In the first question each and every sub question regarding the main topic is discussed. The discussion of the first topic contains assumptions on the theory, influence of theory in accounting decisions, the factors of the theory related to compensation, criticisms for the theory, alternative theory and why it is better, influence of stewardship relation on the accounting and reporting decisions, effects of the valuation theory, conflicts if both the theory of valuation and stewardship are conducted simultaneously. The second question discusses information about two studies that were conducted about the expectation gap between the society and the auditors with changing role of the auditors and different things. The studies were conducted in two different countries and are two completely different studies. The discussion involves review about the studies and their aim and objectives. Main focus was on the discussion on the statistics and the research done and how the people were triggered out of the population.
a.) Agency theory explains how one can manage the relationships between two parties where one party tells what work has to be done by another party. The theory explains that how both the parties work on their own self-interest but if an agent works on its own self-interest while working for someone then that can lead to deviate the goals of the company so the agent has to act in the interest of only the principals. There is a theory which is known as the agency loss which can determine whether the agency us working with the interest of the principal or not and it judged by seeing the difference between the highest outcome that can be assessed if the agency works with the principal and the any acts of the agents which leads to any consequence and through this it can be judged if the agency works with the principal’s interest or not because if the agency works with the interest then this loss can be zero and the loss increases if the agency deviates from the interest. (G Joachim, 2008) The two ways which are taken to possibly eradicate the loss are that first the agency and the principal share the same interest and they are working towards the same direction and second is that the principal is always in knowledge about the consequences that the acts of the agency would lead to. It is assumed that the intended effects are measured by the constructs. It is also assumed that the agency has the understanding of the agency theory. One ore assumption about the impact of education which is rather considered quite questionable is that the education is said to have lasting effects and it is not possible to research the difference between the impact of education and self-selection. (William L. Rowe, 1982)
b.) Agency theory addresses the problems which arise in the agency relationships where there are two parties first being the agent and the second the principal and where the agent has the full authority to take decisions on the behalf of the principal while dealing with a third party for the principal. First thing to keep in mind for the agent is that there first interest should be to maximize the wealth of the shareholders rather than maximizing their own. The concept of agency cost affects both the equity level of the management and the corporate debts. The agency costs is used at three places majorly first being the expenditures to monitor the activities of the management in terms of audit, second are the expenditures taking place to structure the organization to limit the undesirable activities taking place in the management which are appointing an outside person in the board of directors and the third thing being the opportunity costs which are incurred at the time of restrictions which are imposed by the shareholders. (G Joachim, 2008)
c.) Many theories are discussed to see the direct effect of compensation on the performance of the individual. The relationship is much more complex than it is understood by the public. One method that have been came across through the traditional theory is that of the executive compensation which states that the compensation which is to be paid to the management of the company should be paid on the basis of the market based compensation schemes which will help them to incline the interests of the management with the stockholders because the level of their income is directly affected by the value of the company in the market. If the management is paid the salary with fixed income and along with that the compensation on the market value of the firm then they would share the gains and losses of the business and that would lead them to work better and more effectively for the firm.
d.) The theory of agency is a theory which is about human actions. The first thesis says that if there is any human action taking place then there would be some action that would be caused by the agent who has done the act. Hence if someone raises his arm then it must be that there is some event involved in which the action was taken by that person. The second thesis is the most controversial one where understanding of remote and immediate causation is required. There can be an event which is the remote cause of the event let’s say is e but there is some other event which it causes and then it gives place or causes e. So If someone has to raise his hand then the human brain has to be triggered which contracts the muscles and raises the arm now here the brain event is the remote cause of the event of raising arm and not the immediate one. (William L. Rowe, 1982)
e.) Agency theory has always been a controversial theory in the past but also of importance. Stewardship Theory which was developed as an alternative to the agency theory rejects the assumptions made by the agency theory and adds that it is the duty of the management to satisfy the goals of the shareholders and that should be their personal interest. Both the theories the agency theory and the stewardship theory have opposite relations among owners and the managers. In agency theory the mechanisms are made contractually so that the managers cannot achieve their personal interest at the cost of the owner’s interest but in the stewardship relationship it is not a problem as long as the goals are achieved and the goals are shared too so any activity of the manager will be of benefit to the company. The agency theory is the economic model of human behaviour and the stewardship relation theory is the socio-psychological theory of the same and that is the biggest difference.
f.) In the starting of accounting the job or the role which was played by the stewardship was to tell the owners of what is being done by the management of the company. Now gradually the focus of the theory has changed to providing with sound financial reports on which major investment decisions are based on. The new papers which were decreed by the FASB focused on only one opinion that was being decision usefulness and stewardship comes under that. The papers have done a lot in the development and make a useable definition. For an example if we are taking the decision usefulness approach then the focus would be made on the resale value of the asset or the property but in stewardship might also explain the company’s operation related to the value of the firm. (Investopedia, n.d.)
g.) Decision usefulness information is that information which is considered useful for the investors in making credit decisions and investment decisions and the information which is also helpful in making decisions regarding allocating of resource. So the financial reports of the company are recommended to be providing information to the investors, creditors and debtors about the financial decisions which will take place by them and also provide them with the inflows and the outflows of the funds so that they can timely invest and take the decisions and they should also know about any uncertainties if there. Decision usefulness is more suitable than valuation usefulness because it has broader base than the valuation.
h.) Valuation usefulness and stewardship relation are alternate studies of financial accounting. According to a study which focused on the interpretation of the results is based on the valuation usefulness and steward relationship to comply with their underlying concepts. Additions independent variables were tried to be identified which can potentially have an impact on the dependent constructs. There is a negative co relation between stewardship relation and valuation relevant. Firms from rich non-accounting information environments should show a decline in the demand and supply of lauation useful accounting system. (Investopedia, n.d.)
a.) According to the study of audit expectation gap it can be seen that in the early days the main aim of the audit procedure was to identify the fraud and eradicate it but then after many studies and researches of many scholars it was concluded that the main focus of audit is to verify the financial statements of the business and it also had a reason because the businesses wanted to avoid the legal suits from general public and other businesses and gradually the role of audit profession in the identification of fraud has been declined to the state that it is not the duty of the management to do so. This led to the stakeholders of the company and the companies too being dissatisfied because of the changes in the role of the audit profession and that led to the expectation gap which was the gap between what the stakeholders expected from the profession and what it delivered to them. With this the trust of the general public would erode along with time in the financial statements of any company. Therefore the objective of this study is the assessment of the existence of the audit expectation gap in the country Ghana.
The second study is about the expectation gap of what the stakeholders expect and the changing roles of the audit profession and the reliability and how useful is auditing to them in Sri Lanka. As the creditability of the auditors has been in question around the world and they have been a subject to a lot of criticism. The gap is between what public is expecting from the auditors and what the auditors see as there objective. The study determines what the role of an auditor being the agent of the stakeholders of the company. The aim of the study is to identify if any deviations of the role of the auditor from what the society expects in Sri Lanka and to examine the factors which lower the gap of expectations. (Gunathilika AGC, 2012)
b.) The study determines that there is an increasing rate of expectation gap which is caused by the expectations of the society from the auditors and what they actually perform or what the society gets actually at the end. The findings for the auditor’s responsibility are that there are significant expectation gap which is between the two parties in detection and prevention of fraud assurance level, presenting the financial statements. There are two totally different arguments first being that the auditors saying that they accept independence in audit and are not at all responsible for the internal controls of the entity. The other one is that in the financial reporting the auditors do not give total assurance but the society is asking for total assurance. Hence, the society wants the auditors to detect the fraud and prevent them from happening and they also have a doubt on the independence of the auditors. To this the auditors strongly disagree and tell that it is not the responsibility of the auditors to maintain the accounting records and present them to the public. (HRMARS, 2013)
c.) For the study conducted in Ghana the population of the country which have any relevance to the financial reports of any company were triggered and non-probability sampling method was used to carry out the act. Purposive sampling was used for the population to figure out the user group to represent the users and convenient sampling was used for the ones who responded to the questionnaires. The stockbrokers were also used through brokerage companies because the stockbrokers are working in those companies. The study uses all the primary data. The other study uses the five point bipolar scale survey to figure out different views of the individuals. A score of five was for strong agreement and score of one for strong disagreement. It also collected data like gender, age, etc. The survey was sent to charted accountants and auditor groups. It was also distributed to management students, stock brokers and accounting firms also. The analysis was done by using non parametric statistics. The one used in the study conducted in Sri Lanka is better one and assessed more rigorously because it uses those points and features in the study that are better than the other. (HRMARS, 2013)
d.) In the study conducted in Sri Lanka the survey was sent to 150 charted accountants and auditors group which was directly taken at random from the directories of the charted accountant’s directory. It was sent to 150 investors, 150 professional clients’ users of the reports, and 100 management students. A professional is a bachelor degree along with a professional degree and that makes a professional. As the study was conducted in Ghana it was seen that stockbrokers were chosen from the broking companies because they work in the broker firms and the ones dealing in the Ghana stock exchanges. Fifty questions were sent to the each of the respondent group. The scoring was of five point one being strong disagreement and five being the strong agreement. (Gunathilika AGC, 2012)
e.) Non response bias comes when there is a lot of difference those who responded to the survey and those who did not. Some people can even refuse to participate if any kind of embarrassing or strange question is asked or any type of question not preferred to be answered. The other factors behind that can be if any survey is very poorly conducted, when people forget to respond to it, the survey didn’t reach the people who were targeted even due to spam folders in the devices, or sometimes when the other groups were more inclined to answer. It is often a thing to worry about the promotions or the surveys which are done on the mails now a day. It occurs when sometimes the respondents are not able to reply to the surveys which are asked for. To make sure that it didn’t happen in the cases of the studies which are being discussed the surveys were not distributed to the masses and they were delivered on a filtered and a specified range of society. The mails were targeted to the right amount of people and structured properly. (HRMARS, 2013)
f.) In the research conducted in Sri Lanka the study was sent to around 450 people and out of them 252 responded which is around 45.8% of the total and it included 121 bachelors, 52 charted accountants, 88 investors, 58 managers and some other people.
In the test that was conducted in Ghana around 72.5% were males and the other figure which totalled 27.5% were females. People of more than 16 years of experience were 2.5%, 11 to 15 years were 7.5%, 6 years to 10 years were 30%, 60% had the experience of five years and below. Out of 50 forms sent to different groups around 20 were used which were the most usable. (Gunathilika AGC, 2012)
The rates of the first case were more reliable but we can say that it is not always about the quantity of the data but the quality of it which can be seen at the second case. (HRMARS, 2013)
g.) In the first case of Sri Lankan research there was a five point bipolar Likert scale survey which was used to analyse the data and get the different views of the individuals whereas in the other study conducted in Ghana non probability sampling method was used in which two methods of sampling were used in which purposive sampling was used in the selecting the user groups and convenient sampling was used to analyse the results for the people who responded out of the list. The method which was found more rigour than the other was the Sri Lankan one over the Ghana one because the method it used to get the results would help them get better views of the different individuals and that is because they can determine something on a five point scale for the level of agreement or disagreement done. (HRMARS, 2013)
h.) The flaw which is detected in the case of the Ghana audit is that the number of people they used for the survey and the number of people who responded were not as much which should have been used because less people and even lesser respondents would lead the answer to be restricted to a small section of the society. (Gunathilika AGC, 2012)
In the assignment several things were discussed firstly from the traditional agency theory to its assumptions, criticism, limitations and the alternative. The discussions were made in detail and according to the questions asked. The second question consisted of two studies which discussed the same topic in two different countries and then the statistics of each study was examined to analyse the results. The questions were also asked as required.
References:
G Joachim, (2008), Are stewardship and valuation usefulness compatible or alternative objectives of financial accounting?, retrieved from https://edoc.hu-berlin.de/series/sfb-649-papers/2008-28/PDF/28.pdf
William L. Rowe, (1982), Two Criticisms of the Agency Theory, Retrieved from https://www.jstor.org/stable/4319564?seq=1#page_scan_tab_contents
Investopedia, (n.d.), Agency Theory, Retrieved from https://www.investopedia.com/terms/a/agencytheory.asp
Anon, (n.d.), Agency Theory, Retrieved from https://sevenpillarsinstitute.org/morality-101/agency-theory/agency-theory
Anon, (2011), Agency Theory and Its Consequences, Retrieved from https://studenttheses.cbs.dk/bitstream/handle/10417/2798/thomas_ruediger_smith.pdf
Anon, (n.d.), Non Response Bias: Definition, Examples, Retrieved from https://www.statisticshowto.com/non-response-bias/
Gunathilika AGC, (2012), AUDIT EXPECTATION GAP IN SRI LANKA: THE ROLE OF POLICY MAKERS, Retrieved from https://www.researchgate.net/publication/278020709_AUDIT_EXPECTATION_GAP_IN_SRI_LANKA_THE_ROLE_OF_POLICY_MAKERS
HRMARS, (2013), An Assessment of Audit Expectation Gap in Ghana, Retrieved from https://hrmars.com/hrmars_papers/Article_12_An_Assessment_of_Audit_Expectation_Gap.pdf
Financial Times, (2017), Washington braced for Comey’s testimony on Trump, Retrieved from https://www.ft.com/cms/s/0/2f91788c-2514-11dc-bf47-000b5df10621.html?ft_site=falcon&desktop=true#axzz4j7jtAylE
Kosnik RD, (n.d.), Agency Theory and the motivational effect of management compensation, Retrieved from https://ecampus.nmit.ac.nz/moodle/file.php/4599/Talent/Kosnik%20-%20Agency%20theory%20and%20the%20motivational%20effect%20of%20management%20compensation.pdf
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download