Discuss about the Research in Accounting for Strong Built Construction Company.
Most of the organizations mainly put importance to the components like base pay, bonuses, equity, benefits and perks of a typical compensation structure (Horngren, Harrison and Oliver 2012). Organization provides compensation to its employees so that they can able to fulfill their needs. In this study, Strong Built Construction Company has able to maintain its position even when the industry is facing trouble.
A typical compensation package is composed of nine elements. These are – base salary; annual or quarterly bonus; other bonus like boss, peer, outstanding non-normal accomplishments; stock options; stock units; health and wellness that consists of dental, medical, vision, employee assistance program; life and accident insurance that is composed of basic life, survivor income benefit, long term disability, accidental death and dismemberment; other insurance like travel, legal and perks like – internet services, food, gym memberships, company bus, plane or train fare, cell phone and service, company discounts, university or ongoing funding for education, electric car chargers and many more (Warren, Reeve and Duchac 2012). However, the structure of a compensation package depends on size of the organization, nature of industry and even on the geographic location of the organization. The compensation package of an individual of the higher designation might vary as more elements might be incorporated within the structure of compensation. The compensation package varies from one company to another. Thus the proportion of the components of a typical compensation package should vary from one organization to another
Agency theory is one of the major components of financial economics. It indicates the conflicts of the interest between individuals with diverse interest in the same assets. By analyzing the agency theory, it can be assessed that the particular theory indicates the conflicts between shareholders and managers of the organizations and shareholders and bondholders. As per the theory, the relationship between the principals and agents can be described in an effective manner. The traditional agency relationship arises when individuals called principals or hire one or more individuals for conducting a particular process (Ballwieser et al. 2012). The primary agency relation lies between the stockholders and managers of the organization. In this context, Bill Strong, the founding director of Strong Built Construction Company have discussed about the profitability of the business in recent board meeting. Hence, the organization has been trying to improve the agency relationship with stakeholders. In the recent survey, it has been identified that the motivation level of employees have fallen and it has affected the business (Van Puyvelde et al. 2012). Consequently, the business is unable to move forward in the global market. The traditional agency theory facilitates the organization to diminish the conflicts of interest between agents and principals. It is a strong indication of corporate governance and business ethics. With the involvement of the traditional agency theory, the director of Strong Built Construction Company would be able to resolve issues regarding compensations. In this scenario, the profit before tax has fallen and it affects the business in many ways. For example, the employees become de-motivated and less performer. Through the engagement of the traditional agency theory, the Strong Build Company has been upholding the relation with staffs, shareholders, suppliers and customers. Moreover, the organization has been planning to enhance the relation with their employees by providing the adequate compensation to them. In recent years, Strong Built Construction Company has been approaching the conventional agency theory for executing the compensation to employees (Pepper & Gore 2015).
Comparison Between Extrinsic and Intrinsic Motivation
With the involvement of the conventional agency theory, employees obtain the monetary benefits from the company. Bill Strong, the director of Strong Built Construction Company, has argued that monetary compensation would be beneficial for the employees and it would facilitate to motivate employees for providing enhanced performance in the business. On the other hand, the executive compensation would be considered during the compensation planning. Hence, it can be assessed that the traditional agency theory influences the organization approaching compensation for employees in the business (Pepper & Gore 2014).
The extrinsic motivation means outside or external motivation. This type of motivation is commonly found everywhere and is used frequently within the present society. As per the extrinsic motivation, an individual is motivated to behave, learn and achieve based on the highly observed result (Hoggett 2012). Rather it can also be said that this motivation is used for the purpose of fun, learning or development that is served within an experience.
Intrinsic motivation provides fun and mainly aim for competency and skill development and for excitement and accomplishment. In case of intrinsic motivation, an individual perform some activities in order get himself stress free, relieved and to get fun. Implementation of this method makes an individual feel better. Excitement makes people to think in a different way, thus this type of motivation is also counted as intrinsic motivation (Bragg 2013). In terms of intrinsic motivation, an individual work internally to develop his skills, rather it can be said that people are motivated by the implementation of the intrinsic measures.
Though there are many differences between intrinsic and extrinsic motivation, there is one relationship between the two types of motivation and that is both the types help people to get motivate and to achieve their goals.
The compensation of the members is based on the employees who are willing to take the risk and willing to avoid the risk. In case Strong built Construction Company aligns the present incentives in the compensation scheme with the risk attitude of the employees then the employees will be able to reward themselves with higher amount of compensation. The higher is the risk taking attitude of the employee, the higher amount of compensation should be awarded to the employee. On the other hand the risk avoiding employee tends to avoid risk and this should directly reflect in their compensation (Ims et al. 2014).
According to Foss, N & Stea, D (2014), the compensation committee led by U.S. takes in consideration “fairness” and “balance” in the compensation. According to this principle the employees having more responsibility towards the organization fundamentally have greater pay for performance, proper alignment of incentives and a shareholder friendly compensation package. The willing among the employees for greater productivity is has a direct influence on the external rewards and it follows logical sequence of payment system followed by the performance of the employees. The risk avoiding employees are further motivated by the several factors such as, meeting the goals of the organization, making and implementation of the various decisions and the willingness to take part planning, organizing and controlling the effects of the other employees. This has a direct impact on the compensation of the employees (Hermanson 2012).
According to Graham et al. (2013) the best time for the employees to receive financial benefit is during the time when the share prices of the company are high and the tax level is low. The best time is driven by the various market forces, due to this reason the company need to identify the best time according to the present tax and future forecast of the tax structures. In this way even if the revenue of the company falls, the employees will be able to draw higher amount of compensation. The various intrinsic factors like giving a challenging task or getting the employees involved in the decision making process will ensure that the employees always stay motivated and improve the working attitude among the employees. The time when the company decides to dissolves its held shares for the past three years is also a good time to provide the compensation. The company needs to bring liquid flow of money in its account so that it is able to settle the salaries of the employees with ease. (Gursoy 2013).
Compensation is a substitute term for salaries and wages. Studies have identified that compensation is one of the prime factor that helps employees to work to their full potential. Hence, fairness consideration will have to be implemented by the company so that no employees of the organization feel that they are not a valuable asset of the company (Osibanjo, Pavithra and Adeniji 2014). However, survey has identified the fact that level of motivation of the employees have fallen to a great extent. As a result, the management tries to implement conventional agency theory approach so that it can provide high level of monetary benefits to its employees so that their motivational level can remain in good order.
Fairness consideration in determining compensation is a kind of thing that had to mention by the organization (Chen et al. 2015). Otherwise, the prime objective that is to improve the present level of motivation of the Strong Built Construction Company might not be fulfilled. In addition, the company is looking to initiate company share to the employees. Therefore, the company has to ensure that the share of the company is distributed in such a way so that every individual within the company can actually feel satisfied with this approach (Su 2014). Otherwise, it might even increase the negative impact on the mind of the employee.
Executive compensation is one of the most highly important factors that Strong Built Construction Company has to consider at the time of providing compensation to the executives. Since, executive are often considered that they might not show their incentive to perform to their full potential, which might affect the company’s overall performance. Therefore, executive committee has to be developed in such way, which can evaluate the performances of the employees (Goel 2012). The performance measurement is extremely crucial at the time of providing compensation. Since, if the an employee who is giving his best at the workplace, does not compensated properly as compared to another employee who is not probably giving too much effort in the job, it actually can increase the dissatisfaction or frustration level of the employees even more higher. Hence, formation of the committee can minimize this kind of possibilities, which will help the Strong Built Construction Company to increase the present level of the motivation for the employees.
According to Hermanson et al. (2012), compensation committee is need to be established because of practical and legal reasons. The key determinations of the compensations need to be established. There are complex compensation issues which are need to be addressed and the board does not have adequate time to solve the complex compensation issues and this resulted in the formation of compensation committee which ensures that the issues are addressed and receiving the deliberate attention. The committee formed should have relevant degree of independence. The compensation program needs to be designed by the compensation committee should focus on the incentives promoted by the program. The committee should consist of independent directors and the evaluation of the committee should be done annually. The compensation of compensation committee should be determined by the board itself. The chair of the compensation committee would be elected by the board unless elected by the board. With or without case , the board is entitled to remove the member of compensation committee (Guthrie et al. 2012). The members of committee needs to address the dissatisfaction of employees and the idea of new chief officer to provide intrinsic compensation to employees which means motivation is given to the employees by rewarding them in terms of intangible factors such as appreciating them at the accomplishment of the tasks to boost their morale, treating with consideration and making them feel satisfied. This would enable to boost the outcome as the current level of executing compensation is not optimum (O'Reilly 2014).
According to various dimensions of the research study it can be observed that the traditional theory related to the agency theory shows the importance of principal and agents. The agency theory helps to address the issues associated with desire of principal and the attitude of the principal for the compensation of degree of risk. In practical application of the problem is mainly observed among the stock holders. The extrinsic and intrinsic factor of motivation further illustrates how the internal agents vary from the external agents in defining of the attitude towards work. The appropriate time to pay of compensation is based on the availability of the liquid cash flows and several Governmental policies which are in favor of the construction companies. The overall aim of the study is to put an augmented emphasis on the fairness related to the structuring of the compensation package of the employees.
Due to the stringent policy by the government , the construction company is in downturn but the Strong built construction company has been able to maintain its profile and though the company was able to maintain its stability in terms of revenue there was falling motivation among the employees. The proposal by the new chief financial officer, Susan Bold to compensate the employees in terms of intrinsic motivation is sounding good and it would enhance their performance. The monetary compensation would be determined by the time frame of the business when it is exploring. And so the intrinsic benefits such as making them feel satisfied, participating in decision making process would change the attitude of the employees toward their work and would keep them motivated. In order to settle the salaries of the employees with ease, the company needs to maintain the liquid flow of money which is a secondary factor but the primary things to be focused on is the intrinsic factors to enhance the performance of the employees
The aim of the research paper is to evaluate the significance of the explanations as stated in the ISA 700 auditor’s report in decreasing the audit expectation gap. As per the German auditor’s report there existed certain discrepancies in preparing audit reports as per the ISA 700 guideline. The aim of the research paper is to identify the effectives of the policies stated in the ISA 700 statements to reduce the gap between the expectations of the management of a business organization relating to the audit procedure and the actual results that is reflected in the audit procedure (Graham et al. 2012). The research paper seeks to analyze the e implications of the ISA 700 framework as per the operational expenses of a business enterprise. In addition, it seeks to measure the actual financials position of the business enterprise without any bias. As such, the primary responsibility of the research paper is to present a true and fair view of the financial state of a business organization.
Auditors - External auditors , Internal auditors
Financial Analysts - Junior Financial Analysts Senior Financial analysts
Students - High school students , Middle school students
The profitability of a business enterprise.
The financial strength of the business organization as well as the number of preference shares shares sold in the market .
The manipulation checks relate to identifying the discrepancies in the auditor’s report as well as the accounting statements prepared in the year-ended financial statements. In addition, the manipulation checks referred to the preparation of the financial statements of a business enterprise in accordance to the necessary guideline and framework, which the business organization is supposed to adhere. According to Moser and Martin (2012), The manipulation checks has been an essential part of the auditors job in carrying out authentic reports about the financial statements prepared in the business enterprise. Besides this, it remains essential to gather reports as per the manipulations made in the business enterprise. The total expenses of the organization shall be scrutinized as per the vouchers in the organization. (Parker and Guthrie 2014). Thus, undue manipulations would not be made which shall lead to a rise in the operational expenses of a business enterprise.
According to both the studies the primary objective of the audit process was considered to be fraud detection until 20th century. However the primary importance shifted from detection of the fraud to verify the details in the financial statements. The audit profession wanted to avoid discrepancies related to legal suits by the various business organization and general public. It has been observed that fraud detection is prevalent in many firms and stake holders are discontent with the work of the auditors. The objective of the study is to assess the validity of audit estimates gap in Ghana both from auditors and stockbroker’s point of view (Agyei and Owusu 2014).
According to the study suggested by Okafor the difference between the degree of expected performance experienced by the user of both financial statement and the auditor is defines as the audit expectation gap. The study has also identified audit expectation gap as the difference between audit performers and the details conveyed though the audit. The method of data collection was based on questionnaire method.
According to Agyei and Owusu-Yeboah (2013), the report explains, the gap of audit expectation mainly exists due to subjectivity of the terms and concepts used in the auditing process. The concepts include “reasonableness, fair value, adequacy, materiality, reliability and relevance”. The study was conducted using sampling techniques. The approach by Okafor is more rigorous as it is more focused towards quantitative research study by considering hypothesis 1 and hypothesis 2.
According to Agyei and Gyamerah (2014), Albert Agyei’s the participants consisted of 72.5 % of male respondents and 27.5% of female respondents. Among the various respondents the work experience of 60% of the respondents had an experience of over 5 years, while 30% of the respondents were between 6 years and 10 years and rest had even higher amount of experience.
The study conducted by Okafor consisted of participants from the accounting department of the University of Benin, Benson Idahosa University and Ambrose Alli University, and other investing public in Edo state. (Okafor and Otalor 2013).
Acccording to Boateng and Agyei, (2013), the respondents in the study conducted by Albert Agyei revealed that 45% of the auditors agreeing to the statements and 45% disagreeing. The frauds detected in the financial statement were agreed by 65% of the total stock brokers.
The study conducted by Okafor revealed that it was the responsibility of the auditor to ensure the client with an accurate audit report including the financial statements. The main findings of the study revealed that 67.12% of the respondents didn’t know what was expected of the auditor’s as stated in the “statute books” and relevant documents. The response rate given Okafor is more accurate in nature.
Acccording to Ayuurebobi et al. (2015), the study by Albert Agyei is based on the parameters of agreement and disagreement of various variables. It also identifies that there was no expectation of gap among the auditors and the stockbrokers with relation to producing financial statements. Moreover there was no the expectation of the gap was not present between auditors to the stockbrokers with respect to exercising the judgment in the selection of the audit procedures.
The study conducted by Okafor suggested that most of the participants believed that it was the responsibility of the auditor to ensure the client with accurate auditing data and financial data. (Otalor and Okafor 2013).
Accoroding to Kusi et al. (2015), the flaws identified in the model of Albert Agyei indicated several over expectations of the users of the audited analysis of the financial statements.
Several flaws in the model of Okafor suggested that more the public needed to be more educated toward their duties and responsibilities. The auditor’s report should have been further expanded to include disclaimer clauses stating the it is not a certificate or a guarantee related to the financial viability.
Conclusion and Recommendation
It can be concluded that the manipulations check also refer to identifying the discrepancies in the financial statement as well as the auditor’s report. It shall consist of stringent measures to that shall thoroughly examine the sales revenue earned as well as the income tax paid to the business organization. The Government regulations have also affected the present compensation structure of the employees. The time when the Government starts to put more amount of fund on the construction companies, the financial benefit earned by the employees will have an direct influence on the benefits reaped by the company
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