ABC Ltd has incorporated a bonus plan that rewards the board of directors (executive members) by providing a bonus of 3 per cent of reported profits. This is an Accounting-based incentive that has the advantage which the accounting results may be based on subunit or divisional performance. "A well-informed labour market will motivate management to work to maximise the value of its firm. Underperformance might lead to dismissal and, if the labour market is efficient in disseminating data, a 'failed' manager might have difficulty attracting a position with comparable pay elsewhere." (Deegan, 2020) Q. Explain whether the board of directors could be motivated to try to inflate reported profits ( 600 words )
ABC Ltd has incorporated a bonus plan that rewards the board of directors (executive members) by providing a bonus of 3 per cent of reported profits. This is an Accounting-based incentive that has the advantage which the accounting results may be based on subunit or divisional performance. "A well-informed labour market will motivate management to work to maximise the value of its firm. Underperformance might lead to dismissal and, if the labour market is efficient in disseminating data, a 'failed' manager might have difficulty attracting a position with comparable pay elsewhere." (Deegan, 2020) Q. Explain whether the board of directors could be motivated to try to inflate reported profits ( 600 words )
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter10: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 2CMA
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ABC Ltd has incorporated a bonus plan that rewards the board of directors (executive members) by providing a bonus of 3 per cent of reported profits. This is an Accounting-based incentive that has the advantage which the accounting results may be based on subunit or divisional performance.
"A well-informed labour market will motivate management to work to maximise the value of its firm. Underperformance might lead to dismissal and, if the labour
Q. Explain whether the board of directors could be motivated to try to inflate reported profits ( 600 words )
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