FRA Earning vs Compensations

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PRESENTATION Titled by

More company's earning means more Dan's compensations

—Required :

—a. Determine the facts—what, who, where, when, and how.

—b. Define the ethical issues.

—c. Identify major principles, rules, and values.

—d. Specify the alternatives.

—e. Compare norms, principles, and values with alternatives to see if a clear decision can be reached.

—f. Assess the consequences.

—g. Make your decision.

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Definition…

—CEO. A person who has control over the implementation of the focal decisions on a certain corporation.

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Murphy.. Retirement Policy.. and his History in the company

Dan Murphy the CEO. Of the company worked for 43 years.

- The last 8 years was worked as CEO. Of the company.

There will be just one year to be retired and compensated.

- The top management has been decided to impose a retirement policy to get a new blood in the organization, by recruiting a new graduated to the corporate staff.

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High Life style..

the company high style and being a CEO. Of big company, provided to Dan high prestige, high life style and made him a respected man.

But Dan provide to the firm a lot.

—What the problem? And how Dan can save his salary, bounces , and stock option??

There was a PUZZLE to not just save his money

but also MAXIMIZING it !!!

Murphy must increase the net income more than any year before.

Means that would help Murphy to in increase the company net company ??

1- Account Receivable.

2- Depreciation.

3- warranty Expense.

4- pension.

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—Other faces and means that would help Dan in Success or put him in the Fail…?

1- Items of assets that may need maintenance so, Dan could delays those expenses so, Increasing ROA.

Justification …

The standards allow that a short-term expense could be delayed,,,

2- Also the Research and Development cost may be also decreased but not to a limit that could stopped the continuing in the success.

3- avoid acquiring new fixed assets to increase ROA.

4- production level could increase Net Income by ‘’Spreading’’.

That means FIXED COST over a greater number of units and reducing the total average cost per- unit, therefore a gross profit per- unit will increase and inventory levels would be a little bloated.

—Changes could be made…

The prior examples are subtle changes that could be made. As a last resort, a change in accounting

methods could be employed. This would require explicit footnote disclosure and a comment in the

auditor’s report, but if it came to that, it would still be tolerable.

Examples of such changes would be

to switch from accelerated to straight-line depreciation or to change from LIFO to FIFO.

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The process of making the decision and confirming it

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THE MAIN point here is that , the decision should be passed through Chief Financial Officer whose called “ Mike Harrington” and also through the Board Director.

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The process of making the decision and confirming it

Dan had challenges and motives to do this changes,,,

There was two main motives that would help Dan

1- his ambition, and

2- Dan didn’t foresee any strong resistance from Mike, because any increases of Dan compensation would lead to increase of Mike’s compensation and bounces.

—The challenge

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The main challenge was taking the approval of Board Directors because the rejection would loosed Dan the chance of enhancing his compensation and bounces .

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—Ethical Issues

1- Dan realized that any change he implemented would have the tendency to reverse himself and his own interest regardless of the company's overall interest.

2- any near-term decisions would merely enhance reputation as an excellent corporate leader as problems arise after his departure .

3- depending on patronage system to take the approval from Mike on his changes.

4- dependency which means the separation between his goals and the organizational goals

—The main possible alternatives

There would be two possible alternatives to be made :

1- accepting and conducting the changes on the accounting methods that will affect negatively on the company, that means disrespect the ethical aspect.

2- respect the ethical rules and forgetting the idea of changing accounting methods on account the company interest.

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