Finance & Accounting

Questions On Research And Auditing In Finance

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Assessment Type

Course Work

Word Count

3000 words

Subject

Finance

Deadline

6 Days

Assignment Criteria

PART A
You have just started working at the Sunnyside Company. The chairperson of the board has a degree in economics and agency theory has guided the determination of executive compensation. Executives receive compensation comprising salary and performance bonuses. The recent departure of two executives has resulted in discussions by board members about the effectiveness of the current compensation system in motivating and retaining the executives. In their exit interview one of the executives commented that the CEO was difficult to work with as he lacked empathy and was a bully. You have been asked to prepare a report to the board about executive compensation. To compile this report you will need to analyse the existing approaches and consider the findings of research about executive compensation. Several questions have been asked at board meetings about executive compensation. One member of the board asked, 'Is it appropriate to use the same proportions of different benefits for each of our key executives, when they appear to have very different personalities and motivations?' Another asked why there was a large difference between the CEO's compensation and the other executives. Issues were also raised about hiring a compensation consultant and establishing a compensation committee. One of the directors recommended their cousin, who recently graduated with an MBA as an ideal choice for the compensation consultant. The four key executives whose compensation needs to be determined are: Mr Bill Syme CEO. Bill has been the CEO for 10 years. Sixty years old, he is very charismatic and visionary. During the 2009 financial crisis Bill led restructuring of the company that saw the retrenchment of 50 employees. Since then Bill has been instrumental in growing the company through two acquisitions. Dr Kate Selling, the CFO, is 35 years of age. She recently joined the company and is a qualified financial planner. Mr We Lu, is 42 and recently immigrated from China where he worked in a similar role. Ms Sarah Jones, CIO has been with the company 12 years and is 57. She has a Bachelor of Computing.

Your report to the board should contain the following-
1. Provide an outline of agency theory and its assumptions and its influence on approaches to executive compensation. (Provide some examples to the board in your report from your e-readings for topic 7 as well as other readings where you think it is appropriate.)
2. Discuss and evaluate research that questions the assumptions of agency theory and its approaches to executive compensation. (Your evaluation should include e-readings for topic 7 as well as other readings where you think it is appropriate in your report to the board.)
3. To answer the question from one member of the board 'Is it appropriate to use the same proportions of different benefits for each of our executives, when they appear to have very different personalities and motivations?' consider the following in your report to the board-

a. Is a standard approach to all executive compensation appropriate or should the individual differences of executives be considered?
b. If you believe individual differences of executives need to be taken into account, what are some individual characteristics that should be considered and what impact might these characteristics have on structuring individual executive compensation? Link these differences, where applicable to the details provided about the Sunnyside's executives. (Support your comments to the board in your report from your e-readings for topic 7 as well as other readings where you think it is appropriate)

4. Address the concern expressed regarding the large difference between the CEO's compensation and that received by the other executives. Why might this difference have arisen and is it reasonable to allow it to continue? (Support your comment to the board in your report from your e-readings for topic 7 as well as other readings where you think it is appropriate.)
5. What other factors about employees should be considered when determining executive compensation? (Provide information about these other factors to the board in your report from your e-readings for topic 7 as well as other readings where you think it is appropriate.)
6. What would you recommend to the board in structuring the proposed executive compensation committee and appointing the compensation consultant, given the board's desire for fair and reasonable compensation? Comment on the board member's suggestion that their cousin be the compensation consultant (Support your comment to the board in your report from your e-readings for topic 7 as well as other readings where you think it is appropriate.) 10 Marks
General format and presentation criteria
7. Providing a professional presentation (e.g., proof-reading and using the appropriate format, referencing and presentation). Assignment help experts can also help you out with executing the above requirements in order to prepare a A grade solution for your submission.

PART B
Use the two papers about the audit expectation gap, set in two culturally different countries. Compare and contrast (what are the commonalities and differences) between the two papers with relation to the following issues-

1. Briefly outline the research approached used by each paper.
2. What were the research aims of each paper?
3. How appropriate were the research approaches in addressing the aims of the two studies?
4. Comment on the selection of participants and the extent to which the choice of such participants is appropriate to answer the research questions posed by each paper.
5. The findings of each paper.
6. What impact might the location of the study for each paper have on the findings?
7. Comment on the rigour of the studies. What has been done in each paper to ensure the findings are valid?

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Assignment Solution

PART A

Agency theory is a theory which states that incentives an agent receives are directly related to the agent's performance. It signifies the linear relation between performance and pay, and the relation between the alignment of interests of the stakeholders and their agents along with incentives. The agency theory also speaks of effective management to avoid any activities that may sabotage the interests of stakeholders. (Alexander Pepper, 2014)

The agency theory was formulated with a number of assumptions. As Agency theory sees how work is delegated by the principal to the agent, it has certain assumptions applicable to both, the principal and the agent. One main assumption in this theory is that the principal is considered to be risk neutral. This is not a very good idea due the uncertainty attached to the agent's performance at all times. It is not justified that the agent gets a flat salary while the principal bears all the risks involved. It is the total value that is compromised on if this assumption is taken into consideration. There should always be a rigid contract that states that the agent's actions and outcomes will determine the pay and incentives. This is to ensure the betterment of the principal as well as the agent.

The second assumption is related to the knowledge that the actors have and the means by which they acquire this knowledge. It assumes the principal knows what the agent is thinking and how the agent will approach the task in hand. (Nicolas Foss, 2014) This helps the principal decide the compensation to be given to the agent. In the example given in the reading where Sun and Bradstreet company officials failed to understand the agents' minds and had formed a general opinion about the way the agents would perform, the company had to face lawsuits when the customers claimed that salesmen had lured them with respect to subscriptions. This happened because the management at Dun and Bradstreet earlier paid to salesmen only if they managed to fetch more customers than the previous year. The company assumed salesmen would work hard to achieve this, but they did not think of the possibility that the salesmen would resort to unethical practices to achieve goals…

PART B

QUESTION 1

The study conducted in the Netherlands was more of a specific one related to corporate frauds. In this case, it was necessary to have a very precise and specific approach towards achieving appropriate results in terms of gaps. The approach used was surveying a particular group of people in order to grasp expert opinions to determine what is going wrong and why. This approach is primary in nature.
The Malaysian study was more generic in nature as it examined past researchers and worked upon the areas that were unexplored back then. This study required a more open mind and analysis using some already existing benchmark like the Porters framework. Both the researchers very well justified the approaches employed. They both used questionnaires (Harold F.D, 2009) (Lee, 2007)and examining of results to determine patterns and conclude.

QUESTION 2

The study conducted on the audit expectation gap in Malaysia was aimed at addressing and complementing a prior study that was conducted by Fadzly and Ahmad in 2004 (Lee, 2007). Their study did not completely assess perceptions of the auditors, audit beneficiaries, and auditees. The current study aimed at bridging this gap. Since a number of fraud cases were reported in Malaysia, they were certain that there is a wide gap related to the auditor's responsibilities in such detection and in the financial and recording aspects of the same. Analyzing the components of the gap by using Porter's framework, was another objective…

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