Accounting Assignment: Article Review
Added on 2020-05-28
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ANSWERFor the purpose of this study, two peer reviewed articles have been considered namely “Half adefense of Positive Accounting Research” written by Paul V Dunmore and “Positive AccountingTheory and Science” written by M. Humayun Kabir. The organization that has been selected forthe purpose of completing the study is Qantas Airlines. The company is registered in Australiaand listed in the Australian Stock Exchange. The company is the largest domestic andinternational airline company and is one of the leading brands of Australia.Paul V Dunmore has stated that the positive accounting theory explains the behavior of thehumans involved in the accounting settings (Ghanbari, 2016). The theorists have highlighted therelationship of the auditor and the auditee so as to explain the behavior of the auditor and auditeein the account settings. In the given case of the Qantas Airlines Company, the relationship of theofficials employed at the top management of the company and those involved in the accountsdepartment have been detailed with the detailed analysis of the annual report of the company(Christensen, 2016; Williams, 2012). In the annual report of the company for the year ending 30th of June 2017, the positiveaccounting theory hypothesis has the great impact on the valuations and the presentation of thefinancial statements. The remuneration report of the company has laid down the following major heads on the basis ofwhich the remuneration of the management officials of the company is decided which includesDirectors, Chief Executive Officer, Chief Financial Officer of the company:-Short Term Incentive Plan - It is the part of the annual incentive where the executive ofthe company is rewarded with the mixture of the cash bonus and the shares in therestricted manner. These are rewarded only when the performance as planned by theboard is achieved by the individuals employed at the higher positions. The company hasused the following formula for calculation of the short term incentive award:Base Pay X Target X Scorecard Outcome X Performance factor of each individual. Each of the part has its own significance and is directly related to the remuneration of thechief officials of the company. The performance measures are totally dependent upon theprofit before tax. Profit before tax has been regarded as the budgetary control item for the
performance of the chief officials. The scorecard balance consists fifty percent from theprofit before tax figure and the remainder balance of fifty percent depends upon the otherfinancial and non financial measures. -Long Term Incentive Plan – This plan includes an award which is upfront for a fixednumber of rights. For calculation of the long term incentive plan, the following formulahas been used by the company (Company Official Website, 2017) :Base pay X Target X Fair Value of RightEach part of the formula has its own significance. The target pay varies from fifty to eightpercent of the base pay. In case the performance marks are as per the budgeted figuresand that continues for over the three year period then their vested rights willautomatically convert into the shares of the Qantas Airlines. The one of the majorcondition for the performance measurement that has been defined by the company is thatthe performance will be compared to Australian Stock Exchange 100 companies and anAirline Peer group. The share price in the market of the company is compared so as tocome at the conclusion for the remuneration of the chief officials (Company OfficialWebsite, 2017).
Now, the concept of positive accounting theory has come into place. The chief officials of theQantas Airlines are feeling motivated to indulge themselves in the practices which will help inincreasing the share price of the company. It is because their remunerations are linked directlywith the share price of the company and for this they might themselves engaged in entering intothe manipulative practices or genuine practices to either increase the figure of the revenue of thecompany or decrease the expenses of the company so as to have the higher profit for thecompany which in turn will lead to increase in the share price of the company (Trang and Thao,2016). The screenshot of the statement of profit and loss account is given below: The remuneration report of the company has laid down the change in the policy of theremuneration from the period beginning from the year 2017 and accordingly it can be seen fromthe above screen shot that again in the future year the chief officials will have the higherremuneration.
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