Advanced Financial Accounting Case Studies Analysis and Report

This document is a case study analysis of advanced financial accounting, addressing three key areas: CEO bonuses, political costs, and climate change. The first case study examines APRA's recommendations for restricting short-term incentives, referencing arguments for accounting regulation and the bonus plan hypothesis within positive accounting theory (PAT). The second case study explores political costs in the energy sector and the impact of retailer pricing strategies, as well as the potential influence of PAT on price minimization. The third case study focuses on the Australian Council of Superannuation Investors (ACSI) and its role in supporting net emission targets by 2050, the investor community's concerns regarding climate change, and the Business Council of Australia's (BCA) policy on net-zero emissions. Each case study includes answers to specific questions, providing detailed analysis and insights into the presented topics and their implications for financial accounting and business strategy.

Running head: ADVANCED FINANCIAL ACCOUNTING
ADVANED FINANCIAL ACCOUNTING
Name of the Student:
Name of the University:
Author Note:

1Advanced Financial Accounting
Table of Contents
Case study 1:....................................................................................................................................2
Answer to question 1:..................................................................................................................2
Answer to question 2:..................................................................................................................2
Answer to question 3:..................................................................................................................2
Case study 2:....................................................................................................................................4
Answer to question 1:..................................................................................................................4
Answer to question 2:..................................................................................................................4
Answer to question 3:..................................................................................................................4
Answer to question 4:..................................................................................................................5
Case study 3:....................................................................................................................................6
Answer to question 1:..................................................................................................................6
Answer to question 2:..................................................................................................................6
Answer to question 3:..................................................................................................................6
Answer to question 4:..................................................................................................................7

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Case study 1:
Answer to question 1:
APRA suggest to impose some restrictions on short-term incentives because it contains
almost 50% of the senior-executives performances. Here the non-financial targets must also be
included so that the calculation of short-term incentive becomes more justified as there was no
evidence of any profit earned from non-financial targets and this also does not contain any
guidelines under auditing framework (Bruttel and Friehe 2014).
Answer to question 2:
As per the recommendation by APRA for introducing the structure for short-term
incentives, this purpose form the perspective of:
a. Agency problem can be minimized if the structure is introduced because the problem of
justification will be no more and the measurement is quantifiable so it will not be held
under any auditing framework.
b. PAT considers any theory which is extracted from any real-life example. Here when a
research topic is analyzed by one of a senior lecturer, Helen Spiropoulos she found that
almost 40% of 500 big companies in Australia there was no detail of non-financial targets
and related short-term incentives by Chief Executives. The perspective of PAT is to
provide other organizations with proper example to apply them in their accounting
system.
Answer to question 3:
An opportunist here would like to implement the suggestion of APRA because the
measurements are quantifiable as well as less risky which will benefit the business associates to

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earn more short-term incentives as they are not audited so strictly and also there are no specified
guidelines for it. Future business strategies can also be made based upon this statement for
flourishing the business more and expand the business into more markets (Smartsheet 2020).

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Case study 2:
Answer to question 1:
Political cost is a type of hypothesis which will help industries to use smart accounting
statements which will hide the extra profits from political parties and stop attracting them to
invest in it (Study.com 2020). In this article if the energy companies apply political cost then the
politicians will lose their interest over them and will not invest in them. This will allow the
industries to adopt clean energy tools which will be sold at an affordable price to get help for
lowering the electricity bill (Belz, von Hagen and Steffens 2019).
Answer to question 2:
As per Mr Frydenberg the reason for growing prices in the energy sector is the retailers
who are adding their profit with the energy prices. Almost 22% of the energy prices consists the
profit amount which is really too much for the middle-class people and high technology
manufacturing people. He called a meeting with retailers and asked them to work more with
Consumer Commission and Australian Competition and lower the prices. This theory can be
useful in the context of PAT to minimize the energy prices whenever there will be unnecessary
increase.
Answer to question 3:
According to PAT it can be anticipated that the energy companies would try to move the
retailers and provide them a connection with the Consumer Commission and Australian
Competition. This will help the big firms, houses and other business to save up to $1000 per
year. However, Mr Frydenberg also believed there should be more which needs to be added to
lessen the prices and energy companies would definitely implement that so that they does not

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attract politicians due to high price and also consumers also remain satisfied (Milligan et al.
2016).
Answer to question 4:
The media did not show the accounting policies because there were no strict policies
made for the energy department. The most important thing here was to bring some strict policies
into existence so that the energy prices go down. It is also predicted that if the prices doesn’t
decrease then the country would face excessive recession period. A lot of manufacturing firms
will shift their business to another country and a lot of people will lose their job (Würzburg,
Labandeira and Linares 2013).

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Case study 3:
Answer to question 1:
The contribution of Australian Council of Superannuation investors (ACSI) is to gather
the 39 members under them who has almost $202 trillion stakes in most of the ASX 200
companies. These investors must come forward for the purpose of supporting the net emission
target by 2050. This is very much important because of the current incidence in Australia of
bushfire which was really terrific. This agenda regarding climate change also included another
division of opposing carbon neutrality by almost 2050 and some liberals were also very
supportive (Business Council of Australia 2020).
Answer to question 2:
a. Climate change is a concern for investor community because if they contribute to the
agenda then the community will grow more and currently this is a need for the society.
b. Here the managerial branch will try to contribute more towards the agenda because a lot
of firms who are supporting it gets some extra benefit and relief on taxes from
government which increases the profit portion for the company (Gemenne et al. 2014).
c. ACSI managed to set meeting with few countries where the motive was to involve the
transition systematically and for this ACSI used to help those banks who used to dump
the holdings of some companies who are emitting a lot of greenhouse gas and also dump
shares of thermal coal companies.
Answer to question 3:
Business Council of Australia (BCA) developed a policy of net zero emission targeting
by 2050 and the prices will be through carbon. This process will help the companies to emit less

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carbon into the environment and make it less polluted so that gradually this environment gets
better than current situation. The project is up to 2050 and hence it is a pledge to improve the
condition of the environment by 2050.
Answer to question 4:
a) Four key goals should be:
 Securing reliable energy supply
 Affordable supply of energy
 strong competitive economy
 meeting future and current emission reduction targets
b) Businesses will invest in new infrastructure in electricity with minimal government
intervention. This will ensure to meet the reduction target at a very low cost. The
competitiveness and growth of the business economy will stay intact. There is a positive
relation between climate change policy and business investment.

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References:
Belz, T., von Hagen, D. and Steffens, C., 2019. Taxes and firm size: Political cost or political
power?. Journal of Accounting Literature, 42, pp.1-28.
Bruttel, L. and Friehe, T., 2014. Can short-term incentives induce long-lasting cooperation?
Results from a public-goods experiment. Journal of Behavioral and Experimental Economics,
53, pp.120-130.
Business Council of Australia, 2020. Energy And Climate Change. [online] Business Council of
Australia. Available at: <https://www.bca.com.au/energy_and_climate_change> [Accessed 5
April 2020].
Gemenne, F., Barnett, J., Adger, W.N. and Dabelko, G.D., 2014. Climate and security: evidence,
emerging risks, and a new agenda.
Milligan, M., Frew, B.A., Bloom, A., Ela, E., Botterud, A., Townsend, A. and Levin, T., 2016.
Wholesale electricity market design with increasing levels of renewable generation: Revenue
sufficiency and long-term reliability. The Electricity Journal, 29(2), pp.26-38.
Smartsheet, 2020. What Is Stakeholder Theory? | Smartsheet. [online] Smartsheet. Available at:
<https://www.smartsheet.com/what-stakeholder-theory-and-how-does-it-impact-organization>
[Accessed 5 April 2020].
Study.com, 2020. [online] Study.com. Available at: <https://study.com/academy/answer/what-
are-political-costs.html> [Accessed 5 April 2020].
Würzburg, K., Labandeira, X. and Linares, P., 2013. Renewable generation and electricity
prices: Taking stock and new evidence for Germany and Austria. Energy Economics, 40,
pp.S159-S171.

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