As a CPA with PWC, you advise the Compensation Committee of the

Added on - 16 Sep 2019

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As a CPA with PWC, you advise the Compensation Committee of the Board of Directors of MegaCorporation, a NYSE listed company. Mega’s fiscal year end is nearing and the company is in acelebratory mood – based upon financial results to date, revenues and earnings should increase morethan 40% for the fiscal year. The Compensation Committee has just voted to award a $3 million bonusto Mega’s Chief Executive Officer. The award was not planned earlier in the year as no one anticipatedsuch great results, but the committee has determined the award is justified based upon the resultsachieved. Additionally, based upon the results, the Committee determined Mega could lose the CEO toa competitor if the bonus was not awarded. Consequently, paying the bonus was in the best interest ofthe shareholders.As Mega’s CPA, please advise the Compensation Committee whether any “tax issues” arise with respectto this level of executive compensation. Please advise the Committee on their belief that paying thebonus is in the best interest of shareholders. What are your recommendations to the CompensationCommittee members? While communicating your advice, please cite the specific internal revenueservice tax codes and any applicable tax cases, if any, which support your views.
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