Accounting Theory & Practice: Evaluating CSR Limited's Performance

This report analyzes the decline in CSR Limited's share price using agency theory. The report identifies the weak construction market and low aluminium prices as contributing factors, while also addressing shareholder concerns regarding management performance and remuneration policies. Th...Read More

Running head: ACCOUNTING THEORY AND PRACTICE
Accounting Theory and Practice
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1ACCOUNTING THEORY AND PRACTICE
Table of Contents
Summary of the article:..............................................................................................................2
Chosen theory for the article:.....................................................................................................2
Application of agency theory to the article:...............................................................................3
References:.................................................................................................................................4

2ACCOUNTING THEORY AND PRACTICE
Summary of the article:
This article focuses on the decline in the share price of CSR Limited, which is a
renowned building material supplier in Australia. The reasons identified behind such decline
include weak construction market and low prices of aluminium in the nation. However, the
organisation has defended the performance of its management despite such performance. This
has created issues among the various shareholders of the organisation and they have asked to
review the remuneration policies of the board. In addition, at the annual general meeting, the
shareholders have raised the carbon tax issue and repeated write-offs from its glass business,
Viridian, has resulted in huge loss money for CSR Limited (Investsmart.com.au, 2019).
Chosen theory for the article:
In order to evaluate the chosen article, the theory selected is agency theory. This
theory describes the association between agents and principals in business. This theory lays
stress on resolving issues, which could take place in agency relationships owing to unaligned
objectives or different risk aversion levels. The most apparent agency relationship in
accounting takes place between shareholders and business executives. The shareholders are
the principals, while business executives are the agents (Bosse & Phillips, 2016).
Agency theory is involved in addressing issues arising because of differences between
the desires or goals between agents and principals. This situation might take place, as the
principal is not aware of the agents’ actions or the resources restrict them from acquisition of
information. For instance, business executives might have the aim of diversifying the
organisation into other markets. As a result, the short-term profit margin of the organisation
would be sacrificed as well as increased earnings in future (Christensen, Nikolaev &

3ACCOUNTING THEORY AND PRACTICE
Wittenberg‐Moerman, 2016). However, the shareholders desiring greater existing capital
growth might not be aware of these plans.
In this regard, it is noteworthy to mention that even though agents act as the decision-
taker, they bear no or little risk, since the principal would bear all losses or burdens. This is
evident at the time shareholders provide financial assistance to an organisation, which
business executives utilise at their discretion. Therefore, the risk tolerance of the agent differs
from the principal owing to uneven risk distribution.
Application of agency theory to the article:
After evaluation of the provided article, the company executives of CSR Limited
could be identified as the agents and the management of the concerned organisation is the
principal. It is observed that the company executives have defended the management of the
organisation despite poor performance in the form of decline in share price. This clearly
implies that the company executives are acting in the best interest of the management, which
is line with agency theory. According to this theory, the agents act in the best interest of the
principal to the third parties (Pepper & Gore, 2015). In this article, the shareholders of CSR
Limited are identified as third parties.
The shareholders have raised concerns regarding the remuneration policies of the
board of the organisation when the share price performance has been at a declining stage. In
this case, as the management of CSR Limited has delegated decision-making authority to the
company executives, Mr. Sutcliffe, one of its company executives, have found it right to
review the remuneration policies. Moreover, another issue raised by the shareholders of CSR
Limited includes carbon tax issue. However, Mr. Sutcliffe has defended the perspective of the
management in relation to this particular issue. This is because CSR Limited operates in
highly regulated and globally competitive market, in which it has to incur significant amount

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in the form of carbon tax. This clearly makes it apparent that the company executive (agent)
has acted in the best interest of the management (principal) of CSR Limited.

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References:
Bosse, D. A., & Phillips, R. A. (2016). Agency theory and bounded self-interest. Academy of
Management Review, 41(2), 276-297.
Christensen, H. B., Nikolaev, V. V., & Wittenberg‐Moerman, R. E. G. I. N. A. (2016).
Accounting information in financial contracting: The incomplete contract theory
perspective. Journal of accounting research, 54(2), 397-435.
Investsmart.com.au. (2019). Forecast grim as CSR earnings, share price in free fall.
Retrieved 7 January 2019, from
https://www.investsmart.com.au/investment-news/forecast-grim-as-csr-earnings-
share-price-in-free-fall/29962
Pepper, A., & Gore, J. (2015). Behavioural agency theory: New foundations for theorizing
about executive compensation. Journal of management, 41(4), 1045-1068.