Describe how agency theory can be used to explain the mixture of Essay

Describe how agency theory can be used to explain the mixture of measurement methods observed in contemporary financial reporting. You may provide examples, where relevant, to support your answer - Essay Example orical costs for property and equipment, fair value for financial instruments) were developed, they are used to calculate such monetary amounts that will be used as the basis for the incentives and rewards and, ultimately, to calculate the rewards and incentives. In connection with the above, the principal also often have performance measurement systems in place to assess the performance of their agents. These systems include (among others) an analysis of the financial statements and its relevant ratios (particularly the debt to equity ratio). The measurement methods are used to provide reasonable monetary amounts that can be assigned to each account in the financial statements. In turn, these monetary amounts are used to assess the agent’s performance (in terms of profits, growth and asset base) and are also used to calculate the critical ratios used for such assessment. Thus, the agency theory and its related performance measurement and rewards systems are supported by the measurement methods as the latter provide the means by which the principals can assess the performance of their agents and the amount of rewards or incentives that the former will give to the latter. Corollary with the agency theory is the concept of agency costs (Jensen, n.d.). The measurement methods may actually affect the agency costs. Agency costs may actually encourage â€Å"companies to choose accounting methods that pre-commit against management opportunism† (Christensen and Nikolaev, 2009). This makes companies prefer the historical cost method it is perceived to be a â€Å"more effective mechanism for reducing agency costs† (Christensen and Nikolaev, 2009). Fair value and its estimates, on the other hand, may be subjected to the agent’s (management’s) discretion, which in turn, may translate to an increase in agency costs that will be borne by the company. Thus, the presence (or absence) of agency costs actually influence the choice of measurement methods that will be used by

Reward Management in Ikea Literature review Example | Topics and Well Written Essays - 1000 words

Reward Management in Ikea - Literature review Example Most organizations use reward management to motivate employees and enhance their productivity thereby contributing to improvement of overall organizational performance. Reward management is further aimed at ensuring internal, as well as external equity. More importantly, it strengthens psychological contract and also for organization to comply with legislation that require organizations to have reward management system (Phil and Cole, 2011, p. 101). Furthermore, reward management provides an organization with a system that enables it to efficiently administer rewards among employees. There are basically two types of rewards: extrinsic rewards and intrinsic rewards. Extrinsic rewards satisfy basic human needs such as security and survival and include raise in pay, better working conditions, and bonuses among others (Wright, 2004, p. 17). Intrinsic rewards aim at satisfying higher human needs such as development and esteem. The vision of IKEA is creation of better everyday life for man y people including its employees. Its human resource philosophy is that employees can be more productive and committed when the company is taking care of their needs. Like many Swedish companies, IKEA adopted a paternalistic stance towards the needs of employees and employees themselves that seeks to empower employees (IBS Center for Management Research, 2012). The application of its human resource philosophy is more or less standardized and reward policies are applied to all employees uniformly. Its human resource policies are aimed at making relationships between employees open and strong, and employees are encouraged to excel by taking care and supporting each other. In a nutshell, IKEA’s human resource policies seek to guarantee uniform and high quality standards in order to support its future developmental and business challenges (IBS Center for Management Research 2012). IKEA’s reward management system is designed to reward employees more or less equally and is i nformed by the need to make relationships between employees open and strong. Equity theory is relevant to IKEA’s reward management system. Armstrong and Stephens (2005, p. 92) note that this theory suggests that employees will be motivated to engage in actions that they perceive that the conditions of the situation are just and fair and which will ultimately benefit them. In addition, this theory holds that a person will be motivated towards organizational goals if they feel that the amount of effort being put forth commensurate the outcomes or the benefits being received (Byron and Khazanchi, 2010, p. 3). Considering that IKEA’s human resource policies are aimed at creating open and strong relationships among employees and empowering them, equity theory are more relevant to their reward management system. This is because it requires that this system regulates equity and help employees to maximize their outcomes as a whole. Looking into IKEA’s human resource pol icies also shows that the organization is keen to avoid distress among employees which might hamper its efforts towards attaining its goals. Equity theory will therefore be relevant to creating equal relationships among parties in the workplace thus avoiding distress. Equity theory recognizes commonly contributed inputs in organizations to include labor, personal investment, time, dedication, and skill (White and Druker, 2000, p. 81). Application of this