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The three widely used accounting theories discussed here are agency theory, stewardship theory and stakeholder theory. The accounting theories are based on practices and methods. The agency theory describes the link between principal and agent. Principal is the shareholders and agent is the managers. In agency theory the principal delegates the task to the agent to perform on their behalf. The principal delegates the decision making power to the agent and it may create the lack in efficiency as a result may increase the cost. This theory also includes the conflict resolution between principals and agents (KOPP, 2019). The stewardship theory is concerned with the satisfaction of shareholder. The role of manager in stewardship theory is maximizing the potentiality and acquisition of long term wealth (Jones, 2015). The stakeholder theory creates the value for stakeholders. The business considers the customers, employees, suppliers, shareholders. In this theory the interest related to the collective group is considered (Harrison & Barney, 2019).
In this essay the journal papers of the agency and stewardship theory is discussed and the relevant accounting standard is discussed.
The main purpose of paper is to identify the economic and social improvements of the agency theory.
The agency theory is related with this purpose because the theory develops with the time and is influenced by the people and events. In this paper the author had described the agency theory and the impact on development of theory.
The findings are the influences related to agency theory are out dated which impacts in the terms of up to date business. The research is limited on the basis of events and author focused on the foundation of agency theory. The foundation or the groundwork of the agency theory can provide the better understanding. The agency theory is concerned with two parties, the principal and agent. There cannot be a same interest between the two parties and the differences create an agency problem. The main focus is to resolve the conflicts. The major agency problems are strategic entrepreneurship, social entrepreneurship, family business, social media and evolving stakeholders.
The implications were like detach between theory and practice, issues in the business and family dealings. For example, the combined employees made a strike in year 1997, FedEx commenced to gain the shares in market. FedEx planned to mix roadway packaging system in FedEx business model. The outcome was standardization in trucks, route details to provide a stable experience to the FedEx customers. So here, the contactors started to complain and the principal agent conflicts arise. Independent contractors said that FedEx treated like employees, but not compensated in that way. With the FedEx view, these changes will benefit the independent contractor but independent contractor claim against FedEx that they were breaching the labour laws. This example was of strategic entrepreneurship and this is one of the principal agent conflicts and then agency theory takes the measures to solve the conflicts. The future avenue is that further more research is required for the agency problems new principle and agent relationship is to be refined, the aspects related to social theory are to be explained clearly and the theoretical development is also necessary to monitor the requirements (Bendickson et al., 2016).
The purpose of paper defines supply chain as the progress of the entities involved in enhancing the customer value.
The agency theory is related with the purpose of the paper in the matters related to the integration and cooperation of supply chain which will increase the operational performance. The operational performance means to accept the performance of supply network and it includes measures related to cost and service level. The theory is based on agency problem or situation of conflicts.
The findings were that the uncertainty may be reduced with the increase in prominence of the supply chain. For example, the uncertain partners in supply chain may become risk averse and this will lead in changing behaviour with the other partners and because of the changing behaviour there will be conflicts. The major challenge in managing the risk of supply chain is uncertainty. The uncertainty can be reduced if the partners share information related to demand forecast, capacity utilisation with other partners.
The implications of the agency theory suggested that the improvement in sharing information and monitoring the action of agents helps in minimizing the moral hazards and risk. The agency theory also provides the social arrangement between parties to achieve the benefits. The limitation of agency theory is in the behavioural features as politics, ethics and social. In this framework, the future investigation should be in the way that it includes the behavioural features from perspective of social exchange (Natour et al., 2011).
The main purpose of the investigation is to find the solution of the agency issues.
The purpose is related with the theory and it includes the ideas, perspective, and issue of the agency theory.
The findings in this paper will be the answers to the problems raised. This paper explains three types of agency problem. The first is principal- agent problem which arises when there is separation of ownership. Here the principal delegates the task to the agent with the hope that agent will perform for the benefit of the principal. Therefore, the agents are interested in maximisation of their compensation. The difference in interest leads to the conflict. The second is principal-principal problem which arise due to major and minor principal. The major principals are those who holds majority of shares while minor principals holds small portion of the shares. Here the ownership is with the major principal and they have the right to take the decision which harms the interest of minor principals and leads to conflict. The third is principal-creditor problem which arises when the decision power is with the shareholders and when investing in the project if successful than shareholders will enjoy profits whereas creditors will have only the fixed interest. Due to the circumstances the conflict will be arise between shareholder and creditor.
The paper shows the implication of two approaches. The first is theoretical aspects and second discuss empirical works. The agency relationship is agreement between principal and agent, and these two parties perform for their personal interest and then conflicts arise. The remedies to the problems can be managerial ownership, labour market, debt. Therefore, all the agency issues are not discussed in the paper but the paper has analysed the problem and have find the solution to the problems included in paper. From this research there is possibility to find the solution in the future to the various agency problems (Panda & Leepsa, 2017).
Journal paper 1 (An exploration of stewardship theory in a Not-for-Profit organisation)
The purpose of paper is to explain capability of stewardship theory and motivation of workers in Not-for-profit organisation.
The purpose of the paper is related to the theory the stewards are inspired from autonomy, job satisfaction; trust. The paper defines Stewardship theory relies with the interest of the organisation and not with self-interest.
The findings of this paper were the source of motivation, changes in organisation culture and this has implication on NFP’s management. The overall findings of paper suggest that the behaviour of employees is towards organisation interest. The stewardship theory explains those situations in which the principal and agent has same motives.
The implication of the theory was the collective behaviour will benefit in the group rather than individual. The stewardship theory has explained the influence of extrinsic reward in better way. The motivation under stewardship theory is intrinsic. The limitation of this paper is based on researching of single organisation and only interview data is used which is very small sample size. The future research should be in a way that the data is collected from different sectors and is strongly reliable (Kluvers & Tippett, 2011).
The purpose of the paper is to prove the fact that theory involves trust, professionalism, and rejecting the agency problems.
The stewardship theory is related to the purpose because it is concerned with collaboration and cooperativeness which will provide professionalism, trust.
The findings in the paper will be based on the accountability of the stewardship theory. The paper has established the necessities of accountability and direct link of accountability with stewardship theory. The stewardship theory acts with the interest of the company and rather than serving for self-benefits the stewards serve for the collective interest. Accountability is important even in the stewardship theory. Accountability makes sure the credibility.
The paper implies the mechanisms of accountability which is to be applied in a stewardship approach. The future avenues from the research will be that it will provide benefits to the director and also provides the benefits in decision making. The directors are valued and trusted but if accountability is appropriate than it is important to use it in a sensible manner (Keay, 2017).
In the conceptual framework, International Accounting Standard Board defines Liability as present obligations which arise from past events, which will lead to monetary benefits by utilising the resources. The International Accounting Standard 37 is for Provisions, Contingent liabilities, and Contingent assets (Bova, 2019). The IAS 37 defines provisions as the amount to be paid at the end of the period to settle the obligations. The IAS 37 defines contingent liabilities and contingent assets which occur from past events and whose confirmation depends on the future happening or non-happening of the particular event. The IAS 37 defines the obligating event as event which generates legal obligation. The legal obligation arises from the contract, operation of law or legislation (Capkun, 2016). If future expenses can be avoided from the future actions than there is no present obligation and there is no requirement for provision. This is to be noted that when the obligation depends on the conditions of future happenings, and there is uncertainty that whether liability will occur or not or if it occurs than when will it occur. The four alternatives were explored for this problem. The first is that they do not have obligation if it can be transferred by future activities. The second is the obligation begins when the entity satisfies the ultimate condition. The third is that before fulfilling the condition the obligation occurs and the fourth alternative is to look over the past happenings instead of future conditions and identify whether the obligation occurs. For example, in the bank loan the past event is the receipt of the loan and obligation will occur from the day the loan principal is received. The International accounting standard board made changes in definition of liability as liability is a present obligation to transfer monetary resource arising from past actions. A present obligation means those obligations which are based on certain evidences and they exist in the balance sheet date and are possibly measured (Deloitte, 2013).
A liability is a present obligation and the liability is always legal and the liability can be claimed only when it is legally enforceable. When the present obligation does not exist than the contingent liability is to be disclosed. The liability comes under the balance sheet and only those terms are included which are legal. The claim can be done only for legal terms (Chen, 2018). The liability is not required to be legally enforceable but it is based on the legal obligations. Legal obligations are based on moral and ethics. The legal obligations often arise from moral duties. The obligations are the duty required to perform. This arises from custom, law, and contract or to maintain relations. The framework states that most of the liabilities are legal liabilities and companies have the procedures of moral obligation which arises to the recordable liability and services are rendered to settle the obligation. The obligations are legally enforceable because to fulfil the statutory requirement. The legal enforceability claim exists and this ultimately means that liability exists. The claim will exist only if there is any liability. If there will be no liability than what the one will claim. So it is very clear that the legal enforceable claim exists and it means that liability is present (McPhail & Ferguson, 2016).
This can be concluded that in the essay the agency theory has been explained from three journal papers and stewardship theory has been explained from two journal papers. From the understanding this can be analysed that the agency theory consists of principal and agent and this includes the principal- agent conflict and the remedies to resolve the conflicts. The stewardship theory relies with the interest of the organisation and not with self-interest. This is also explained that accountability is necessary in stewardship theory. Accountability benefits the directors and helps in the effective decision making. This can be analysed that the agency theory focuses on self-interest whereas the stewardship theory is concerned with the communal or the organisational interest.
This is analysed in the essay that the International Accounting standard 37 is of Provisions, Contingent liabilities and Contingent Assets. Liability is defined as present obligations which arise from past events, which will lead to monetary benefits by utilising the resources. It is concluded that there is no requirement for legal enforceability but it is based on the legal obligations. The legal enforceability claim exists and very clearly it means that liability exists.
Bendickson , , Muldoon, , Liguori , & Davis, , 2016. Agency theory: the times,they are a-changin'. Management Decision, 54(1), pp.174-93.
Bova, E., 2019. The impact of contingent liability realizations on public finances. International Tax and Public Finance, 26(2), pp.381-417.
Capkun, V., 2016. The effect of IAS/IFRS adoption on earnings management (smoothing): A closer look at competing explanations. Journal of Accounting and Public Policy, 35(4), pp.352-94.
Chen, G., 2018. Directors' and Officers' Legal Liability Insurance and Internal Control Weaknesses. Journal of International Accounting Research, 17(1), pp.69-86.
Deloitte, 2013. Conceptual Framework (IASB only). [Online] Available at: https://www.iasplus.com/en/meeting-notes/iasb/2013/january/conceptual-framework-iasb-only.
Harrison, S. & Barney, , 2019. The Cambridge Handbook of Stakeholder Theory. Cambridge University Press.
Jones, , 2015. The Routledge Companion to Financial Accounting Theory. Routledge.
Keay, A., 2017. "Stewardship theory: is board accountability necessary?" International journal of law and management, 59(6), pp.1292-314.
Kluvers , & Tippett, , 2011. An exploration of stewardship theory in a Not-for-Profit organisation. Accounting Forum, 35(4), pp.275-84.
KOPP, , 2019. Agency Theory. [Online] Available at: https://www.investopedia.com/terms/a/agencytheory.asp.
McPhail, & Ferguson, , 2016. The past, the present and the future of accounting for human rights. Accounting, Auditing & Accountability Journal, 29(4), pp.526-41.
Natour, , Kiridena, & Gibson, P., 2011. Supply chain integration and collaboration for performance improvement: an agency theory approach. 9th ANZAM Operations, Supply Chain and Services Management Symposium, pp.503-19.
Panda, & Leepsa, N.M., 2017. Agency theory: Review of Theory and Evidence on Problems and perspectives. Indian journal of corporate governance, 10(1), pp.74-95.
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