The board of directors (see Appendix A) are the most important set of users that need to be taken into account when considering a policy change of this magnitude. The board will be the ones that approve or reject any recommendations for significant policy changes from the audit committee, and it is the board that act as agents for the company’s shareholders. It is interesting to note that several executive managers of the company are both on the audit committee and on the board, which could signal a conflict of interest if the policy changes prove to be beneficial to shareholders but not to management.
By definition the board of directors should act in the best interest of the organization’s shareholders, and will therefore reject any policy recommendation that fails to represent the true economic situation of the company. Due to the significant influence within the board, the company’s executive management will be a critical user when considering any significant policy changes. Under the assumption that executive management receive some form of remuneration based on the profitability of the company, the management staff will be most receptive to accounting policies that take a more aggressive approach in order to maximize profits.
Phillip Clark and the remaining members of the organization’s audit committee will be held accountable for the preparation of the company’s financial statements, and in turn must also be considered significant users. The audit committee is appointed by Livent’s board of directors to ensure transparency and accuracy, and to enhance the company’s efficiency by building the confidence of its investors. The audit committee will be held responsible for any accounting policies that were put in place in order to deceive shareholders and to manipulate accounting information.
The organization’s shareholders will be significantly impacted by the company’s accounting policies regarding pre-production costs. However, the shareholders have appointed the board of directors with the power to make such policy decisions on their behalf in order to achieve the objectives of maximizing their return and presenting the financial reality of the company to them through financial reports. The Canada Customs and Revenue Agency (C. C. R. A.
) would be a user in this case, since these policy changes could have material repercussions on the amount of taxes that Livent will pay. The C. C. R. A. ‘s objective will be one of ensuring that Livent is representing the true economic reality of the company in their financial statements and, in doing so, paying a fair amount of tax. In considering the most important users and their respective objectives, it seems obvious that two conflicting objectives have presented themselves.
The shareholders and the board of directors they have appointed are concerned with choosing the accounting policy that will show the economic reality of Livent through accuracy and transparency. On the other hand, the company’s management would be interested in maximizing income in order to make the company appear more profitable and raise the stock price. In the end, an accounting policy that represents the economic reality of Livent should be used, although this will prove to be a difficult task due to the conflict of interest present within the board.
