@yahoo.com
HYPERLINK
Department of Economics
"mailto:s_munkhtsetseg@
Munkhtsetseg and Business, Mandakh
6 Ph.D Candidate University mandakh.mn"
Sandagsuren
Ulaanbaatar city, Mongolia s_munkhtsetseg@mandakh.m
n
HYPERLINK
Gantulga "mailto:j_gantulga@manda
7 MBA and Business, Mandakh
Jargalsaikhan University kh.mn"
j_gantulga@mandakh.mn
HYPERLINK
Sainjargal "mailto:sainjargal@manda
8 Ph.D Candidate and Business, Mandakh
Bayarsaikhan University kh.mn"
sainjargal@mandakh.mn ,
HYPERLINK
Department of Economics "mailto:nasanjargal@mand
Nasanjargal
9 MBA and Business, Mandakh akh.mn"
Purevsukh University nasanjargal@mandakh.mn
Department of Information HYPERLINK

Dashzeveg
10 Senior Lecturer Technology, Mandakh "mailto:srn_d9@yahoo.co
Sarantuya Burtgel Iniversity m" srn_d9@yahoo.com
HYPERLINK
Sumiya Senior Lecturer, Department of Foreign "mailto:suugii_t99@yahoo.
11 Language, Mandakh Burtgel com"
Tuvdennyam Ph.D Candidate
suugii_t99@yahoo.com
Lkhagvaa
12 MBA and Busness, Mandakh dansran22@yahoo.com,
Dansranbavuu University
222
Sodnomdavaa and Busness, Mandakh tsolmon@mandakh.mn
13 Doctor (Ph.D), University
Tsolmon
Accounting program, HYPERLINK

Khurelbaatar School of Business, "mailto:khurlee2010@yah
14 Lecturer National University of
Barjargal oo.com"
Mongolia khurlee2010@yahoo.com
HYPERLINK
Accounting program,
"mailto:bolor_buren@yaho
School of Business,
15 Bolor Buren Lecturer National University of o.com"
Mongolia bolor_buren@yahoo.com
HYPERLINK
The Business School of
Saruultugs "mailto:nsaruultugs@yaho
Natsagdorj Mongolia o.com"
nsaruultugs@yahoo.com
223
HYPERLINK
The Business School of
Purevdorj "mailto:purevee21@yahoo.
Otgonbayar Mongolia com"
purevee21@yahoo.com
Lecturer of
Business School of National
18 Undarmaa.E Accounting University of Mongolia
undarmaa.enhee@yahoo.com
Department
Lecturer of
Business School of National
19 Khishigbayar.L Accounting University of Mongolia
khishgee_8888@yahoo.com
Department
Lecturer of
Business School of National maidaa0055@yahoo.com
20 Damdindorj.N Accounting University of Mongolia
Department
Department of Accounting
21 Altantsetseg. S Doctor (Ph.D) and Analysis, Mongolian
22 Odonchimeg. B Doctor (Ph.D), and Analysis, Mongolian
undrakh.g@muls.edu.mn
23 Undrakh Ganbat Lecturer and Analysis, Mongolian
Department of Accounting HYPERLINK
and Analysis, School of
"mailto:oyunchimeg.s@muls.ed
24 Oyunchimeg. S MBA, Lecturer Economics and Business,
u.mn"
Mongolian University of
Life Sciences oyunchimeg.s@muls.edu.mn
"mailto:nyamdavaa.b@mul
25 Nyamdavaa. B MA, Lecturer Economics and Business,
Mongolian University of s.edu.mn"
Life Sciences nyamdavaa.b@muls.edu.mn
"mailto:khaliun.b@muls.ed
26 Khaliun. B MBA, Lecturer Economics and Business,
Mongolian University of u.mn"
Life Sciences khaliun.b@muls.edu.mn
and Analysis
Bayarkhuu MBA, CPA, "mailto:bayarkhuu.s@muls
27 School of Economics and
Sainbayar Lecturer Business, Mongolian .edu.mn"
University of Life Science bayarkhuu.s@muls.edu.mn
HYPERLINK
Accounting Faculty, School
CPA, CPTA, "mailto:G.Chuluuntsetseg.
Gotovdorj of Business and Economics,
28 Auditor, Senior Agricultural University of @muls.edu.mn"
Chuluuntsetseg
Lecturer, Mongolia G.Chuluuntsetseg.@muls.edu
.mn
HYPERLINK
Business Studies "mailto:ernestnweke@roya
29 Ernest Nweke ACA, CPA, Department, Royal lacademy.edu.mn"
International University ernestnweke@royalacademy.
edu.mn
HYPERLINK
School of Business "mailto:enkhtuya_bavuudo
Administration and
Enkhtuya rj@must.edu.mn"
30 Doctor (Ph.D), Prof Humanities,
Bavuudorj Mongolian University of enkhtuya_bavuudorj@must.e
Science & Technology du.mn
224
Doctor (Ph.D), Prof, Accounting School, Tohoku

31 Masaaki Aoki University, Japan
Director
Kanto-Kaguen University,
32 Takashi Manami Japan
HYPERLINK
"mailto:ueno@konan-
33 Susumu Ueno Professor Konan University, Japan
u.ac.jp" ueno@konan-
u.ac.jp
HYPERLINK
Goodman School of
"mailto:pscarbrough@broc
34 Paul Scarbrough Associate Professor Business, Brock University,
Canada ku.ca"
pscarbrough@brocku.ca
Mahasarakham Business
Pornlapas
35 Doctor (Ph.D) School, Mahasarakham pornlapas.s@mbs.msu.ac.th
Suwannarat University, Tailand
Mahasarakham Business
Wrawut pornlapas.s@mbs.msu.ac.th
36 Doctor (Ph.D) School, Mahasarakham
Waranantakul University, Tailand
Department of management,
Kaluga State University
37 Gennady Sakharov Professor named. K. E. Tsoilkovsky,
g_sakharov@mail.ru
Russia
Department of management,
Kaluga State University g_sakharov@mail.ru
38 Tatyana Burtsev Doctor (Ph.D), Prof named. K. E. Tsoilkovsky,
Russia
Graduate School of HYPERLINK
Bindirya Doctor (Ph.D), Business, "mailto:bindirya.d@must.e
39 Mongolian University of
Dugersuren Associate Prof du.mn"
Science and Technology bindirya.d@must.edu.mn
HYPERLINK
Graduate School of
"mailto:banzragchm@must
Banzragch Doctor (Ph.D), Business,
40 Mongolian University of .edu.mn"
Mijiddorj Associate Prof
Science and Technology banzragchm@must.edu.mn
HYPERLINK
Narantsetseg, Department of "mailto:narantsetseg@man
41 Amarsanaa Lecturer Accounting and Finance, dakh.mn" \t "_blank"
Mandakh University narantsetseg@mandakh.mn
225

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GENERAL ORGANIZER: CO-ORGANIZER:

MANDAKH BURTGEL MONGOLIAN INSTITUTE OF

3rd INTERNATIONAL CONFERENCE

3rd INTERNATIONAL CONFERENCE

TURBADRAKH.CH /Doctor (Ph.D), Associate Professor /

PREPARED BY: BAATARTSOGT.B

Chairman: Enkh-Amgalam. L Doctor (Ph.D), Vice-director of Foreign relations and

Members: Enkhtuvshin. S MBA Vice-director of Finance and

Natsagdorj. B Doctor (Ph.D), Scientific secretary of Governing

Onon. E Ph.D Candidate Lecturer, Department of Foreign

Sainzaya. S MBA Lecturer, Department of Foreign

Namuun. S MBA Lecturer, Department of Foreign

Munkhtsetseg. G MBA Administrative Manager

Munkhtuya. B MBA Marketing Manager

Munkhbat. B MBA Program Committee Officer,

09:30-09:50 OPENING CEREMONY President, Professor NANJID.G

13:00-14:00 LUNCH TIME, PHOTO SESSION

16:15-16:45 CLOSING CEREMONY Executive Director, Doctor Prof. Ulziibat. S

Error! Bookmark not defined.

We are pleased to organize 3rd International Conference ―Mandakh-2017‖ on the occasion of

DUTCH DISEASE SYMPTOMS IN MONGOLIAN ECONOMY ANDWAYS

Lkhagvaa Dansranbavuu1, a *, Sodnomdavaa Tsolmon2, b

2. The Dutch disease

Fig. 1. Mineral exports and growth, 1970-2008,

3. Economic background of Mongolia

REER NEER Linear (REER) Linear (NEER)

Fig. 2. REER and NEER, by percentage,

-10 Linear (Manufacturing)

Fig. 4. Index of real average salary, salary of 2010 is 100 percent

DDmanufacturing - Dutch disease in manufacturing sector

ln REER - real exchange rate index in logarithm (tugriks per USD)

5. Empirical findings and results

Fig. 5. Copper price and GDP, RER scatter diagram

Table 1. Regression results using OLS method

Positive, strong Positive, weak No Negative, weak Negative, strong

Conclusion and further discussions

1. ―The Dutch Disease,‖ The Economist, November 26, 1977.

3. Gan-Ochir.D. (2009). ―Monetary Index calculation in Mongolian economy: Monetary policy

6. Corden.W., and Neary.J. ―Booming Sector and De-Industrialization in a Small Open

1. The Essence of the Conceptual Metaphor

2. The use of conceptual metaphor in economic article

2. Charteris-Black. (2004). Corpus Approaches to Critical Metaphor Analysis. London: Palgrave

4. Goatly. (2011). The language of metaphors. London.

5. Goatly. (2011). The language of metaphors. London: Routledge London.

6. Jkhnson, L. &. (1980). Metaphors we live by. Chicago: University Chicago.

8. Kцvecses. (2003). The scope of metaphor. Berlin: Mounton de Gruyter.

11. Lakoff, G. (2003). Metaphors We live by. London: University of Chicago.

12. Lakoff, G. (2003). Metaphors We Live by. London: University of Chicago.

13. Ortony, A. (1993). Metaphor and Thought. Cambridge.

14. Otgonjargal, b. (2016.09.). J.Eredenebat's economic policy. mongolian Economy, 8-9.

16. Ross, D. (1952). Metaphor.

17. Ungere, F. &. (1996). An introduction to Cognitive Linguistics. London: Longman.

ASCERTAINING THE COMPETITIVENESS OF THAI AND MALAYSIAN

Pornlapas Suwannarat1, a*, Wrawut Waranantakul2, b

Keywords: Comparative Advantage, Competitiveness, Export, Thai Economy, ASEAN, Malaysian

2.2 FDI and Trade Policies in the ASEAN4

2.2.2 The Role of FDI in ASEAN4 Development

2.3 The Concept of Comparative Advantage, International Competitiveness, and

2.2.2 International Competitiveness

Competitiveness is an ex-post concept and could ideally involve comparisons between

Siggel (2007) argues that, comparing to comparative advantage, the concepts of

The second interpretation of macroeconomic competitiveness defines an economy to be