Academic journal article Journal of Accountancy

Bribing the Messenger. (Letters)

Academic journal article Journal of Accountancy

Bribing the Messenger. (Letters)

Article excerpt

I am astounded that in the United States it is common practice to remunerate the chief financial officer and the accounting department (collectively the "accounting function") with bonuses based on a company's performance. These rewards may take various forms including stock options and other incentives based on earnings and EBITDA (earnings before interest, taxes, depreciation and amortization) thresholds. One has to be careful not to put the CFO in a catch-22.

The accounting function can influence earnings by identifying and assisting in implementing activities that relate to obtaining advantageous financing, identifying the ideal leverage level, initiating cost cutting measures, determining and monitoring the key critical components in the industry and performing benchmarking comparisons against these indicators, ensuring a sufficient amount of cash is available to fund operations and future projects and investing all resources in such a way as to maximize return on investment without exposing the corporation to unacceptable levels of risk and tax optimization.

However, one of the CFO's main functions is being a messenger who reports the facts as they have happened, and he or she should not be able to influence the historical numbers.

Part of the problem with corporate reporting today is a direct result of bribes to the messenger. In the article, "Use Best Practices in Executive Compensation Plans" (JofA, Jun. …

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