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In the case of life insurance or automobile insurance, when the insured party collects another party must pay. It is a zero sum game. So it is with options. The party that sells the option is liable for the future payoff. Writing an option, and shorting an option are synonymous with selling an option. The payoff diagram for a written call option position is the mirror image of the long or bought call option position. As shown in Exhibit 13.2, the x-axis is the ref lecting surface. Note that once the call option writer has received the initial premium, all subsequent cash f lows will be outf lows. The best the writer can hope for is that the call will expire out of the money. Note that the potential liability of the written option position is unlimited. Notice as well, that the amount of money the buyer of the option might receive at expiration is the exact amount that writer will have to pay. Thus, when the media report that a particular company has lost millions of dollars in options, the reader should realize that this means some other party has made millions. The newspapers tend to focus on the losers.

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These rules are presented in the next section of this chapter. Such oversight responsibility of the audit committee is evidenced in WalMart s annual report, as presented in Exhibit 10.1. Thus, in order to discharge its oversight responsibility concerning financial reporting, the committee s agenda should include a review of the significant accounting policies and their related disclosure requirements as well as critical

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Standards don t have to be perfect A cubit is an ancient unit of linear measure It was equal to the length of the forearm from the tip of the middle finger to the elbow While this was a handy unit of measurement as people always had their arms with them, it was not particularly precise Depending on who applied the measuring, the cubit would be of different lengths Yet, it provided an important way to measure With modern need for extreme precision, distances are much more precisely defined For example, a meter is defined as the international standard unit of length, approximately equivalent to 3937 inches It was redefined in 1983 as the distance traveled by light in a vacuum in 1/299,792,458 of a second 6 When setting a standard, you must determine the reason that the standard is needed.

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are almost certain to arise at some point. Regular formal communications such as quarterly status meetings can prevent differences from becoming conflicts. When controversies do arise, pre-litigation dispute-resolution procedures can thwart escalation. Specifically, parties can reach fair and efficient outcomes by establishing mechanisms that require the parties to discuss the conflict until resolution is reached at the highest management levels. 26

Standards for standards sake do not advance the enterprise In fact, they can do the opposite by limiting creativity Also, you should communicate broadly when setting a standard Every person in an enterprise who may be interested in considering the standard or to whom the standard would be applied should have the opportunity, at least indirectly, to comment This opportunity can be provided by an e-mail setting forth the projected standard or, better yet, an e-mail identifying the fact that a standard would.

Net Income After Taxes Dep. Exp. Total CF From Ops. Interest on Loan Total Cash Available for Loan Servicing Debt Service Remaining After Tax CF From Ops Plus Principal Reduction Total Return 1,756 348 2,104 936 3,040 1,092 1,948 161 2,109 21,123 4,182 25,305 11,175 36,480 13,107 23,373 1,931 25,305 22,712 4,182 26,893 11,046 37,939 13,107 24,833 2,061 26,893 24,367 4,182 28,549 10,908 39,457 13,107 26,350 2,199 28,549 301.05% 126.91% 137.24% 148.69%

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severity is chosen and then refined later when the CCB and/or team leader reviews the defect. A tester may perceive that a defect is of the highest severity only to find out that a configuration team leader may have a workaround for the defect and thus its severity level is reduced. Assigning the severity level for a defect may involve multiple individuals from different teams. The severity of a defect determines how critical the defect is to the business and also how quick the turnaround time should be for re-

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