Analyse the Problem of Accounting Fraud in a Listed Company and Evaluate Possible Solutions

Compensation systems can take on many forms, all of which have positives and negatives related to it. However, certain components are noted to be determinants of solid compensation plans. One agreement of a solid compensation system is the use of incentives. “Clearly a successful companies set objectives that will provide incentives to increase profitability” (Needles & Powers, 2011). Incentive bonuses should be measures that the company finds important to long-term growth. According to Needles & Powers (2011) the most successful companies long term focused on profitability measures. For large for-profit firms, compensation programs should offer stock options. The interweaving between the market value of a company’s stock and company’s performance both motivate and increase compensation to employees As the market value of the stock goes up, the difference between the option price and the market price grows, which increases the amount of compensation” (Needles & Powers, 2011). Conclusively, a compensation plan should serve all stakeholders, be simple, group employees properly, reflect company culture and values, and be flexible (Davis & Hardy, 1999; The Basics of a Compensation Program).

Generally, under-performing companies are the prime targets of hostile takeovers, so it makes sense that aligning shareholder and executive goals is a major way to avoid that. One popular way of aligning these goals is through the use of elaborate, structured compensation plans for executives which directly tie an executive’s salary to the performance of the company, usually and specifically its stock price (Megginson & Smart, 2009). These compensation plans have become the norm for American corporations, and their effectiveness in solving the agency problem is debatable. On one hand, it should drive an executive to strive to maximize the shareholder wealth, and it also helps companies to attract and retain the best available managers. On the other hand, it serves to sometimes wildly inflate the compensation paid to these executives, either by corporations trying to stay competitive for the best talent, or through easily achievable goals and uncapped maximums. The structured plans, if done correctly, are an effective way to help insure the goal of wealth maximization, but they are also by definition agency costs. Hence, agency problems are inherent to our American corporate system.

However, there have been many cases where the CEO and executive officers receive outrageous compensation even when the companies suffer. Overall, there is a wide disconnect between the incentive of the executives and the financial performance of their company, which needs to be fixed. By passing regulations and rules such as the Dodd-Frank Act, there is hope of shedding light on the connection between the company’s performance and the executives pay. Although it will provide a clear insight, it will not be able to set a strict regulated compensation or define what an executive should earn. Instead regulations will allow for more transparency for the shareholders regarding corporate governance issues such as executive pay. Along with that, it will force companies to take accountability for their actions. If they do poorly, then the executives should be paid less, and vice versa. Overall, there should be a direct alignment between executive pay and the company’s

7. Option compensation will continue to be a critical component of compensation for executives as it simplistically aligns the executives’ pay to shareholder value in its simplest sense. I don’t believe that options compensation is the primary driver of behavior when things shift from the legal to the illegal. As with most senior executives in industry, ego is a huge driver in individual behavior. Compensation is important, but the recognition of your performance is sometimes even more important. We have created a performance driven culture without the necessary control framework for people to operate within. One minute you are doing a great job, the next you have crossed an imaginary line. The frameworks don’t do enough to quantify behavior as legal and illegal leaving inconsistent rules for organizations to operate within. How does Enron compare to the subprime mortgage debacle, or to Steve Jobs backdating options. There remains too much room for interpretation.

Fraudulent, erroneous, and illegal acts committed by a public company, usually at a managerial or executive level, have been a very serious problem for many years and have prompted development of strict and updated regulations, such as the Sarbanes-Oxley Act, in an attempt to prevent these occurrences. Unfortunately, these new or updated regulations are not enough to prevent these acts from happening, thus not alleviating the auditors of their responsibility to detect fraud. Some methods that management and auditors can employ to prevent and detect fraud, errors, and illegal acts are: improving knowledge, improving skills,

A client has requested information on the prevention and detection of accounting fraud. The research paper will cover descriptions of types and components of fraud. It will offer suggestions as to who would commit fraud and how it would be detected and prevented. The research paper should provide a general overview of the subject in layman 's terms.

The components of executive pay are base pay, bonuses, and long-term incentive plans. Several hypotheses on pay justification were derived from James B. Wade at the University of Illinois. Generally, the greater the shareholder involvement, the more market performance is emphasized; the greater the incentive bonuses are, the more accounting performance is emphasized.

The main objective of U.S. corporate governance system is maximization of shareholders value, thus executive compensation in U.S. are based on nature of the job performed and is linked to performance incentives such as bonuses or stock ownership. On the other hand, Japan and France corporate governance system objective lies on the mutual benefits of stakeholders, therefore their compensation is dependent on the achievements of the corporate overall objectives. Although all three countries uses different governance system, all utilize the same performance compensation format. Employees Stocks Options report stated that in 2000, 86% of US employers offered stock options to employees besides 19% of all employees were

Many financial companies fail for various reasons that include fraud and the manipulation of assets within the company. The research done in the paper will discuss financial companies that have been affected because of fraud and the way they are ran. This will show how companies develop their organization amongst the managers and create communication throughout the Company. Also, there will be knowledge of competitive teams and what the companies bring to the table about while sustaining that business. Another way fraud develops is through the Shareholders in the company and how they control the stocks and make them

New advancement in technology has made it easy for many CEOs to have the opportunity to loot their companies, and to engage in accounting irregularities. Technology has made improvements to the way a company does business with others, and also it has opened up ethical concerns for the way a company conducts their business. “Recently, accounting professionals have been placed under immense pressure by changes in the size and scope of financial markets” (Love, 2007 para. 1). Companies use the financial reporting system to communicate the financial effects of the company to outsiders (Love, 2007). This paper will discuss the legal, ethical, and technological concerns of the accounting, and financial reporting of businesses.

The options those are underwater should be repriced or should be replaced with additional quality grants. Falling stock price could be owing to market pressure and not necessarily the refection of executives bad performance, so compensation should be adjusted due to stock price decreased in case CEO wants to exercise his options.

While acknowledging that many economists still view stock options as a part of compensations as being a non-issue, including distinguished economists such as Zvi Bodi, Robert Kaplan, and Robert Merton, I disagree. It may have been insignificant in the past, but this data shows that stock options have become a significant portion of our economy’s environment, and as such it has become a part worth measuring and analyzing. This cannot be left in the dark, and is likely to change the perception of our nations GDP and economic status. Economists such as Carol Moylan long held the belief that stock options haven’t been a significant enough portion of the economy to bother measuring. With the recent changes however Moylan and a few of others

No instances were observed where management’s policies regarding compensation included extreme incentives. Compensation is in line with industry standards and management bonuses are based solely on achievement of short-term performances. Due to the conservative nature of management’s financial reporting practices, there is not an obsessive focus on short-term reported results. To further reduce temptations of potential incentives, performance is tracked against budgets and quarterly forecasts to monitor changes. The board of directors also actively exercises its oversight capacity in compensation related issues. Final approval of all

How does a company truly know if they have accurate check and balancing in place to detect malicious activity that may impact financial statements? The main obligation for the sufficiency and release in the company’s annual statements resides within the management of the company (Whittington & Pany, 2014). It is a critical component, for management to have a strong financial management system that is documented, meaningful and well-considered accounting policies and procedures manual (Reineking, Chamberlain, Rudolph, & Smith, 2013); this has been demonstrated through other published audits as company have provided documentation around this policies and procedures. Additionally, all companies should create operational internal controls to improve the accuracy and validity of financial data and serve as a mechanism to defend the company’s financial assets, and to prevent fraud. The success of a company is directly influenced by procedures and policies, implementation of internal controls, checks and balancing, annual auditing, which all aid in ensuring that the company is acting in accordance to rules and regulation set forth, furthermore reflecting in positive results and successful audit reviews.

There are several types of equity compensations with variety of impacts on the agents. The stock compensations and stock options compensations are the most prominent ones. The stock compensations are awards provided to the agents in stocks of the firms, in this way the shareholders reward agents by awarding them a part of the equity of the firm. Balsam and Miharjo (2007) have the belief that stock compensation provides direct link between executive compensation and shareholders wealth and therefore the interests of a firm’s CEO’s with those of its shareholders. Therefore, this type of executive compensation is very effective in aligning the principal and agent’s interest. However, stock compensation has negative side effects, such as an increase in risk aversion of CEO’s. By providing more stocks to a CEO, the risk attitude of CEO in a firm becomes different than that of the shareholders: whereas CEO’s will be loyal with most of their capital to their corporations trying to avoid risk while shareholders aim is to maximize their gains, and prefer more risk taking operations. Therefore, it is very important to provide the right executive compensation to motivate agent (CEO’s or executives) to act in the best interest of the principal (shareholders, debtholders) to mitigate the agency problem created by the provision of the stock