Describe about the Management Accounting For Fahour Left Hanging Over Pay.
Theory Relevant to Case– In the given case Positive Accounting Theory and Normative Accounting Theory is relevant. The extent of normative accounting theory is very less as compared to the extent of positive accounting theory.
Positive Accounting theory deals in explaining and predicting the accounting practices (Deegan, 2016). At first it provides the explanations consisting of the reasons for the practice so happened in that manner. For instance positive accounting theory tends to explain as to why few firms have changed from historical cost accounting to fair value accounting or why the firms have continued in operating the historical cost accounting. Secondly, the observations which have not been observed are predicted with the application of the positive accounting theory (Milne,2014). For instance after releasing of the relevant accounting standard but before the implementation of the same, the positive accounting theory explains helps in predicting the impact that with the application of accounting standard the company or firms will face. Thus, it is clear that the positive accounting theory explains about the past event that has already been incurred.
The positive accounting theory will only deal with explaining and predicting the accounting practices but have not in any manner been the guiding factor for the companies for adoption of the particular policy or the accounting standard. Positive accounting theory in an accounting field also helps in understanding the human behavior of the employees working in an organization by observing the events that has been occurred in past (Watts and Zimmerman, 2014).
The Normative accounting theory deals with the future as compared to the positive accounting theory which deals with the past. The main objective of this theory is to describe how the future of the company or firm will be for the investors or shareholders (Brachmann,2017). Thus, positive accounting theory is related to past and normative accounting theory is related to future.
How the theories explain the article-
In the article two theories have been highlighted:
Positive Accounting Theory- In the given article of Mather and Joanna published in Australian Financial review on tenth of February two thousand and seventeen, the controversies over the pay packet of Ahmed Fahour has been detailed. As per the given article, the pay packet of Fahour amounts to $ 5.3 million in 2016 which includes $1.8 million as basic salary, $2.3 million as bonus and remaining as the superannuation. The announced pay packet has created controversial topic across the globe. Ahmed Fahour is working as the Chief Executive Officer of Australia Post, a government department. With the disclosure of the pay packet of Ahmed Fahour companies other than the Australia Post like DHL, Fed ex has suddenly come in the state where they can make more profits out of that. They have started the wheel to get the Ahmed Fahour salary compared with similar executives working in the post office and that across the World. But the same comparison has been disregarded by many of the individual writers as well as the entrepreneur and business magazines stating that the comparison so made is totally void. It is because the caliber that Ahmed Fahour has is much better than other and was also heading the Parcel express transport business of Cargo. It has also been argued that the salaries of public servant are less as compared to employees of the private sector. It would have been right if he would have not been the chairman of National Australian Bank. Ahmed Fahour himself has argued that he has taken up the challenging task to be associated with the government department for parcel business knowing it will be difficult one and have come up with the new figures and facts stating that Australian post have acquired 75% of market share leaving behind Fed ex and DHL with 10% and 5% market share respectively. (Gottliebsen, 2017). As per the given review it is established that the high pay packets is because of the work and performance that Ahmed Fahour has delivered in the last and it has been regarded as one of the rare effort taken by Ahmed Fahour to be associated with Government and make them earns the high profit and capturing high market share. This cause explains that the Ahmed Fahour has got high packets and controversial issues thereon. Thus, these actions of Ahmed Fahour and the associated companies and people have led to the conclusion that there applies the positive accounting theory.
Normative Accounting Theory– In the article it is mentioned that the nomination and remuneration committee will meet at the end of the month and will inform where the pay packet of Ahmed Fahour will be negotiated and sacrificed and what will be its effect on the future pay packet of the staff of Australia Post. As some future prediction will be there, therefore the theory of normative accounting will also apply but to some extent.
Brachmann S, (2017), “Difference between Positive and Normative Accounting Theory”, available on https://thefinancebase.com/differences-between-positive-normative-accounting-1663.html accessed on 04/05/2017.
Deegan C, (2016), “Financial Accounting theory”, available on https://www.sekoyen.com/DeeganFAT_3e_Chapter_01.pdf accessed on 04/05/2017.
Gottliebsen R, (2017), “Why Ahmed Fahour is worth every cent of his $5.6 million Australia Post Salary”, available on https://www.theaustralian.com.au/business/opinion/robert-gottliebsen/why-ahmed-fahour-is-worth-every-cent-of-his-56m-australia-post-salary/news-story/8b3b687dd6a8c96237d6369db858bb05 accessed on 04-05-2017.
Milne M, (2014), “Positive Accounting Theory, Political Costs and Social Disclosure Analysis : A Critical Look”, available on https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.199.7620&rep=rep1&type=pdf accessed on 04/05/2017.
Watts R. and Zimmerman L. (2015), “Positive Accounting Theory : A Ten YearPerspective”,availableon https://faculty.etsu.edu/pointer/watts%26zimmerman2.pdf accessed on 04/05/2017.