The Impact Of Output Related Incentives On Financial Reporting Quality : A Case Of Bsi Steel Zimbabwe.

TABLE OF CONTENTS

Contents

Chapter One .................................................................................................................................... 1

1.0 Introduction ........................................................................................................................... 1

1.1 Background of the study ....................................................................................................... 1

1.2 Statement of the problem ...................................................................................................... 3

1.3 Main research question.......................................................................................................... 3

1.4 Research objectives ............................................................................................................... 4

1.5 Delimit of the study ............................................................................................................... 4

1.6 Justification. ......................................................................................................................... 5

1.7 Assumptions to the research .................................................................................................. 5

1.8 Limitations to the study ......................................................................................................... 5

CHAPTER TWO .......................................................................................................................... 6

LITERATURE REVIEW ............................................................................................................ 6

2.0 Introduction ........................................................................................................................... 6

2.1. The accounting shenanigans used by managers to reach set targets and get output related incentives. .................................................................................................................................... 6

2.1.1 Transaction Manipulation .................................................................................................. 6

2.1.2 Creative accounting ............................................................................................................ 8

2.1.3 Management override and collusion. ................................................................................. 9

2.2 Threats imposed by output related incentives on financial reporting quality. .................... 10

2.2.1 Misreporting / Falsification of financial statements. ........................................................ 11

2.2.2 Non-compliance with GAAP and IFRS ........................................................................... 12

2.2.3 Accounting fraud .............................................................................................................. 13

2.2.4 Delay of presentation of financial reports. ....................................................................... 14

2.3 Ways to reduce threats imposed by output related incentives on financial reporting quality. ................................................................................................................................................... 15

2.3.1. Employing skilled human resources. .............................................................................. 15

2.3.2 Sound Corporate governance. ........................................................................................ 16

2.3.3 Establishing an audit committee ...................................................................................... 17

2.3.4. Undertaking of audits. .................................................................................................... 18

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2.3.5 Whistleblowing ................................................................................................................ 19

2.4 Best method in implementing output related incentives. .................................................... 20

2.4.1 Bonuses ............................................................................................................................ 20

2.4.2 Commission. ..................................................................................................................... 21

2.4.3 Profit sharing. ................................................................................................................... 22

2.4.4 Stock Option / Share Ownership ...................................................................................... 23

2.5.0 Relationship between output related incentives and financial reporting quality. ............ 24

2.5.1 Significant positive relationship ....................................................................................... 24

2.5.2 Positive relationship ......................................................................................................... 24

2.5.3 Significant negative relationship ...................................................................................... 24

2.5.4 Negative relationship........................................................................................................ 25

2.5.5 Neutral relationship .......................................................................................................... 25

2.6 Chapter Summary ................................................................................................................ 26

Chapter Three ............................................................................................................................. 27

Research Methodology ............................................................................................................... 27

3.0 INTRODUCTION ............................................................................................................... 27

3.1. RESEARCH APPROACH ................................................................................................. 27

3.2 RESEARCH DESIGN ........................................................................................................ 27

3.2.1 DESCRIPTIVE RESEARCH DESIGN ........................................................................... 27

3.3 Study Population ................................................................................................................. 28

3.4 Census ................................................................................................................................. 28

3.5 Source of data ...................................................................................................................... 29

3.6 Research Instruments .......................................................................................................... 29

3.6.1 Questionnaires .................................................................................................................. 29

3.6.2 Interviews ......................................................................................................................... 30

3.7 Reliability and Validity ....................................................................................................... 30

3.8 Ethical Consideration .......................................................................................................... 30

3.9 Data analysis and Presentation ............................................................................................ 31

3.10 Chapter Summary .............................................................................................................. 32

Chapter 4 ..................................................................................................................................... 33

Data Presentation and Analysis ................................................................................................. 33

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4.0 Introduction ......................................................................................................................... 33

4.1 Response rate....................................................................................................................... 33

4.2 Analysis, Interpretation and presentation of questionnaire responses ................................ 34

4.2.1.1 Transaction manipulation .............................................................................................. 34

4.2.1.2 Creative Accounting ...................................................................................................... 35

4.2.1.3 Management override and Collusion ............................................................................ 38

4.2.2.1 Misreporting .................................................................................................................. 40

4.2.2.2 Non-compliance with GAAP and IFRS ........................................................................ 41

4.2.2.3 Accounting Fraud .......................................................................................................... 43

4.2.2.4 Delay of presentation of financial reports. .................................................................... 44

4.2.3.1. Employing skilled human resources ............................................................................ 46

4.2.3.2 Sound corporate governance. ........................................................................................ 47

4.2.3.3. Establishing an audit committee .................................................................................. 49

4.2.3.4 Undertaking audits ........................................................................................................ 51

4.2.3.5 Whistleblowing ........................................................................................................... 52

4.2.4.1 Bonuses ......................................................................................................................... 54

4.2.4.2 Commissions ................................................................................................................. 56

4.2.4.3 Profit sharing ................................................................................................................. 57

4.2.4.4 Stock options ................................................................................................................. 59

4.2.5 Question : Output related incentives affect the following elements of FRQ ................... 61

4.3 Presentation, interpretation and analysis of interview responses ...................................... 63

4.4 Chapter Summary ................................................................................................................ 66

Chapter 5 ..................................................................................................................................... 67

Summary, Conclusion and Recommendations......................................................................... 67

5.0 Introduction ......................................................................................................................... 67

5.1 Chapter Summary ................................................................................................................ 67

5.2 Major findings ..................................................................................................................... 68

5.3 Research Conclusion ........................................................................................................... 69

5.4 Recommendations ............................................................................................................... 69

5.5 Further area of study ........................................................................................................... 70

5.6 Chapter Summary ................................................................................................................ 70

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Reference List ........................................................................................................................... 71

APPENDICES .............................................................................................................................