Employee Benefits and their Accounting and Auditing Standards

This assignment discusses the importance of employee benefits and how companies should follow proper accounting and auditing standards for reporting and disclosing them in the annual report. It analyzes two articles that highlight the need for disclosure of employee benefits and the conflicts that management faces between shareholder wealth maximization and satisfying the needs of other stakeholders. The implications of the research on shareholders, society, and employees are also discussed. Course code, course name, and college/university are not mentioned.

Audit Assignment

1
By student name
Professor
University
Date: 7th Sep 2018.
Executive Summary
1 | P a g e

2
In this assignment the topic of employee benefits have been discussed with the help of two
artciles that have been downloaded from a prescribed Journal. Employee benefit is the total amount
that the company pays to its employee in form of cash or kind. It is important that companies should
follow proper accounting and auditing standards that would help in reporting and disclosing these
amount in the annual report of the company.
2 | P a g e

3
Contents
Introduction.................................................................................................................................................4
Analysis........................................................................................................................................................4
Conclusion...................................................................................................................................................8
References.................................................................................................................................................10
3 | P a g e

4
Introduction
In this assignment Employee benefits has been discussed, it is the total amount that the company pays
of their employees. Employees are an important stakeholder of the company and they are working day
in and day out for the company and thus rewarding them with the best compensation is important to
keep them motivated. Same has been discussed in this assignment, along with the affect that it has on
other stakeholders of the company.
Analysis
a) Reason for selection of the two articles
Employee benefits are the benefits that the employees receive in cash or kind from the company.
Various kinds in employee benefits would be inclusive of bonuses, profit sharing, free meals, use of a
company, pension, car etc. . There are two articles that have been stated by two accounting journals
that is based on employee benefits, they have been sleected for the stated reasons-
 There are various regulations that have been stated by the auditing standards that deals with
recognition and measurement of the benefits that the employee receives. Their accounting and
measurement also involves a lot of judgement on part of the management and thus proper
assumptions should be done. These two articles deals with that.
 It is important that auditors should analyse all the requirements that have been stated by these
standards and take decisions accordingly.Both the articles highlights the need for disclosure of
employee benefits. The articles also state how effective employee related policies are an
indicator on the overall performance of the management of the company.
4 | P a g e

5
 Both articles highlights the conflicts that the management faces between shareholder wealth
maximisation and satisfying the needs of other shareholders.
Purpose of the two studies
There is an article by Sarah and co-authors tiled” Moral accounting? Employee disclosures from
a stakeholder accountability perspective” that states how the treatment of the employee benefits by the
companies is an important indicator of their standing in the company and what are the effective internal
control measures that have been adopted by the management for this (Williams & Adams, 2013). The
second article is by Pamela and Tamara, titled, “Attaining legitimacy by employee information in annual
reports” this deals with overall requirements of the management to state and disclose the employee
benefit related information in the annual report of the company. It seeks to provide evidence that is
related to quantity and quality of voluntary employee related information that needs to be disclosed in
the annual report of the company. The article seeks to put emphasis on this point that if the companies
are disclosing their employee related information in the annual report to make their overall relationship
better with the society (Werner, 2017) In the second article, Adoption of the Corporate Governance
practices is the best way companies can deal with the overall objectives that the society demands from
the companies with relation to scattered and disbursed importance. The research article has analysed
the annual report of companies that are listed on the stock exchange with respect to employee benefits
disclosures that they have done and if their stand is correct. The employee related information is
categorised as positive, negative or a combination of both positive and negative as reflected on the
annual reports. The article analysis the social responsibility disclosures that are related to the
relationship between a company and its social and physical environment, that is also inclusive of human
resources and community participation of these factors (Alexander, 2016).
5 | P a g e

6
Similarities and Differences between the two articles.
The major similarities that can be seen in both the articles are-
Both the articles are talking about the importance of employee related benefits and how the
companies should take it seriously and should provide proper compensation to the employee as they
are dependant on the management in many ways. It is also an indicartor whether proper internal
controls are in place or not. That also depicts the strong position of all the stakeholders and they can
decide whether they want to invest or not.
The major dissimilarity between the two articles are that :
1. Article 1 talks about how string employee related benefits are their treatments is an
indicator that the company is managing its overall resources properly and helps in
understanding whether the management has put proper controls in place for future use.
2. Article 2 indicates whether the employee related disclosures are done properly and in what
ways are they important to the management of the company and how employees and the
stakeholder can benefit from it. It talks from the prespective of the employees and the first
article was talking from the prepsective of the management.
Major implications of their research
The main argument of the articles is, whether the stands of the management of employees is
correct. The basic argument that has been stated is that the aim of the management is to improve the
position of the stakeholders of the company and improve the overall return that the company has
6 | P a g e

7
received. Thus, that states on part of the management whether it is an ethical approach or not (Belton,
2017). Two major implication of the two studies on three different stakeholders are stated below:
 Shareholders
Corporate management is important but putting more preference to the shareholders is not
correct, the company cannot and should not scrap the benefits that the company is entitled to provide
the employees with. Thus, we see that because of this action of the management, the employees are
getting hampered, and if the aim of the management is to provide for the shareholders, the aim also is
to support the employees who are the backbone of the company (Trieu, 2017). Thus, overall, we see
that employees are a vulnerable party and they have very less rights to say in front of the management.
So, it is the duty of the company to see that employees are not affected in a vulnerable way just because
they want to fulfil the needs of some other party. Thus one major point that both the articles are
highlighting with respect to the stakeholders is the need to be affirmative in their view as the
management will always try to balance the needs of all the parties that are dependant on them.Thus
that will be helpful for the stakeholders as they will understand the position of the employees in the
company (Jefferson, 2017).
 Society
The main objective is whether these disclosures are made to improve their overall relationship
with the society in which they are functioning. Employee-related disclosures are done by companies
mostly on voluntary basis and there is no such mandate that they must follow. It is stated only if the
management chooses to disclose the same in their annual reports. But there has been a lot of debate
whether corporate social responsibility is important in some form or the other and what is their effect
on the management of the company (Arnott, et al., 2017). It is thus important that employees should
get their dues and organisations should acknowledge the overall contributions that they are making and
7 | P a g e

8
thus disclosing the same in their annual report should be a part of the corporate social responsibility so
that society can understand what are the dues that companies are giving their employees. There can be
both negative and positive approach to this as non-disclosing the facts can give the companies can
added advantage where they can decide whatever they pay to the employees in cash or kind, and the
society will not be judgemental of this fact in any ways. The main aim of the companies is to satisfy the
shareholders and this has been stated again and again, but the main aim is also to provide the
employees with their dues and that should not be ignored (Pamela & Tamara, 2013).
 Employees
Employees are the backbone of any organisation and providing them with their dues is very
important for any company. Employee benefits are inclusive of both long term and short-term benefits
and employees should be given a chance so that they can enjoy that. In cases where the employees are
not given their dues they will not function for the company accordingly and they will switch to some
other organisations which is also not healthy. Making proper disclosures regarding the policies of the
company with respect to employee benefits is also very important. It helps the shareholders and other
stakeholders be aware of the various steps that the management is taking. Thus employees would be
benefited as the aim of the company is to support them and both the articles provides information that
would be beneficial to them. Both the articles are highlighting the need of disclosures and visibility as it
helps in reducing the errors that the management might make, and also these disclosures improves
confidence of the management on the company.
Conclusion
Based on the overall analysis it can be said that it would be important that companies treat employee
benefits in the best ways possible and follows all the relevant accounting standards that govern them
8 | P a g e

9
and make proper disclosure in the annual report. This is important from the view point of all the
stakeholders of the companies.
References
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Arnott, D., Lizama, F. & Song, Y., 2017. Patterns of business intelligence systems use in organizations.
Decision Support Systems, Volume 97, pp. 58-68.
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat
International ltd.
Jefferson, M., 2017. Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland.
Technological Forecasting and Social Change, pp. 353-354.
Pamela, K. & Tamara, Z., 2013. Attaining legitimacy by employee information in annual reports.
Accounting, Auditing & Accountability Journal, 26(7), pp. 1072-1106.
Richard, B. & Stephan, H., 1995. The negative effect of an accounting standard on employee welfare: the
case of McDonnell Douglas Corporation and FASB 106. Accounting, Auditing & Accountability Journal,
8(3), p. 12.
Trieu, V., 2017. Getting value from Business Intelligence systems: A review and research agenda.
Decision Support Systems, Volume 93, pp. 111-124.
9 | P a g e

10
Werner, M., 2017. Financial process mining - Accounting data structure dependent control flow
inference. International Journal of Accounting Information Systems, Volume 25, pp. 57-80.
Williams, S. & Adams, C., 2013. Moral accounting? Employee disclosures from a stakeholder
accountability perspective. Accounting, Auditing & Accountability Journal, 26(3), pp. 449-495.
10 | P a g e