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
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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
Requirement:
Explain whether the board of directors could be motivated to try to inflate reported profits.
Step by step
Solved in 2 steps
- Bill Fremont, division controller and CMA, was upset by a recent memo he received from the divisional manager, Steve Preston. Bill was scheduled to present the divisions financial performance at headquarters in one week. In the memo, Steve had given Bill some instructions for this upcoming report. In particular, Bill had been told to emphasize the significant improvement in the divisions profits over last year. Bill, however, didnt believe that there was any real underlying improvement in the divisions performance and was reluctant to say otherwise. He knew that the increase in profits was because of Steves conscious decision to produce more inventory. In an earlier meeting, Steve had convinced his plant managers to produce more than they knew they could sell. He argued that by deferring some of this periods fixed costs, reported profits would jump. He pointed out two significant benefits. First, by increasing profits, the division could exceed the minimum level needed so that all the managers would qualify for the annual bonus. Second, by meeting the budgeted profit level, the division would be better able to compete for much-needed capital. Bill objected but had been overruled. The most persuasive counterargument was that the increase in inventory could be liquidated in the coming year as the economy improved. Bill, however, considered this event unlikely. From past experience, he knew that it would take at least two years of improved market demand before the productive capacity of the division was exceeded. Required: 1. Discuss the behavior of Steve Preston, the divisional manager. Was the decision to produce for inventory an ethical one? 2. What should Bill Fremont do? Should he comply with the directive to emphasize the increase in profits? If not, what options does he have? 3. Chapter 1 listed ethical standards for management accountants. Identify any standards that apply in this situation.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) QUESTION: Using Positive Accounting Theory (PAT), discuss the bonus theme in general and why the bonus plan (Accounting-based) was put in place in ABC Ltd?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) Requirement: 1) Using Positive Accounting Theory (PAT), discuss the bonus theme in general and why the bonus plan (Accounting-based) was put in place in ABC Ltd? 2) Explain whether the board of directors could be motivated to try to inflate reported profits. 3) Use the opportunistic perspective of PAT to explain the potential for managers to manipulate corporate disclosure.
- 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)Requirement:3) Use the opportunistic perspective of PAT to explain the potential for managers to manipulatecorporate disclosure.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 whichthe 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) Question: Use the opportunistic perspective of PAT to explain the potential for managers to manipulate corporate disclosure.ABC Ltd has incorporated a bonus plan that rewards the board of directors (executive members) by providinga bonus of 3 per cent of reported profits. This is an Accounting-based incentive that has the advantage whichthe 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)Requirement:1) Using Positive Accounting Theory (PAT), discuss the bonus theme in general and why the bonus plan(Accounting-based) was put in place in ABC Ltd? Demonstrate superiorknowledge of the theory andkey concepts. Excellentinterpretation with extensiveelaboration of relevant subtopics, appropriatelyweighted and within theprescribed word count.Demonstrated in-depthunderstanding andapplication…
- ABC Ltd has incorporated a bonus plan that rewards the board of directors (executive members) by providinga bonus of 3 percent of reported profits. This is an Accounting-based incentive that has the advantage whichthe accounting results may be based on subunit or divisional performance."A well-informed labour market will motivate management to work to maximize the value of its firm.Underperformance might lead to dismissal and, if the labour market is efficient in disseminating data, a 'failed'a manager might have difficulty attracting a position with comparable pay elsewhere." (Deegan, 2020)Requirement:1) Using Positive Accounting Theory (PAT), discuss the bonus theme in general and why the bonus plan(Accounting-based) was put in place in ABC Ltd?2) Explain whether the board of directors could be motivated to try to inflate reported profits.3) Use the opportunistic perspective of PAT to explain the potential for managers to manipulatecorporate disclosure.ABC Ltd has incorporated a bonus plan that rewards the board of directors (executive members) by providinga bonus of 3 percent of reported profits. This is an Accounting-based incentive that has the advantage whichthe accounting results may be based on subunit or divisional performance."A well-informed labour market will motivate management to work to maximize the value of its firm.Underperformance might lead to dismissal and, if the labor market is efficient in disseminating data, a 'failed'the manager might have difficulty attracting a position with comparable pay elsewhere." (Deegan, 2020)Requirement:1) Using Positive Accounting Theory (PAT), discuss the bonus theme in general and why the bonus plan(Accounting-based) was put in place in ABC Ltd? Please provide references for my study. Thing to include in answer: Demonstrate superiorknowledge of the theory andkey concepts. Excellentinterpretation with extensiveelaboration of relevant subtopics, appropriatelyweighted and within…ABC Ltd has incorporated a bonus plan that rewards the board of directors (executive members) by providinga bonus of 3 percent of reported profits. This is an Accounting-based incentive that has the advantage whichthe accounting results may be based on subunit or divisional performance."A well-informed labour market will motivate management to work to maximize the value of its firm.Underperformance might lead to dismissal and, if the labor market is efficient in disseminating data, a 'failed'the manager might have difficulty attracting a position with comparable pay elsewhere." (Deegan, 2020)Requirement:1) Using Positive Accounting Theory (PAT), discuss the bonus theme in general and why the bonus plan(Accounting-based) was put in place in ABC Ltd? Please provide references for my study.
- ABC Ltd has incorporated a bonus plan that rewards the board of directors (executive members) by providinga bonus of 3 percent of reported profits. This is an Accounting-based incentive that has the advantage whichthe accounting results may be based on subunit or divisional performance."A well-informed labour market will motivate management to work to maximize the value of its firm.Underperformance might lead to dismissal and, if the labor market is efficient in disseminating data, a 'failed'the manager might have difficulty attracting a position with comparable pay elsewhere." (Deegan, 2020)Requirement:1) Using Positive Accounting Theory (PAT), discuss the bonus theme in general and why the bonus plan(Accounting-based) was put in place in ABC Ltd? Please provide Harvard reference (800 words) Thing to include in answer: Demonstrate superiorknowledge of the theory andkey concepts. Excellentinterpretation with extensiveelaboration of relevant subtopics, appropriatelyweighted and within…Part BABC 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 whichthe 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)Requirement:1) Using Positive Accounting Theory (PAT), discuss the bonus theme in general and why the bonus plan(Accounting-based) was put in place in ABC Ltd?2) Explain whether the board of directors could be motivated to try to inflate reported profits.3) Use the opportunistic perspective of PAT to explain the potential for managers to manipulate corporate disclosure.The controller of one division of a large diversified firm is compensated by salary plus bonus. The bonus is a significant part of total compensation, and is based directly on the profits of the division. Thus, the controller has an incentive to find ways to increase profits, including the delay of discretionary expenses such as research and development, delay of maintenance and repair of manufacturing equipment, and delay of sales promotions. Required: Is finding ways to increase profits as described above unethical? Why or why not? Who is to blame if anyone?
