CASE STUDY -
Subsequent to the Global Financial Crises attention has been drawn to the remuneration of the senior management and executive directors of publicly listed companies. Of particular concern is the proportion of total remuneration which is comprised of performance bonuses. The forms of these performance bonuses vary but can include, for example, cash bonuses and the issuing of shares. There have been calls worldwide from a variety of sources to introduce regulation that would prohibit the payment of performance bonuses to senior managers and executive directors.
You are required to prepare a report that:
(a) Evaluates the theories behind and the justification for the use of performance bonuses as a device to remunerate senior managers and executive directors.
(b) Analyses the potential problems with respect to financial accounting and reporting that can arise as a consequence of using performance bonuses to remunerate senior managers and executive directors. Some specific examples may be helpful to support your analysis.
(c) States and justifies your view as to whether performance bonuses should form part of the remuneration of senior managers and executive directors. Alternate methods may be put forward if you feel this is desirable or applicable.
A real example of earnings management -
In October 2015, it was reported that Westpac was planning to write-off $505 million in software costs they had previously capitalised because the amortisation is affecting their performance ratios (e.g. EPS) each year. Interestingly, the board excluded this write-off from executive pay calculations.
Here is the link: https://www.sharecafe.com.au/sharecafe.asp?a=AV&ai=36861
Attachment:- Assignment Files.rar