In-depth Research in Accounting: Employee Compensation & Agency Theory

This accounting research report delves into various aspects of accounting, starting with employee compensation strategies, including the role of fixed salaries, compensation packages, and the impact of risk on employee motivation. It examines the relationship between intrinsic and extrinsic motivation and the limitations of performance-based compensation. The report further explores the role of executive compensation committees and their impact on organizational philosophy. The research also covers agency theory in the context of financial statement preparation and auditing, emphasizing the importance of true and fair representation. It discusses governance in both profit and non-profit organizations, analyzing the application of principle-agent theory, stakeholder theory, and stewardship theory. Finally, the report references mixed-method research approaches used in case studies related to auditing expectations, drawing on empirical and literary sources to provide a comprehensive overview.

Running head: RESEARCH IN ACCOUNTING
Research in accounting
Name of the student
Name of the university
Student ID
Author note

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Table of Contents
Question 1..................................................................................................................................2
Answer (a)..............................................................................................................................2
Answer (b)..............................................................................................................................2
Answer (c)..............................................................................................................................3
Answer (d)..............................................................................................................................3
Answer (e)..............................................................................................................................4
Question 2..................................................................................................................................5
Answer (a)..............................................................................................................................5
Answer (b)..............................................................................................................................5
Question 3..................................................................................................................................6
Answer (a)..............................................................................................................................6
Answer (b)..............................................................................................................................6
Answer (c)..............................................................................................................................6
Question 4:.................................................................................................................................7
Answer (a)..............................................................................................................................7
Answer (b)..............................................................................................................................7
i:..........................................................................................................................................7
ii:........................................................................................................................................7
iii:.......................................................................................................................................8
iv:........................................................................................................................................8
Answer (c)..............................................................................................................................8
Answer (d)..............................................................................................................................8
Answer (e)..............................................................................................................................9
Answer (f)..............................................................................................................................9
Answer (g)..............................................................................................................................9
Reference..................................................................................................................................11

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Question 1
Answer (a)
Salaries to the workers are generally the biggest expenses for the company. However,
the productive employees may not get motivated with the fixed salary as they may prefer to
get the extra payment with additional productivity. The main reason that does not motivates
the employees to work more productively is that as per the salary system the employee gets
fixed salary irrespective of his productivity (Pepper and Gore 2015). Further, the fixed salary
does not motivate the worker to work for more hours for additional payment and therefore
earning additional amount is challenging. Moreover, the employee with fixed salary has little
motivation to go beyond and above as he or she will not get any additional benefit for that.
Answer (b)
Compensation strategy is the important part of business strategy that changes with the
business requirements and organizational needs. Generally the job that requires higher
standard of education, higher skills and experience require higher level of compensation.
Various components of the employee compensation package are –
 Job analysis – it is the systematic approach of defining the description, job role,
responsibilities, requirements and finding out the required education level,
knowledge, skills, experience and required training for the particular post. It also
states the worth of the job that is the contribution and measurable effectiveness of the
job for the company. Further, the job analysis assists in analysing resources and
formulating the strategies for accomplishing the goals and objectives of the business
(Mitnick 2013).
 Pay structure – once the job analysis is completed the company is required to decide
regarding the pay structure. The pay structure refers to setting up procedure for paying
off the job in the company. The procedure deals with the external as well as internal
analysis for estimating the compensation package for the particular job profile.
External qualities as well as the internal quality are most popular among the pay
structures.
 Salary survey – after the determination of the pay structure the final step is to carry on
the salary survey. It is the research carried out for analyzing the standards of the
industry for setting up the strategy of compensation. Any organization is not supposed
to provide the compensation that is lower or very higher as compared to the industry

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standards. Therefore, the company carries on the salary survey themselves or may
purchase the report from well known research organization (Bosse and Phillips 2016).
Different components of the compensation package motivate the works to be
productive as the workers get recognition and compensation as per their knowledge, skills,
experience and education level. Therefore, the workers do not feel deprived and are
motivated for more productivity.
Answer (c)
Employee’s attitude towards risk plays important role on the compensation package
of the employee. Generally, the agency theory regarding the performance based payments
does not take into consideration the role of risk. The compensation structure only focuses on
the performance based payments and therefore overlooks the major role played by risk factor.
If the risk taking approach of the employee is high he shall be paid more (Madison et al.
2016). On the contrary, the employees with low risk taking approach can be paid at lower
rates. Under the balanced risk taking incentive all kinds of risks are considered for
determining the amount of compensation for the employees.
Answer (d)
The relationship among intrinsic and extrinsic forms of the motivation is providing
specific rewards to employees which in turn influence them for better performance. It further
encourages them to share the common objectives and decision making process of the
company. Therefore, the relation among these motivations is assuring the mutual benefit of
employees and the company. However, intrinsic motivation identification is difficult as
compared to extrinsic factors.
Limitations of performance based compensation packages are –
 Quality – if the employees are paid based on the performance they will only focus on
quantity rather than quality which in turn may lead to deterioration of quality. For
instance, if a sales person is more concerned with making more unit of sales to get
additional payment he may miss out the important details like assuring that the
product is in stock or providing the product as per requirement of the customers.
Owing to this the customer may receive wrong product or may have to wait long for
the desired product (Mitnick 2013).

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 Lack of the teamwork – the employees who are busy with achieving the personal
goals will be less involved with the teamwork. Further, they might not provide
assistance to the co-workers as they feel that it will waste their valuable time which in
turn will have an impact on the productivity. In few instances, conflicts take place
among the employees owing to lack of mutual cooperation or perception that 1
employee is affecting other employee’s performance and will prevent him from
achieving his or her objectives.
 Inefficient motivation – if the employee feels that the he is not getting the incentives
as per his performance it will de-motivate him to achieve the desired level of
production. Employees may also dislike the employer for not paying him desired level
of payment. Owing to this, they may get motivated for performing at the minimum
required level of production (Raelin and Bondy 2013).
Answer (e)
The executive compensation committee includes independent directors and is
appointed by board of directors. The compensation committee board is responsible towards
the board as well as towards the shareholders for performing their duties like determining and
approving the compensation package of the executives. Various decisive aspects are taken
into consideration while forming the executive compensation committee. One important
aspect is the size that includes 3 to 5 employees. further, it requires proper selection of
committee members. The appointment of executive compensation committee is beneficial as
it helps in –
 Developing the compensation philosophy for the organization
 Approving the compensation plan under which the directors and executives are
allowed to participate after getting the approval from the shareholders and the board.
 Approving or recommending compensation of CEO to the board
 It acts as the liaison among the board and CEO regarding all the issues related to
human resource and all compensation (Mitnick 2015).

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Question 2
Answer (a)
As per the agency theory the accounts shall be prepared to present the true, fair and
balanced view for the company. It shall state whether the company has followed the
governments’ codes and regulations while preparing the accounts. Further, it is considered as
the best practice for providing particular disclosures regarding the board, status of going
concern and reviews regarding the internal control of the company (Misangyi and Acharya
2014). The financial statement must include complete set of the financial statements like –
 Statement of the financial position
 Statement of the comprehensive income
 Statement of the changes in equity
 Statement of the cash flows
 Accounting policies and the explanatory notes related to that.
The above mentioned statements shall be prepared by the Board of Directors. The
statements shall also be reviewed by the management and the management shall also prepare
any other statements and reports that may provide assistance to the users.
Answer (b)
As per the agency theory the audit fulfils the fundamental purpose of promoting the
confidence and reinforcing the trust with regard to financial information. The relationship
among principal and agent as stated under the agency theory is crucial for understanding the
way in which the audit is developed. Audit of the accounts is required as the audit plays
important role in fulfilling the interest of the public with regard to the strengthening various
aspects. These aspects include enhancing corporate prosperity, stating the value and number
of the transactions that are prepared and expanding the diversity. Further, the regulations also
have an impact on the audit role. Regulators act on behalf of the principle for assuring that
the interests are protected and more than one regulatory principle may exist there, for
instance, company board regulators as well as the auditor’s regulators (Westphal and Zajac
2013). The audit is the value to various stakeholders for engendering the confidence and trust
and various other purposes that do not fit under the simple agency theory.

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Question 3
Answer (a)
The term governance is defined as the system through which the organization is
directed, accounted and controlled. It is the formation of policies and continuous observation
of the implementation of those policies through the members of governing body of the
organization. It requires the mechanism for balancing the powers of the members. Its primary
duty is to enhance the viability and prosperity of the company (Aguilera et al. 2015).
Answer (b)
The non-profit organizations arise under the economy for assuring the provision for
socially desirable services and goods. The appropriate microeconomic framework to analyse
the governance of the non-profit organizations is the framework of principle-agent theory.
The reason behind this is that the relationship of principle and agent exists when one party
contracts with other party for performing some services on behalf of him. It includes
delegation of some authority associated with decision making to agent (Grimes et al. 2013).
However, the agency theory alone is not considered appropriate for studying the governance
of the non-profit organization. It must be combined with the stewardship theory and
stakeholder theory to study the governance for non-profit organization. The stakeholder
theory states the importance of the framework with various principles and the stewardship
theory states the situation under which the agents share the interests of the principle or is
motivated to act under the best interest of principle (Van Puyvelde et al. 2012).
Answer (c)
The supplementary or alternate theory that can be used for more appropriate study of
governance under the non-profit organization is the stakeholder theory. The stakeholder
theory focuses on the explicit management of the company that includes interface, external
and internal affairs of the company. The employees and managers are regarded as the internal
stakeholders and the competitors, customers, the creditors are considered as the external
stakeholders and the board of directors are considered as the interface stakeholders as they
are the connection between the environment and the organization (Gautier and Pache 2015).
The stakeholders are allowed the voice with regard to managerial, operational and strategic
issues. Through various governance mechanisms of the stakeholders the company can
establish the approaches towards innovation and planning.

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Question 4:
Answer (a)
Mixed method research is one of the best method for the case study and both the
elected research work are case study on the auditing expectation from the perspective of the
different region (Palinkaset al. 2015). Considering the two researches it can be seen that both
of the study has utilised the literary resources in order to trace the relation between the
auditing expectations from the theoretical perspective and utilising the empirical sources, it
has tried to explain the research objective with the qualitative and quantitative data.
Answer (b)
i:
As per the research method of the Masoud total 775 questionnaires has been
completed, and out of them 400 were completed during the fall and the second batch of 375
surveys were done end of the academic year among the four group (Masoud 2017). Out of all
the students, there were no student who are studying in auditing course. All the surveys were
collected from the private and public universities which are located in the Jordan.
Considering the case of the Salifuand Mahama it can be seen that the researcher has
considered all the users of financial statements in Ghana (Salifu and Mahama 2015). Random
and convenient sampling method were utilised in order to selecting the user group in order to
represent the users of the financial statements. Three respondent group who are bankers,
students of Ghana Chartered Accountants and auditors were chosen in order to study the audit
expectation gap in Ghana.
Coming to the selection of the accurate participant selection, both the studies have
selected right sampling method from their research perspective. First one was aimed to trace
the audit expectation gap of the Jordanian universities students who were studying the
accounting in undergraduate level and the second was expected to search the audit
expectation gap among in the case of the Ghana. Selected methodologies of both the studies
were correct and received desired outcome.
ii:
Considering the case of the Masoud, it can be seen that the 775 questionnaires has
been completed.Out of them 400 were completed during the fall and the second batch of 375
surveys were done end of the academic year among the four group. When it comes to the
Salifu and Mahama, this research work has considered 150 respondents in total among which
there were bankers, auditors and the students of the Ghana Chartered Accountants.
Considering both the case of the studies it can be seen that Masoud’s research has chosen

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sufficient amount of the respondents and respondents have been chosen from the different
institutes making the data reliable. When it comes to the Salifu and Mahama, then the
researcher has failed to chosen adequate number of respondents. On the other hand they have
chosen respondents only from the Ghana Chartered Accountants leading to lack in the
diversity and the acceptability of the data.
iii:
As per the Masoud, it can be seen that the qualitative data has been analysed with the
use of the SPSS and the output from the analysis it can be seen that the exhibit has been well
enough to construct the desired finding. On the other hand, when it comes to Salifu and
Mahama, then it can be seen that, this research has also showcased proper outcome
depending upon the findings. However, the research lacks in the case of the analytical
presentation of the data because all the findings has been showcased with the help of the
basic statistical presentation rather than utilising premium statistical tools like SPSS.
iv:
The qualitative research work of both the studies has showcased almost identical
outcome, however, they have been found with the different method. One has utilised the
statistical software like SPSS making it one of the reliable finding and when it comes to the
Salifu and Mahama, then it lacks in the case of the statistical analysis of the qualitative data.
Basic statistical process has been utilised in order to trace the research aim (Salifu and
Mahama 2015).
Answer (c)
Masoud in the research during the second stage has maintained the duties where the
misunderstanding regarding the auditing expectation gap remains higher. The research
highlights that, second group has preferably more knowledge regarding the auditing
expectation compared to the first group who are in their first year of the study. In addition to
this, it has also been found that the second group of the respondents believe that education of
audit reduce the auditing expectation gap among the students.
Answer (d)
Considering the research work of the Masoud, it can be seen that, total 775
questionnaires has been utilised in two phase for the study and out of them 400 have been
done during the fall and the next batch has been completed during the end of the academic
year. This research work has utilised the four groups of the respondents among which there
was accounting students who are not related with the auditing course, students of year one
and three who were further segregated depending upon their preference of elective subject.

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Data were collected from the different source which was mainly private and public
universities with the close ended question (Morse 2016). It has aided the research to find the
desired data within short span of time. Statements of the respondents, especially in the case of
the third year students, it can be seen that the statements of the same has been designed to
address the four different factors that ate duties, ethicaland legal structure, responsibility,
reliability and auditor report in order to make the survey ideal one for the research.
When it comes to the research work of the Salifu and Mahama, then it can be seen
that the study has slected 150 respondents, out of which, four groups were created depending
upon the nature of their work. For instance, there were auditors, ICAG students and bankers
and then 50 respondents were elected randomly. As per the researchers, only 150 respondents
were chosen in order to reduce the travelling cost lower (Salifu and Mahama 2015).
From the comparative analysis of both the studies, it can be seen that the research
work of the Masoud is more rigorous owing to its reliability, structure and efficiency. It has
more number of respondents, and the collected data is more reliable as well as diversified.
Answer (e)
Masoud has utilised the software like SPSS in order to trace the desired objective and
it has portrayed the finding of the questionnaire in a right order. There has been statistical
representation of the same in the report and when it comes to the Salifu and Mahama, then
the study has failed to provide the findings of the same with great details due to the lack
utilising premium software like SPSS. Thus, from the comparative analysis of both the
research, it can be seen that the study of the (Ioannidis 2014) Masoud has portrayed the
finding of the questionnaire is more rigorous, however, the other one has also been effective
enough to portray the desired aim.
Answer (f)
Considering the Masoud’s research work, it can be seen that the study has failed to
address the expectation of the auditing profession and additionally it has overlooked the
accounting and auditing education programs of the various institutions other than the chosen
institutes making it a gap in the study. This has made the study poor in order to trace the
desired objective of the research because lack of the diversity in the sample has reduced the
wide inference of the same in broader situation (Smith 2015).
Answer (g)
As the study of the Salifu and Mahama highlights, it can be seen that only 135
reviews out of 150 were utilised in order to trace the auditing perception gap (Salifu and
Mahama 2015). In order to reduce the cost of the research, the researcher has elected only the

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ICAG students, auditors and the banking staffs in order to trace the auditing expectation gap.
This has made the research poor from various perspectives. First of all, due to the lack of the
respondents, there is a possibility that it can affect the findings of the research adversely and
in addition to this it has also limited the scope of the further research utilising the findings of
the Salifu and Mahama due to lack of wide acceptability.

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