Investigating Performance Evaluation

The use of a single accounting standard – for both performance measurement and tax reporting removes the risk of a more favourable internal valuation becoming damaging evidence in the event of disputes with tax authorities (Baldenius et al, 2003, p. 592). Also, there is no additional administrative overhead and associated costs that may have resulted if the performance reporting was decoupled from tax reporting. Watty and Terzioglue (1999, p. 5) cite Kaplan as saying non-financial measures are just as essential and too much emphasis on just financial measures may decrease an organization’s long-term viability. Also, Kren (1994, p. 68) assumes that excessive or inappropriate reliance on accounting performance measures would prompt managers to manipulate accounting data. That this pressure exists within the Niessen culture can be inferred from the US marketing manager’s manipulation of the transfer pricing.
A profit centre model implies that managerial control is decentralized with ultimate responsibility for centre performance residing the business unit manager. However, Niessen Peru is a captive subsidiary company with only one customer: Niessen Apparels, USA, its parent. The present policy excludes any scope for attracting or soliciting orders from other apparel companies who may or may not be competing in the same market space. This would mean that Valencia’s responsibilities are limited to operations: production efficiency and cost control. Being a captive subsidiary, Niessen Peru is totally dependant on the parent company to keep its production capacity fully utilized.&nbsp.Any slackening in the order flow will impact the bottom line.&nbsp. Sales are outside Valencia‚Äôs control and responsibility.&nbsp. Any performance measure that does not compensate for this factor will present a skewed result that can be easily misinterpreted.&nbsp.