Affected Parties and Identify their Rights - Implementing Good Corporate Governance - Accounting Assignment Help

Assignment Task :

There are three (3) questions. Answer all questions

Question 1 

Whitehaven ties executive pay to environment 

Whitehaven Coal's environmental performance will have a bigger influence over managing director Paul Flynn's remuneration, after a year in which Mr Flynn said the company ''fell significantly short'' on environmental compliance. The bigger focus on the environment came as the company also pledged to make its NSW mines more consistent and cheaper to run, after fiscal 2020 was marred by rising unit costs, spasmodic production and Whitehaven's weakest coal sales in five years. Whitehaven was charged in August by the NSW Natural Resources Access Regulator with failing to rehabilitate drill sites, illegally drilling bore holes and building unauthorised tracks at its Narrabri coal mine. It is being pursued by the same regulator over accusations of breaches at the Maules Creek mine, and Mr Flynn conceded the company had to do better. "Environmental compliance is another area where we must address some more recent shortcomings,'' he said in an ASX filing on Friday. "Outcomes fell significantly short of what we expect and what the community and other stakeholder groups deserve. Material improvement in this area is essential to maintaining our broader social licence to operate and to meeting the high standards required in the Australian resources sector.'' Whitehaven parted company with several of its senior operational staff within the past year, and the company implied on Friday that those changes were linked to the desire to improve environmental performance. "In this context, fiscal 2020 also saw us round out changes to our management team that represent a significant investment in the leadership and governance structures required to drive change where it is needed,'' the company said in the filing. "Individually and as a leadership group I am confident we have the right mix of experience, skills and interpersonal qualities required to take the company to the next stage of its evolution". 

Changes to incentives 

Environmental performance will now have a greater bearing on the short-term incentive payments in Mr Flynn's remuneration package. Whitehaven has also tweaked Mr Flynn's long-term incentives to align them to the company's growth ambitions. Whitehaven's three most prominent growth projects are to restart the Vickery mine that Rio Tinto used to operate in NSW, expand its existing Narrabri mine and build a new mine in Queensland's Bowen Basin at Winchester South. The progress made on those projects between now and June 2024 will carry a 15 per cent weighting on Mr Flynn's long-term incentive payments. Mr Flynn's total remuneration slumped from $6.2 million in fiscal 2019 to $2.35 million in fiscal 2020, after a tough year in which coal sales fell to a five-year low, profits collapsed by 95 per cent and Whitehaven shares dived. Mr Flynn's fixed remuneration in the year ahead, including superannuation, will be $1.53 million. If all Mr Flynn's bonuses vested to the maximum degree in fiscal 2021, he could earn up to $5.27 million. 

Required:

I. Do you think that the remuneration scheme explained in the article will work in the way intended under agency theory for Whitehaven Ltd? Why or why not?

II. Which incentives, if any, could be subject to earnings management? Why or why not?  

III. What other theories from “Accounting theory unit” can be applied to the discussion reported in the article?  

Question 2 

Imagine you are working as an accountant for a small proprietary company and you are in charge of all accounting functions of this company. It is the company policy that, if the company achieve 15% profit growth, all, employees get a 5% cash bonus. If the company meet this target, you are entitled to $12500 and the CEO gets $20,000 as bonus. No bonuses will be awarded if the company does not achieve the targeted profit growth. The CEO and you review the financial results before finalising the accounts and realise that the company’s profit growth is 14% for the year. Due to the Covid-19 pandemic, some of the company’s customers have been badly impacted and you are certain that for two of your major customers, the amount due cannot be recovered. The company’s asset impairment is also much higher than usual. If you did not account for these impacts, the company could reach the bonus target. The CEO asks you to make the provision for doubtful receivables as usual and not to take the Covid-19 impact into account. The CEO is your immediate boss and has a good relationship with the board of directors. 

Required: 

1. How do you think this situation should have been handled? Discuss the ethical dilemma presented by this case using the ethical decision-making framework (model) given below or another model that you know. 

2.  II. What is the role of the board of directors in implementing good corporate governance to avoid such behaviour?  

An ethical decision making framework using Utilitarian and Rights Theories 

• Identify the ethical issue(s). 

• Determine the affected parties and identify their rights. 

• Determine the most important rights. 

• Develop alternative courses of action. 

• Determine the likely consequences of each proposed course of action.

 • Assess possible consequences including an estimation of the greatest good for the greatest number. 

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