Case Study For Research In Accounting For Employees On Tax

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Discuss about the Case Study for Research In Accounting for Employees on Tax.

The report has been segregated into two different parts. The first part of the report suggested the compensation benefits and its repercussions of the employees on Strong built Construction Company. The report studies the elements of the compensation packages, key components of the agency theory and their effects on the approaches of the compensation. The report also reveals the relationship between the intrinsic and extrinsic factor of motivation on the employees. The relationship of compensation with the employee’s attitude towards risk has also been discussed in this report. The latter part of the report gives recommendations to enhance the job satisfaction level in terms of work motivation of the employees of Strong built Construction Company.

The important elements of the compensation package consists basic pay, annual bonus, long-term incentives, employee benefits, perquisites and post- termination compensation. The basic pay consists of the compensation for the daily performance which are based on the general skills of the employee, experience and accomplishments. This type of pay is often considered as fixed compensation. The annual bonus compensation is used to motivate the employees when the employee achieves measurable results. Bonuses are also taken into consideration for annual bonus of the employees. The long term compensation bonuses are paid to the employees in stock. These pay package rewards the employees for meeting long term results, generally over three years. The employee benefit component of the compensation protects the employees of the unforeseen expenses typically related to sudden loss, facilitating loss of income due to health related problems. These benefits are granted to the employees for restoration of the catastrophic expenses. The perquisites are the elements which are present to retain the employees. The post termination compensation bonus supports the financial situation of an individual for involuntary termination from the services (Wikinvest.com. 2016).

The traditional agency theory sees the work as a result of a decision making process. In this theory of understanding the habits and feeling of an individual are not taken into consideration, although psychological factors directly affect the behavior. The standard theory is aimed to monitor the costs and alignment of the incentives. The agency theory aligns the factors which are directly related to motivate the employees so that they perform to their best level. The agency theory provides the source to various neoclassical economics theories which aims to provide accurate predictions on the economic phenomena without claiming on the main assumption which describes the behavioral processes. The agency theory determines the relation between the job performance and the performance of the firm and shows various aspects in which it differs in terms of compensation design.  The traditional agency theory clearly justifies the exploration of the performance to the extent which goes beyond the critical understanding of the human behavior. According to various theories on work motivation the main problem of this theory is to make the employee work according to its levels. For one instance motivation behavior is the consequence of unsatisfied needs. The behavioral agency theory is directed to fulfill the needs of motivation (Pepper and Gore 2015).

Compensation Benefits and Their Effects

The extrinsic motivation is characterized by external motivator. This form of motivation requires achievement of a particular goal.  The intrinsic motivators on the other hand are driven by internal form of motivation. The goal may be strived for accomplishment of personal satisfaction.

According to Ims et al. (2014), the extrinsic factors for motivation such as economic incentives may completely eliminate the need for intrinsic factors. The relationship between the two can be drawn from the psychological literature study of Deci and Ryan which states that motivation is combined with a particular task itself and motivation depend on the external rewards and sanctioning. The relationship can be further drawn from the western culture, where the policies for rationality are strong. This suggests that behavior is expected to be utility oriented. The distinction between the two can be drawn from the crowding out effect. In order to get an extensive idea on the importance of the compensation and performance on the employees, let us assume performance is related to the economic attainment of the objectives.  The effect of crowding out effect not only drives out the intrinsic factors of the motivation but also eliminates the need for existential, social and ecological values that influence the manager’s performance and overall business conduct. (Excelatlife.com 2016).

The employee’s attitude towards risk should a have a direct relation with the risk and desired compensation. The risk seeking employees should be rewarded with more amount of compensation for taking more initiative for the productivity of the organization. On the other hands the risk avoiding employees should be treated with lower compensation and rewards. The accomplishments of the risk seeking individuals will essentially motivate the other workers within an organization. The compensation is also directly associated to the performance of the individual employees. The employees who are risk avoiding in nature can be further motivated by making them take part in planning, controlling, organizing activities. The pay is directly related to the extent of risk taken by the employee. In case the employee has taken higher amount of risk the employees will be benefitted with greater amount of compensation and if the risk avoiding employees should essentially have lower amount of compensation. The compensation should be based on compensation committee led by U.S. which considers “fairness” and “balance” in the compensation system. (Foss, N & Stea, D 2014).

The financial benefit for the employees is directly related to the share prices and tax level of a company. The ideal time for receiving employee benefit is the time when the share prices are on the higher side and tax level on the lower side. Hence the factors are driven by market forces, companies need to understand the present market situation while offering financial benefit. It is also important to forecast the future level of the taxes. The future forecast will ensure that even during the economic turmoil, the company will be able to balance the compensation amount. In several performances related areas when employees are assigned with challenging tasks or contributed for high production of the company, the employee should be rewarded with excess amount of financial benefit. This way the employee will realize about the recognition for performing well in critical situations. Another instance of ideal time can be identified when company’s decides to dissolve the shares which were being held for more than three years, such decision will bring in more amount of liquid finance and the companies will be able to settle the higher amount of financial benefit for the deserving employees. In a construction company like “Strong Built Construction Company”, if the Government decides to invest funds, the company will be able to provide additional compensation to the employees. (Graham et al. 2013).

Intrinsic and Extrinsic Factors of Motivation and Attitudes towards Risk

The neoclassical theory of wage determination did not take into consideration fairness while determining the wages of the employees. The present times the wages are directly determined by the marginal productivity and supply schedule related to the utility functions undertaken by the employees. Fairness plays a vital role in determining and comparison of the wages within an organization. The basis of comparison is more often drawn from the upper level of the organization rather than downward level (Kaufman 2013).

According to Wright and Davis (2014), the most common instance of fairness in the compensation can be recalled from the incidences of “collective bargaining”. In this particular situation if the workers of a particular group or union received an increase in the wages, the same increment should be entitled in some other group. The particular concept was also known as “orbits to coercive comparison”.  Based on the traditions of the several industries the groups may be permitted to receive the same amount of increase. Another important concept in abiding the fairness in the compensation theory considers, whether the wage theory is demand or supply oriented. For example a newly aspirant for the job may find that the compensation offered to him/her is unfair based on the academic qualifications or experience. In this situation the employer may simply decide to switch to the next candidate. In this situation both employer and the candidate are making implicit comparison in accordance with the general level of pay in the market for that particular position but these comparison are not specific in relation to the fairness controversies  (KATZ 2012).

According to Hermanson et al. (2012), the fairness given for the employee compensation has a cascading effect on the subordinates of an organization. If the top management is given more amount of compensation then it is evident that the subordinates will be content with their pay. Similarly when the employees are underpaid in compare to the CEO’s or executives of the companies, it is more likely for the employees to leave the company. Hence if the CEO has a grandiose realization of only his personal contributions and little concern on fairness then it is more expected that the CEO will try to reinforce the internal pay, to show the importance of the contributions of the employee and its importance relative to the contribution of the other employees (O’Reilly et al. 2014).

In order to consider the fairness in the compensation special arrangements are done by initiatives such as change-in-control in incidence when a company decides to give benefit to an individual in case of termination of an employee due to merger or takeover activities.  These activities are often referred as “Golden Parachutes”. The primary principle behind giving compensation benefit lies in benchmarking the pay accordingly with the marketplace or the relevant industry. The second most important component for higher compensation is fair pay according to the performance of the employees (Doerr et al. 2013).

Financial Benefits and Taxes of Companies

The compensation committee is responsible for determining the pay practices that are directly related to the firm’s best interest. The presence of compensation committees focuses more on the employees than on the shareholders. The two major role of the compensation committee is to set the compensation of the executive and second being to provide some evidence on the rationale on the regulation of the Government in redesigning of the board committees (Boyle and Roberts 2013).

The primary goal of a compensation committee is to deliver fair amount of compensation to the employees and stakeholders. The compensation committee takes into consideration “fairness” and “balance” in the compensation process. It is also important to relate the executive compensation and the role of the committees. Based on the findings of an interview conducted in twenty U.S. public companies, the most prominent tension was found in the demand of the shareholders and the management. Many interviewees described the tension for the resource dependence theory and agency theory. The overall findings of the study suggested the importance of going ahead of the agency theory. The importance of the Executive compensation committee of Strong Built Construction Company lies in the performance measurement of the employees. The management needs to identify those employees who have shown extensive dedication to the contribution of the performance and pay them according to their efforts. The compensation committees also ensure that the employees are recognized in accordance with the risk attitude of the employees and fairness is adhered by all means.

(Guthrie et al. 2012).

Conclusion

The study shows the various dimensions of a compensation package. The agency theory segregates the theory in terms principals and agents involved in the business process. It helps to deal with two major problems. The inconsistencies which arose in the desires of the principal and the second being the attitude of the principal towards the tolerance level of risk. In realistic context this particular relation can be seen among the creditors and stockholders and shareholders with the mangers. The extrinsic and intrinsic motivation factors show how the internal catalysts are different from the external in defining the attitude towards work. The time period reflects on the ease of pay in terms of liquid flow of money available with the company. The study also puts emphasis on “fairness” and “balance” in structuring of employee compensation which is considered for best practice.

Based on the given situation of the case study, the Government policies have been considerably stringent.  This has negatively affected Strong  built  construction  company in maintaining a good profile, due to this there was fall in the employee motivation levels despite of stability in revenues. The proposal offered by Susan Bold, for rewarding the existing employees based on the intrinsic motivation will be ideal to enhance the performance of the employees. The monetary compensation is in line with the time period when the company decided to explore the various opportunities. The various intrinsic roles such as participation in the decision making process and role similar business partner will make the employees feel more satisfied with their job roles and keep them motivated for higher output in workplace. An area where the companies need to focus is related to settlement of the employee salaries with ease. In order to efficient settlement of the salaries the company needs to bring in more amount of liquid cash flow although it is considered as the secondary factor. The primary factor behind the structuring process being ensuring the attainment of the intrinsic factors which keeps the employees focused towards work performance. The intrinsic factors will further influence the risk seeking attitude of the employees. The employees seeking for higher motivation should be rewarded with higher amount of compensation.  (Agyei and Owusu 2014).

Fairness in Determining Wages

Reference List for part I

Boyle, G. and Roberts, H., 2013. CEO presence on the compensation committee: a puzzle. Journal of Economics and Business, 70, pp.16-26.

Doerr, B., Caldwell, D.F. and Chatman, J.A., 2013. Narcissistic CEOs and Executive Compensation. Institute of Industrial Relations, UC Berkeley.

Excelatlife.com. (2016). [online] Available at: https://www.excelatlife.com/articles/intrinsic_motivation2.htm [Accessed 8 Jun. 2016].

Foss, N & Stea, D 2014, ‘Putting a realistic theory of mind into agency theory: implications for reward design and management in principal-agent relations’, European Management Review, vol. 11, no. 1, pp. 101-16.

Graham, J.R., Raedy, J.S. and Shackelford, D.A., 2012. Research in accounting for income taxes. Journal of Accounting and Economics, 53(1), pp.412-434.

Guthrie, K., Sokolowsky, J. and WAN, K.M., 2012. CEO compensation and board structure revisited. The Journal of Finance, 67(3), pp.1149-1168.

Hermanson, D.R., Tompkins, J.G., Veliyath, R. and Ye, Z.S., 2012. The Compensation Committee Process*. Contemporary Accounting Research, 29(3), pp.666-709.

Ims, K.J., Pedersen, L.J.T. and Zsolnai, L., 2014. How economic incentives may destroy social, ecological and existential values: The case of executive compensation. Journal of business ethics, 123(2), pp.353-360.

KATZ, H.C., 2012. COLLECTIVE BARGAINING AND INDUSTRIAL RELATONS.

Kaufman, B.E., 2013. Sidney and Beatrice Webb’s Institutional Theory of Labor Markets and Wage Determination. Industrial Relations: A Journal of Economy and Society, 52(3), pp.765-791.

O’Reilly, C.A., Doerr, B., Caldwell, D.F. and Chatman, J.A., 2014. Narcissistic CEOs and executive compensation. The Leadership Quarterly, 25(2), pp.218-231.

Pepper, A. and Gore, J., 2015. Behavioral agency theory new foundations for theorizing about executive compensation. Journal of management, 41(4), pp.1045-1068.

Strifler, M. and Beissinger, T., 2015. Fairness Considerations in Labor Union Wage Setting–A Theoretical Analysis. Scottish Journal of Political Economy.

Wikinvest.com. (2016). What are the elements of compensation? for The_DirecTV_Group (DTV). [online] Available at: https://www.wikinvest.com/stock/The_DirecTV_Group_(DTV)/What_Elements_Compensation [Accessed 8 Jun. 2016].

Wright, D.A. and Davis, D.A., 2014. An Exploratory Multi-Case Study of the Perceptions and Views of Academic Faculty Union Members Relative to Online Distance Education, Collective Bargaining & Related Policy. Journal of Collective Bargaining in the Academy, (9), p.26.

According to Gold et al. (2012), the primary objective of the study is to determine the effectiveness of the theories mandated by revised ISA 700 auditor’s report which is related to reduce the audit expectation gap. The main participants of this study were auditor’s based in Germany and financial statement users after reading the details of financial statement of the firm and auditor’s report. The other portion the report evaluated the several opinions given by ISA 700 and basic audit version. The study focused on the perception of the participants on the auditor’s and management responsibilities and the reliability of the financial statements. The findings suggested that there was expectation gap with the responsibilities of the auditor’s. The final recommendations of the report stated that audit opinion may alone indicate sufficient relevant information to the users.  

Groups	Information obtained
Auditors	Research describing about the various responsibilities of the management and the auditor’s. The information was based on scale 1 (strong dissent) to 7 (strong agreement). The findings suggested a mean response of 4.81 for the full report and 2.20 for the opinion based report. The latter part of the findings stated the extent to which the participants agreed to the statement. The mean response was observed as 4.52.
Financial Analysts	The findings suggested that the financial analysts had a high level of experience of handling financial reports and had high amount of knowledge of auditing.  The final methodology suggested that the financial analysts perceived the audit profession to hold a high reputation level.
Students	The students were found to have a suitable amount of experience with financial reporting. The final result showed that students had a good amount of knowledge to handle the financial reports.
Investors	The investors determined the financial strength of the business and the number of preference shares sold in the stock market.

(Pott et al. 2012)

The manipulation formed highlighted the difference between the perceptions which were drawn as a result auditor’s report which considered the explanation given by revised ISA 700 in one part and opinion version on the other. A reduced gap in the expectation on the basis of complete findings suggested a positive effect which  states the existence of the description that indicate a positive relation audit opinion in the revised auditor’s report. The most essential component of manipulation compared the perceptions which included the explanations forms on the basis of explanations given in ISA 700. The several results drawn from the findings suggested an existence of strong gap with ISA 700 report and opinion based report (Mock et al.2013).

II a)

The findings of both the studies suggested that the primary objective of the auditing was considered to be useful until 20^th Century.  However the primal importance shifted from fraud detection to verifying of the details in the financial report of the company. The study further suggested that the individuals related to auditing were more prone to avoid discrepancies which were in line with legal suits issued business holdings and public in general. It has been also observed that the fraud detection system was prevalent in most of the forms and stake holders were not satisfied with the work of the auditor’s. The main objective of the study was to evaluate the validity of the audit gap in Ghana both from auditors from the stakeholder’s viewpoint (Otalor and Okafor 2013).

Based on the study of Okafor, the difference between the level of expected state of performance experienced by the user of both financial report and the auditor’s report,  the existence of audit expectation gap is evident. The study also identifies the audit expectation gap as the difference between the audits performers along with the explanations conveyed through the audit. Methodology of the data collection was based on the questionnaire method.

According to Agyei and Owusu (2014), the study suggests the gap which persists in the audit expectations due to the detailing and subjectivity of the norms and concepts used in the auditing procedure. Some of the concepts take into consideration factors such as “adequacy, materiality, fair value, reliability, relevance and reasonableness”. The methodology suggested by Okafor is based on the quantitative aspect of the study which researches on the topic based on two hypotheses (Agyei  and Gyamerah 2014).

According to the study conducted by Agyei and Gyamerah (2014), several responses were taken from the percipients which included 72.5% of the male candidates and more than 27% of female respondents.  Among the various participants the work experience of 60% of the selected ones had a work experience of more than 5 years and 30% of the respondents were aged between 6 and 10 years, while rest of the participants were more aged.

As per Okafor and Otalor (2013), the participants of the accounting department were selected from the Ambrose Alli University and University of Benin Idahosa and several other public investors from the Edo state.

As per Boateng and Agyei, (2013), the respondents in the survey by Albert Agyei showed that 45% of the auditors revealed positive response to the statements and 45% were disagreeing with the statement. The frauds detected in the financial statement were further agreed by 65% of the total number of the stock brokers selected for the purpose of the study.

Moreover the study conducted by Okafor stated that the responsibility of the auditor was to furnish the clients with accurate audit report which was included in the financial statement. The primary findings of the study revealed that 67.12% of the participants did not know about the expectations specified in the books related to statute. It was seen that the findings of Okafor was more accurate in nature.

The study of Albert Agyei highlighted on the points of agreement and disagreement relating to the variables. The study also suggested that wasn’t any expectation gap in the auditor’s and stock brokers which are in line with maintaining the financial statements. The study further stated that there was no expectation gap between the auditor’s and the stockbrokers which were related to exercising the judgments of the selection of the audit procedures.

According to Otalor and Okafor (2013), the participants were of the opinion that it was the responsibility of the auditor to assure the client with most accurate auditing data and financial data.

The study by Albert Agyei indicated about the flaws of the over expectations of the users of the audited analysis of the financial reports (Agyei et al. 2013).

The findings of Okafor further suggested that the public were in need of more knowledge and awareness towards their responsibilities and duties. The report suggested by the auditor’s included the disclaimer clauses indicating it was not a certificate to prove the financial viability.

Conclusion

The study shows how the organizations needs to go beyond agency theory in order to enhance the corporate governance. The intrinsic and extrinsic factors responsible for motivation further states the effect of engaging an employee as a role as business partner directly influences the job performance of an individual. The latter part of the report suggested the importance of adhering to the need of maintaining audit reports with more financial viability and ensuring the need for accurate auditing and recording of financial data.

Reference List for Part II

Agyei, A. and Gyamerah, S., 2014. The Awareness of Employees on Tax Relief Scheme in Ghana. International Business and Management, 9(1), pp.79-83.

Agyei, A. and Owusu, A.R., 2014. The Effect of Ownership Structure and Corporate Governance on Capital Structure of Ghanaian Listed Manufacturing Companies. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(1), pp.109-118.

Agyei, A., Aye, B.K. and Owusu-Yeboah, E., 2013. An assessment of audit expectation gap in Ghana. Int. J. Acad. Res. Account., Financ. Manage. Sci, 3(4), pp.112-1

Boateng, I.A. and Agyei, A., 2013. Microfinance in Ghana: Development, Success Factors and Challenges. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(4), pp.153-160.

Gold, A., Gronewold, U. and Pott, C., 2012. The ISA 700 auditor’s report and the audit expectation gap–Do explanations matter?. International Journal of Auditing, 16(3), pp.286-307.

Mock, T.J., Bédard, J., Coram, P., Espahbodi, R. and Warne, R.C., 2013. Comment letter to respond to the  IAASB invitation to comment on its Exposure Draft, Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (ISAs).

Okafor, C.A. and Otalor, J.I., 2013. Narrowing the Expectation Gap in Auditing: The Role of the Auditing Profession. Research Journal of Finance and Accounting, 4(2), pp.43-52.

Otalor, J. and Okafor, C., 2013. Imperatives of Bridging the Audit Expectation Gap and Enhancing the Credibility of Corporate Financial Information. International Journal of Business and Social Research, 3(5), pp.125-138.

Pott, C., Gronewold, U. and Gold, A.H., 2012. The ISA 700 Auditor’s Report and the Audit Expectation Gap–Do Additional Explanations Matter?.