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Compensation Packages: Terrific Telephone Company

ACC8000 Research in Accounting Practice

Question 1

You have recently started working at the Terrific Telephone Company, which provides mobile telephone services. The aim of your task is to structure compensation packages so that the packages align the motivations of executives (called goal congruency) with the desire of the company to maximise the return to shareholders. Currently all employees are on fixed salaries. The industry is very competitive and the CEO would like you to answer the following questions. Prepare separate answers for each question: 

a. Explain why salaries may fail to motivate employees to work productively (as suggested by agency theory). 

b. Identify possible different components of compensation packages and explain how different components may motivate employees to work productively in the short and/or long term. 

c. Discuss how an employee’s attitude to risk might influence their desired compensation package. e. Identify and discuss the benefits of using an executive compensation committee in the determination of the components to include in compensation packages.

d. Identify and discuss three factors that may limit the effectiveness of performance based compensation packages in motivating employees to work productively.

e. Identify and discuss the benefits of using an executive compensation committee in the determination of the components to include in compensation packages.

Question 2

a. How does agency theory explain the need for the preparation of accounts? 

b. How does agency theory explain the need for an audit of accounts?

Question 3

Van Puyvelde et al. (2012) suggest that agency theory alone is not enough when studying governance in non-profit organisations. 

a. Explain what is meant by the term governance (as it applies to organisations). 

b. Explain why using agency theory as a single theory is not appropriate to study governance in non-profit organisations? 

c. Briefly explain an alternate or supplementary theory that might be used more appropriately when studying governance in non-profit organisations. 

Question 4

 The following questions relate to the articles by (Masoud 2017) and Salifu and Mahama (2015), which examined the audit expectation gap issue. 

a) Identify and explain the type of mixed method study that was used by Masoud (2017). 

b)Review the qualitative portion of Masoud’s (2017) study. For each component listed below under (i) to (iv):

  Provide a brief summary of what he has done, and

  Evaluate the appropriateness of what he has done (i.e., was it satisfactory or could he have done something different to improve the rigour of his qualitative study?): 

i. How were participants selected and was it an appropriate method? 

ii. Were the number of participants interviewed appropriate? If so, why do you believe this is an appropriate number, and if not, how many interviewees would have improved the rigour? 

iii. How were the qualitative data analysed and was this analysis appropriate? If so, why do you believe this analysis is appropriate, and if not, what alternative anlaysis would have improved the rigour?

iv. What is your opinion about how the qualitative data analysis was written up?

c)To what extent do you think Masoud (2017) has been successful in drawing on the first phase of his study to carry out the second phase of his mixed-methods study? 

d) Explain how Masuod (2017 ) and Salifu and Mahama (2015) go about designing the questionnaires for their studies. Compare the two studies and choose which study uses a more rigorous approach to questionnaire design, stating your reasons why you believe one approach is superior in its rigour. 

e) Explain how Masuod (2017 ) and Salifu and Mahama (2015) go about writing up the findings from their questionnaires. Compare the two studies and choose which study uses a more rigorous approach, stating reasons why you believe one approach is superior in its rigour.

f) Outline one aspect of Masoud’s (2017) study that has been done poorly (other than the ones already discussed in question 4 b-e above). 

g) Outline one aspect of Salifu and Mahama’s (2015) study that has been done poorly (other than the ones already discussed in question 4 b-e above) . 

Answer

Question 1

a. Explanation of the issue of not motivating the employees with the existing salaries

The executives of an organisation often work as salaried staffs and without having any share in the organisational profit. On the other hand, it can be stated that the executives play the key role in enhancing the production level to increase the shareholders return. This can be justified by stating that the executives and managers play the role of agent, appointed by board of directors in order to carry the business operations as per the goal set by the directors on behalf of the shareholders (Bosse & Phillips, 2016). For this reason, the shareholders focus on the matter of electing board of directors of an organisation. In terms of operating the business operation the shareholders cannot take the responsibility of the work process. Instead of the shareholders the executives are appointed to proceed the work process.

Agency theory can be specified to the fact of introducing the share of an organisation to the employees in relation to transform them as shareholder also. In relation to that, generally in an organisation like Terrific Telephone, this kind of approach is introduced of providing fixed salary to the employees. Based on the issue, a professional approach is created among the employees. Moreover the opportunity of getting higher standard of productivity from the employees is reduced. In the discussion, it can be stated that there are different types of issues are existing of not motivating the employees with the existing salaries such as not having the opportunity to take decisions of own as well as not having the opportunity of increasing the salary. Agency theory offers the approach of providing the opportunity to have the share from the organisation. The advantage of the policy is providing the financial support as well as providing the facility to owner of certain percentage of share (Masoud, 2017). 

b. Identification of the possible different components of compensation packages and explanation of the different components which can motivate employees to work productively in short and long term

In terms of improving the productivity and the efficiency of the employees, it is required to focus on the different types of compensation packages such as providing percentage of profit, selling equity share and providing allowances like bonus.

Percentage of profit: In order to heighten the motivational approach of the employees, the management of the Terrific Telephone can introduce the approach of providing percentage of profit to the employees. It can be added that achieving a certain range of business target the management can provide percentage of profit to the employees (Salifu & Mahama, 2015). Besides that the approach can increase the value of the shares by introducing the involvement of the employees.

Selling equity share: The management of the organisation can take initiatives regarding the approach of selling the equity share to the employees. This approach can provide the approach of involvement to the employees by providing the ownership of the equity share. Through the process the employees can be motivated by having the equity share.

Bonus: In terms of providing the bonus amount, it can be possible to heighten the motivational level of the employees. In the present context of Terrific Telephone, based on the performance of the employees bonus can be provided. Apart from that in the situational context, bonus can be provided to reach to the satisfactory level of the employees to get high quality of service and consistent performance (Van et al. 2012). Applying the approach, value of the share of the company can be heightened which helps to increase the business growth of the organisation.

c. Discussion on the employee's attitude to risk might influence their desired compensation package

Types of work specially the risk factors of the work process can be assessed by the employees regarding the issue of continuing the work. If the risk factor of the work process is heightened, the  demand of the employees can be heightened with the relevance of the work process. In the present context of the business operation of Terrific Telephone, it can be stated that for the technological risk of the work process the expectation of the employees regarding the salary can be heightened. In terms of mitigating their demand the management of the organisation can choose the option regarding the compensation package through which the satisfaction level of the employees can be increased. Apart from that based on the performance, certain commission can be provided to the employees to operate business process in terms of mitigating the risk factor.


d. Identification and discussion of the three factors which may limit the effectiveness of performance based on the compensation packages in motivating employees to work productively

The performance of the employees can be heighten by introducing employees motivating factors. On the contrary according to Shogren (2015), it can be stated that the reduction of the compensation packages affects the efficiency of the employees in relation to the specifying the disparity between the values which is provided to the employees and the values which can be marked as the outcome of the work process. In this discussion, different types of issues can be included such as increasing risk factor, ineffectiveness of the motivational approach pof short time duration and transparent performance appraisal.

Increasing risk factor

The work process of organisation can be changed introducing the approach of increasing the risk factor. It can be added that the enhancement of the risk factor of the work process such as increasing the target and competition in the work process is relevant to the demand of the employees. If there is a obligation is existed to execute high range of task in a situational context in existing salary, negative approach can be generated in the employee’s mind (Dawson et al. 2016). 

Ineffectiveness of short time duration

Motivational approaches is required to provided for both short and long time duration. Introducing long time motivational approach it can be possible to go through the customer retention policy.  

Intransparent Performance appraisal: Introducing the approach of transparent performance appraisal, it can be possible to evaluate the performance of the employees avoiding manipulation. On the other hand, if the performance appraisal approach is manipulated, the work efficiency of the employees can be affected (Kivistö & Zalyevska, 2015). 

e. Identification and discussion on the benefits of using an executive compensation committee in the determination of the components to include in compensation packages

In connection to operate the compensation packages, it can be specified the benefit of the work process. For this reason an executive compensation committee can be formed providing the following responsibilities.

Setting objectives: The executive compensation committee can operate the work process by specifying the objective maintaining balance to the fact of necessity of the effective human resource and the business target. Based on the target profit, motivational approaches can be introduced (Evans & Tourish, 2017).

Specifying the approaches of providing facilities to the employees: The executive compensation committee can examine the factor of introducing the facilities to the employees such as providing the equity share of the organisation. The committee can specify the result of the motivational approaches.

Analysing the risk of the work process

The executive compensation committee can assess the risk factors of the work process. Based on the risk factors, the committee can set the motivational approaches including the collection and assessment of the view of the employees (Tan & Lee, 2015).

Question 2

a. Perception of agency theory in relation to the explanation of the need for the preparation of accounts

In terms of continuing the business process of an organisation maintaining the corporate governance, it is required to focus on the preparation of accounts. Corporate governance can be specified as the system through which the organization can be run in a specific work process. With the relevance of the Agency theory, it can be specified that the agents of the organisation has to be accountable for their execution. Through the process of preparation of accounts it can be possible to keep account regarding the business process of the organisation such as including expenditure, net profit, sales revenue and others.

b. Explanation of the agency theory relating to the need for an audit of accounts

Audit for accounts is required in terms of clarifying the process of account and recovering the risk factors. Introducing the audit of accounts, the risk factor regarding the manipulation of the agents can be mitigated. External audit for account can upgrades the approach of keeping the interest of the shareholder by finding out the limitation of the accounting process. On the other hand the issue relating to the evasive of the approach of tax providing execution can be recovered by audit of accounts (Foss & Stea, 2014).

Question 3

a. Explanation of the term governance

Term governance can be referred to the process through which an organisation can make structure of the work process of the organisation. Based on the four factors such as accountability, fairness, transparency and the motivational approach, core rules and regulations can be formed which can be included in term governance (Van Puyvelde et al. 2012). Accountability focuses on the process of clarification of the responsibility of the duties of the employees to the higher authority. Fairness and transparency are the part of the rules and regulations of the term governance through which the organisational structure can be formed (Maak & Coloma, 2016).

b. Explanation of the significance of the agency theory as a single theory which is not appropriate to study governance in non-profit organisation

Agency theory can be implemented in relation to the operation of the executives instead of the work operation of the shareholders. In the work process of non-profit organisation, there is no as such motivational approaches can be introduced because the option of generating profitability is not generated there. For this reason the management of the non-profit organisation provide stress on the motivational approaches (Maak & Coloma, 2016). On the other hand the ethical concern of such organisations are getting priority than the profitability of the organisation.

c. Explanation of an alternate or supplementary theory which might be used more appropriately when studying governance in non-profit organisations

Resource dependency theory can be utilised in stead of the agency theory in relation to operate the work process of non profit organisation. Resource dependency theory can also be specified as the approach of studying governance in non-profit organisation by implementing the external resources of the organisation. There is a different dimension is existed of the non-profit organisation such as creating social value on ethical base. In this context, resource dependency theory can be related to the organisational process of the organisation in connection to caregiving approach (Van Puyvelde et al. 2012).

Question 4

a) Identification and explanation the type of mixed method study which was applied by Masoud (2017)

In this analysis mixed method theory is introduced by Masoud in relation to develop the research process regarding “An empirical study of audit expectation-performance gap: Case of Libya” (Masoud, 2017). In relation to operate the research process, qualitative and quantitative form of research process can be followed. The researcher focuses on the matter of collecting data regarding the process of audit expectation. For this reason the research process was executed based on the issue of collecting data and information from the related business organisation such as large and medium scale of industries. Apart from that the information can be collected by introducing both the interview and survey process.



Figure 1: Mixed method study

(Source: Masoud, 2017)

For the survey process, employee are required whereas the statement of decision maker of the organisations are required for the interview process.

b) Assessment of the qualitative portion of Masoud’s (2017) study

In terms of operating the research process, the researcher focuses on the issue of the qualitative portion of the research which has been performed through the interview process of the organisations. In relation to that the research process has been operated by collecting the statements of the auditor and also the entrepreneurs of the organisation. In order to operate the interview process the questions are structured based on the issue of the auditing process background of Libya.

i. The researcher has selected few top most organisation of Libya and collect the information regarding the auditing process of the business operation. Apart from that the opinion of the auditors are also involved in the research process. For collecting the qualitative type of data and information, this process can be marked as effective (Masoud, 2017).

ii. It can be stated that in order to collect data and information, researcher focuses on the quality of the information. In order to collect relevant data and information, researcher follows the process of specifying the adaptability of the statement of the respondents. In case of developing the number of the respondents, risk factor can be created regarding the matter of quality of data.

iii. Qualitative data is analyzed based on the justification of the analysis of the data and information which was gathered from the research process. Researcher focuses on the issue of the deficiency of improvement of infrastructure regarding the approach of auditing (Masoud, 2017).

iv. In relation to analyse the qualitative data the researcher provide stress on the problems of the approach of auditing in relation to the business operation of Libya. It can be stated that there is certain chance in terms of manipulating the data and information of the research process as the interview has been operated based on the individual opinion of the respondents.

c) Clarification of the extent that Masoud has been successful in drawing on the first phase of his study to carry out the second phase of his mixed-methods study

In the first phase of the study, researcher Masoud focuses on the issue of collecting data and information relating to the audit process of Libya based on the matter of collecting qualitative data and information. In the second phase of the research process, researcher provide stress on the matter of collecting data and information relating to collect the quantitative data and information by operating the survey process of research operation. Based on the collection of the raw data and information, the research analysis process has been operated which can be treated as the effective mixed method study.

d) Explanation of the designing of the questionnaires for the studies of Masoud (2017) and Salifu and Mahama (2015)

Masoud focuses on the issue of operating the research process based on the questionnaires relating to the audit process of the organisational process. It can be added that the researcher focuses on the organisational problem in relation to the audit process of the organisation. In terms of setting the questionnaires, the process of providing data and information has been assessed through the process of setting the questions (Salifu & Mahama, 2015). On the contrary the opinion of Salifu and Manama regarding the research process can be clarified based on the issue of the auditing process through which the limitation of the auditing process are specified.

Comparison of the two studies and selection of a study which can be used a more rigorous approach to questionnaire design and stating the reasons relating selecting the approach

In relation to operate the research process of two different studies it can be specified that in the questionnaires of Masoud, the questions are formed based on the limitation and shortcomings of the organisations in connection to provide data and information. For this reason the questions of the research process are structured based on the rules and regulation regarding the audit process based on the organisational approach (Salifu & Mahama, 2015). On the other hand, the Salifu and Manama provide stress on the audit process in terms of checking the internal shortcomings of the accounting process. The reason of selecting the research process can be specified based on the ensuring the correctional approach of the present auditing process of the country. 

e) Explanation of Masoud (2017) and Salifu and Mahama (2015) to analyse the findings relating to the questionnaires. Comparison of the two studies and selecting the study use a more rigorous approach and analysing the reasons

Masoud clarifies the matter of the organisational approach in relation to provide the information relating to the tax expenses of the organisation. In relation to that, the service cost and the product cost of the organisation can also be considered in the accounting system in relation to assess the result of audit. On the contrary, Salifu and Mahama focus on the issue of the auditing process by tracing the matter of the organisational income and expenditure. Apart from that through the present audit system, the taxpaying process cannot be easily specified which can affect the purpose of auditing approach (Salifu & Mahama, 2015)? On the other hand in connection to the business operation of the export industries, the tax paying procedure cannot be specified by the audit system which can be included in the findings of the research process of Salifu and Mahama. In the findings of the research process, it was seen that the external audit process can be manipulated in the country which can be the reason of generating the reducing amount of tax.

f) Development of the outline of Masoud’s (2017) study, which has been done poorly

The quantitative data collection process can be marked as the part, which can be done more efficiently. In the research process, the quality of the quantitative research questions can be heightened based on the analysis of the present auditing system of Libya. In this part, it is needed to provide stress on the organizational approach of improving the auditing process. Apart from that it is required to develop the internal research process of the organisation. On the other hand the ethical angle of the research process is not also included in the research question as well as the findings of the research process cannot be assessed. Focusing on the issue it can be possible to recover the limitation of the research process.

g) Development of one aspect of Salifu and Mahama (2015) study that has been done poorly

In terms of operating the research process, Salifu and Mahama can provide stress on the issue of collecting data and information regarding the secondary research process such as assessing the data and information, which can be collected from the journals and books. For this reason the quality of the research process can be compromised.

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