Accounting: My Disciplinary Literacy - Essay Example

Accounting: My Disciplinary Literacy Accounting is a major at the college of business that I plan to major to major in. Accounting is the process in which economic information and data is collected, measured and communicated to allow the users of the said information who include investors, shareholders, managers, auditors, authorities and the general public to make informed judgements and come up with concrete decisions. My written text artefact focuses on the accounting discipline. It will seek to answer a rather controversial question, which is, how does accounting and stock price affect the CEO compensation? I have three inquiry questions, and I got the results from three different sources. The accounting discipline focuses on a controversial question that relates to the most appropriate method to use when compensating the Chief Executive Officer of a company. Various methods have been proposed on how a CEO should be compensated. This article focuses on two most efficient methods of CEO compensation, but which contrast with each other, that is accounting and stock price methods of salary computation. This discipline focuses on several ethical issues involved in the accounting profession. The accounting discipline directly addresses some of the professional and ethical issues that affect students after completing their courses in higher learning institutions and how they ought to handle their careers. The accounting discipline offers precise solutions to problems and challenges that affect various institutions in offering education to learners. Moreover, it includes the challenges imminent in the management of organizations, and especially those directly related to accounting profession. The discipline advises that the best way to nurture the aspiring accountants in the field of accountancy is by way of offering specialised education to the students by the training institutions (Thomas et al., 119). The audience targeted in this particular discipline include the students, helping them to understand the best methods to use when computing the CEO salary. The other target audience is the top management committee and the remuneration committee who are involved in the computation of the employee salaries. The accounting discipline directly addresses a number of ethical issues affecting employees of a firm including the CEO Remuneration is one of the pressing ethical issues in accounting. How to compute the salary of the CEO has had a number of proposals, making it a controversial issue. It is ethical since the method used in the computation should give the CEO the amount of salary that he deserves, and this makes it an ethical issue. The article discusses an ethical issue on how to compensate a C.E.O. The method used in the computation of a C.E.O.’s salary should appropriately put into consideration the efforts of the CEO in his job in achieving the organizational goals, making sure that he is not poorly compensated and not too highly remunerated. While some financial experts believe that a CEO’s compensation ought to be attached to the accounting results of the firm, others hold that the best way is to compute the compensation based on the stock price of the firm. According to Boschen et al. (144), accounting literature alone is not sufficient in explaining this, and thus, the need to investigate the short term and long-run effects of the both accounting and stock price effects in compensating the CEO. The long-run effects of unexpected performance of a firm and its impact on the CEO compensation is a combination of both good accounting performance and high stock value. Unexpected good accounting performance has a significant effect on CEO’s pay for a short time, but on long-term basis, the trend reverses, and the pay starts decreasing, thus the benefits acquired evens out. However, in the compensation using the stock price performance, a good stock price translates into increased CEO salary, which on the long-run maintains the rise (Boschen et al. 146). Accounting performance of an organization is an evaluation of all the departments of the firm. To acquire a high salary, a CEO must ensure a high performance of the organization. This can only be achieved by targeting on an increasing performance of all the departments of the firm. However, a firm could register an upward growth for a number of years, but later start growing at a decreasing rate. This means that the firm will have reached its optimum growth level and thus cannot grow anymore (Boschen et al. 150). It comes about when the firm has utilized all its resources such as labour, inputs and capital to the maximum and can thus not utilize them anymore. The growth thus becomes stagnant. A CEO who is compensated using this method will start receiving decreasing remuneration as the firm’s performance starts decreasing at the maximum growth level. Contrary to the accounting performance, the stock prices method does not reach a maximum growth level. A CEO who works hard to make sure that the stock prices of the firm keeps on increasing in value does not get to a maximum point of the increasing trend of growth. In fact, when the firm reaches its optimum growth through full employment of resources, the CEO is likely to receive a higher pay than during the period of growth. Stock prices are determined by a number of factors, apart from accounting performance such as demand for the firm’s goods or services or the percentage of the market the firm controls. The ability of the CEO to effectively use a combination of all the factors of production is likely to win him a high remuneration. When the firm reaches its optimum growth potential, the CEO could use a combination of other factors to make sure that the stock prices remains high. These factors include market positioning, exploiting new markets and economic growth of the economy. This ensures that the CEO’s compensation retains an upward growth (Boschen et al. 143-168). New knowledge has been created by proposing the most appropriate method of remunerating employees and especially the CEO. Previously, the accountants held that the best way of remunerating a CEO is through the accounting information and accounting performance of the firm. However, the new knowledge created in this article holds that the best way of remunerating a CEO is by use of the stock share value of the company. The knowledge has been presented by way of logical reasoning (Boschen et al. 168). When compensating the CEO of any particular company, the remuneration committee and the top management committee of the organization should adopt the most ethical method to do so that ensures that the CEO receives the correct reward for the service offered. It is wrong to give him a salary that does not match with his efforts, while it is still unethical giving him a higher pay than he deserves. A CEO, being the head of the organization is vested with a lot of obligations and duties that are essential in steering the firm into a successful achievement of its goals and achieving its objectives. A well remunerated CEO is motivated to work harder and more enthusiastically to achieve these goals. In an interview with Professor Kris, he conquered with this new knowledge created by the accounting discipline. He saw the logic in computing the CEO’s salary by using the stock price of the firm. To him, the stock price gives the most precise efforts that the CEO has invested in the organization and thus warrants the same criteria while computing his remuneration. According to his accounting experience, he ascertains that the stock price is an indication of the ability of the CEO to deliver the goals of the organization in relation to the strategic plan of the organization. Professor Kris specified that a professional accountant performs roles that are more challenging in their job when compared to account clerks and other similar job positions. For professionalism in accountancy, he held that a student is likely to work harder and remain determined in his career path. Ethics is an important aspect of the profession, Professor Kris advices would be accountants. The likelihood of the issues emerging such while in the course of work can be a hindrance to the accountant’s career. Extra knowledge and skills are however required, with the Professor stressing on the importance of professional training in the course. Moreover, he believes in the ability of an individual in being able to think logically and find his way through issues that are likely to surface. He gave more emphasis on the ability of a person to make rational decisions more weight, holding that situations such as the CEO remuneration amounted to the accountant of the firm’s level of understanding of the accounting practices. To him, this is not enough, and thus more skills are required in analysing the company’s performance and giving an informed feedback to the decision making committee. In conclusion, Professor Kris’s interview helped me to gain a huge knowledge on the requirements of the accounting field. I linked my earlier knowledge learnt in class and the information collected form the article with the information he provided to me during the interview. I was able to comfortably answer the questions required in this study such as - how does accounting discipline relate to its audience, and who is its audience? Also, trade article analysis shouldered my idea, and I had a good answer for the question- how does accounting and the stock price affect the CEO compensation? Work Cited Boschen, John, Duru Augustine, Gordon Lawrence and Smith Kimberly. Accounting and Stock Price Performance in Dynamic CEO Compensation Arrangements. The Accounting Review. 2003. Vol 78. No 1. pp 143-168. Print. Thompson, Fernandez Manny, Budnik Shaun, and Boston Allen. APLG Panel on Academia and the Accounting Profession: The Big 4 Respond. Issues in Accounting Education. 2008. vol. 23. No 2. pp. 199-209. Web 8 April 2013 Read More