Subject : Cost Accounting

Topic: Social Accountability in Accounting

Task Details: Groups are to research one specific issue of their choice relating to accounting related social accountability (Topic 8, Chapter 9) that is prominent in today's Australian business environment. As a result of their research groups need to develop a presentation detailing the issue, including examples, and explaining the implications for various stakeholders.

The presentation should conclude with supported specific recommendations as to how organisations and their accounting advisors should proceed in light of the analysis.

Research Groups need to support their analysis and recommendations with a minimum of requirements: 5 recent and relevant academic journal articles. Other sources may also be used but groups need to be confident of the academic validity of such sources.

Presentation: 15 minutes presentation per group. Each member of the group must present at least 2 minutes of the total presentation followed by 5 a minutes question and answer session from the audience.

Subject Learning Outcomes

a) Critically evaluate financial accounting information and standards and synthesise various theoretical and philosophical approaches to accounting

b) Further develop technical accounting skills by applying and analysing selected advanced accounting standards

c) Produce and justify comprehensive accounts

d) Work in teams to resolve complex applied problems, design reports and present and defend the conclusions We want PowerPoint slides and word files of same.

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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Deegan, Financial Accounting Theory 4e

Firms and contracts
• Firms can be characterised as a nexus of contracts
-between consumers of products and the suppliers of factors of production

• Firms exist because they reduce contracting costs,
-firms provide an efficient means of organising economic activity
-[consider the alternative, an individual organising the production of a good: acquiring the raw materials organising various people to make the good]

• Contracts include all types of agreements between two or more parties (not necessarily written contracts)

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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Deegan, Financial Accounting Theory 4e

Origins of PAT-agency theory
• Agency theory was crucial to the development of PAT

• Agency theory explained why the selection of particular accounting methods might matter

• Focused on the relationships between principals and agents
-e.g. between shareholders (principals) and managers (agents)

• Information asymmetries create much uncertainty
-transaction costs and information costs exist

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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Deegan, Financial Accounting Theory 4e

Agency relationship

• The ‘agency relationship' is a central focus of agency theory

• Defined by Jensen and Meckling (1976)
-a contract under which one or more (principals) engage another person (the agent) to perform some service on their behalf which involves delegating some decision-making authority to the agent

• Agency theory key assumptions from the economics literature, such as:

-assumptions of self-interest and wealth maximisation

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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd  PPTs to accompany Deegan, Financial Accounting Theory 4e

Price protection
• In the absence of contractual mechanisms to restrict agents' potentially opportunistic behaviour, the principal will pay the agent a lower salary

-compensates principals for adverse actions

• Agents will therefore have incentives to enter contracts which appear to limit actions detrimental to agents

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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Deegan, Financial Accounting Theory 4e

The agency problem
• At the core of the analysis is the ‘agency problem'
• The agency problem relates to issues associated with motivating one party (the agent) to work in the best interests of another party (the principal)
• Agency problems arise because of inefficiencies and information asymmetries
• The agency problem leads to ‘agency costs'

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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd PPTs to accompany Deegan, Financial Accounting Theory 4e

Agency costs
• Monitoring costs
-costs of monitoring agents' behaviour
-e.g. auditing financial statements
• Bonding costs
-costs involved in agents bonding their behaviour to expectations of principals
-e.g. preparing financial statements
• Residual loss
-too costly to remove all opportunistic behaviour

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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd  PPTs to accompany Deegan, Financial Accounting Theory 4e

Role of accounting in contracts
• Accounting information is used to address the agency problem and to reduce agency costs

• Accounting is used as a monitoring and bonding mechanism to control the efforts of self-interested agents (managers)

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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd
PPTs to accompany Deegan, Financial Accounting Theory 4e

Key hypotheses
• Three key hypotheses frequently used in PAT literature to explain, and predict support or opposition to, an accounting method
-bonus plan hypothesis
-debt hypothesis
-political cost hypothesis

• Research assumes managers will act opportunistically when selecting methods

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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd
PPTs to accompany Deegan, Financial Accounting Theory 4e

Bonus plan hypothesis
• Managers of firms with bonus plans are more likely to use accounting methods that increase current period reported income
-also called management compensation hypothesis
-action increases the present value of bonuses paid to management

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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd
PPTs to accompany Deegan, Financial Accounting Theory 4e

Debt hypothesis
• The higher the firm's debt/equity ratio, the more likely managers use accounting methods that increase income
-also called debt/equity hypothesis
-the higher the debt/equity ratio, the closer the firm is to the constraints in debt covenants
-covenant violation results in costs of technical default

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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd
PPTs to accompany Deegan, Financial Accounting Theory 4e

Political cost hypothesis
• Large firms rather than small firms are more likely to use accounting choices that reduce reported profits
-size is a proxy variable for political attention
-reduction of reported income is hypothesised to reduce the possibility that people will argue that the organisation is exploiting other parties

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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd
PPTs to accompany Deegan, Financial Accounting Theory 4e

Two perspectives adopted by PAT research
• Efficiency perspective

• Opportunistic perspective

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Copyright © 2014 McGraw-Hill Education (Australia) Pty Ltd
PPTs to accompany Deegan, Financial Accounting Theory 4e

Efficiency perspective
• Researchers explain how contracting

And please include some pictures in it. Like for example research about Woolworths, Caltex etc.

Words : 6 Pages report ?(Around 1800 Words) ?+ 15 PPT Slides