Question

c) What do you expect will be the impact of the increased fines in the (i) earnings and (ii)management compensation contracts, of firms in the pharmaceuticals industry?

Answer 1

Answer:

Accounting standards are the policies and principles of accounting. There are different accounting standards which can affect the amount stated as profit

The effect of increased fines is the increased transparency of the ethical practice and the increased obscurity of unethical practices in the accounting information

The reason for the above relation is as follows:

The increase in fines given to companies in the pharmaceutical industry

helps to reduce forms of marketing which are unethical, however the

amount in fines paid for corrupt practices is dwarfed by the major profit

and market share gained from such practices

The use of fines will encourage more transparency where the company is

ethically inclined to abide by the rules of marketing, such that payments to

doctors based on past misdemeanors . However, the making of huge large

profits by being involved in unethical practice may encourage accounting

practice that is focused on the profitability of the venture and therefore,

introducing increased lack of transparency on their financial information,

so as to reduce amount paid as fines

Due to the fines business, where the fines are lesser than the profit made,

increased fines within the pharmaceutical industry will lead to less  

transparency in accounting information as firms try to further increase

profitability by incurring less penalties

Learn more about accounting standards here:

Explanation: