Article review and summary Essay Example | Topics and Well Written Essays - 1500 words

Article review and summary - Essay Example Conceptual model have been proposed to evaluate the performance of the CFO for making compensation decisions. Earlier it considers the quantitative financial performance measures and the managerial duties of the CFO but now it also considers fiduciary duties of the CFO in the post Sarbanes-Oxley Act (SOX) era towards the judgment of CFOs compensation. Conceptual model also takes into account two interactive factors and that are governance oversight and costs of firm of financial statement misreporting. Hypothesis tests, control variables, correlation matrix, robustness test and a look back analysis have been conducted to show the relationship between ICMW and the CFO compensation. Thus this paper focuses on the various threads of literature in judging the CFO compensation. Summary of Article Under the SOX Act of 2002, the CFOs and the CEOs i.e. the chief executive officer are required to maintain, establish and assess the effectiveness of internal control and also required to report o this assessment in both annual and quarterly financial statements. In the post SOX period CFOs have been more responsible for their actions as they play primary role in the oversight of internal control fulfillment. ... to reward attainment of firm annual objectives and long term mechanisms are designed to encourage sustainable growth of the firm and to align the management interest with those of shareholders. Different proxy statements state that along with the compensation committees, CEOs also plays an important role in deciding the CFO compensation. The discussion suggests that in the current year i.e. year t, with the disclosure of ICMW, CFO compensation has resulted a decline in comparison to previous year. Managerial duties of CFO involve adding towards operational decisions which influences the financial performance and fiduciary duties include maintaining top quality internal controls. Prior research has not observed the association between internal quality control and the CFO compensation because compensation of executives was earlier based on financial performance measures only but now it depends on nonfinancial performance measures also. It is expected that ICMW disclosure has resulted a decrease in CFO compensation. The conceptual model expresses two factors that influence the relationship between the CFO compensation and the ICMW disclosures. First is governance oversight and the second factor is costs of firm of financial statement misreporting. Agency theory stresses on the disagreement between shareholders and managers. The conflict is that though the shareholders employs the managers to take actions on their behalf but sometimes the manager’s interest are not aligned with those of the shareholders. There are certain difficulties associated with financial performance measures so, nonfinancial measures are considered more important in evaluating agent’s performance and also regarded as the key drivers of the firm value according to the prior research. Internal