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BAC21 Financial Accounting Theory Assignment Help
This assignment depicts knowledge in relation to various accounting concepts. Initiating with there is a description of “Continuously contemporary accounting” which is the changing factor and adaptation of financial statement with the changing factors. Further, there is a description of Australian government act of no legislation for CSR in the “Corporation act” with regard to theories a namely, public interest theory, capture theory, economic interest group theory of regulation. Lastly, the assignment describes the ANZ bank case study which is related to a significant rise in organisation profitability and its impact on the customers.
Answer the following questions
As per the words of Gaffikin (2014), Chamber was an eminent scholar who advocated the customization of financial statements in accordance with the needs of financial users. Chambers theory advocated the accounting practices must be based on the current market selling prices. In his contemporary accounting theory, he advocated that only current price level changes demonstrate apt utilisation of financial statement by users and decision makers. According to Edwards (2014), Contemporary accounting theory implies a valuation of assets and liabilities at the current price level. It assesses the current cash price which an organisation is an able extract from the market. As per the words of Carmona (2016), it is an accounting method which evaluates the company’s financial capability to adapt the changing environment. It makes recognition of price level changes in its accounting valuation.
In the context of continuously contemporary accounting, “Capacity to adapt” relates to the fact that the accounting systems should adopt changing economic values of assets in measuring the values of organisation’s assets. Changing values depicts three things namely, a financial action could rightly take on the basis of periodical accounting which must be based on changing current market prices, net income calculations would be in real values and that the financial statements would be more real if valued at observing prices at regular intervals. He advocated the fact that measurement of assets must reflect the general purchasing power in its valuation. As purchasing power has a deep impact on the organisation purchase and sells off its assets.
According to Gaffikin (2014), He advocated that an organisation must be flexible enough to adapt the changing business environment or alter its operations which mean that the organisation must be able to measure value required for purchasing new assets or selling off its assets. He advocated that organisation ability to adapt to the new environment is reflected in its financial statement only if values are measured in the contemporary or current method. Accounting information must be relevant and for making it relevant it is important to measure it in contemporary values. His theory principles adhere to the three main principles namely, clear, simple, and effective. Accounting information is maintained with a view to assists to end user and thus, the information must not be ambiguous or irrelevant or misguiding. Otherwise, the financial statement would be detrimental to the growth of an organisation. Though, Chamber’s theory did not oppose other conventional theory of accounting but focused on the providing relevant accounting information to the users.
As per the inquiry of Australian government, Corporations Act must not be amended in respect of corporate social responsibilities as “market forces” are enough to regulate corporations with a view to social and environment responsibilities.
a) Public interest theory- Public interest theory assumes that economic factors fluctuate when a corporation does not act in society interest. Thus, it assumes that government intervention is required to form regulations which are in social interest and also regulate corporations to work for benefitting society. As per the theory, it is absolutely right to form regulations to mandate corporations to disclose of the impact of their activities on society and the actions undertaken to compensate the society in lieu of society resources used (Baldwin, 2012).
In respect of the theory, it can be assessed that the act of government for not including any specific regulations for environmental benefit would not bind corporations for compensating the society. Thus, the corporation would be free in respect of social and environmental actions. Somewhere, for the social benefit, it is important for the government to intervene and forms regulations to reduce corporation’s benefits and enhance society benefits.
b) Capture theory- According to this theory regulations are formed and manipulated to benefit all those who are affected by the government regulations. This theory depicts that the major benefits of government regulations are for the society and not industry. In fact, regulations are so formed so as to reduce the profitability of industries and put that amount for society cause (Accountingblogspot.in, 2012).
The theory depicts that legislations are always formed keeping in view the society benefits. As per the current scenario, the government did not form regulations and trusted the market forces. The intention behind this decision was that the industries have become quite aware of the fact that consumers trust only those industries which do well for the society in addition to their main activities. Though the decision is formed keeping in view the consumer's wellness but the government has left everything on the market forces and did not intervened in the corporate social legislations. One of the benefits is that market forces are very fragile and do not respond to those industries which do not take initiatives for society betterment. Thus, the corporations have to necessarily imply with the CSR activities to maintain a reputation in the market.
c) Economic interest group theory of regulation- this theory is based on the fact of market forces of (demand and supply). The government is on the supply side and forms regulations and interest groups are on the demand side. Government forms regulations considering the interest groups which provide it votes and resources. This also follows the policy of benefitting all those who are affected by the formation of policies. This theory assumes that politicians have totally controlled in formulating legislations and create benefits for themselves. The government might form biased legislations for benefits to any particular group (Baldwin, 2012).
As per the decision of the government to not to formulate any legislation rather let market forces to intervene for societal and environment cause would be beneficial for the society. Market or consumers have become quite intelligent in terms of environment cost and benefits. It is assumed that any organisation which uses societal resources in lieu does not carry out any beneficial act for the society would be accepted by the society. People are well aware of the social causes of the industries. They do not prefer to consume or invest in industries which do not act as a socially responsible person or does not involve in social betterment causes. In fact, market forces itself encourages organisations to perform well for goodwill and increase revenue & profitability.
Q3. Case Study
As per the words of Joshi (2010), Australia and New Zealand bank (ANZ) is one of the leading banks of Australia. The bank revealed its net profits earned in the first half year. The data depicted that the profits were significantly high as compare to last years. As per the reports, the organisation has gained 71% rise in credit cards profits and 93% increase in mortgage profits.
The organisation has formulated a new plan for tackling concerns of its customers. In its plan, it formulated a new customer charter, no charges for over the counter dealings by an individual over 65 years, also announced a new appointment of a “senior customer advocate” for addressing customer issues. The bank has proposed the new plan addressing customer concern just before unveiling its financial performance for –
1. Safeguarding itself from the allegations of over-charging its customers.
2. To justify the allegation of lower staff- customer ratio. The bank has also been alleged for not providing appropriate services in accordance with the payments charged from the customers.
3. The banking officials were aware of the high profitability figures such as credit card profits rose up to $ 58 million and mortgage profits rose up to $112 million. The officials justified the high profits through unveiling a new charter plan for the customers.
4. These were quite extraordinary profits made by the ANZ. The bank, in fact, revealed its financial performance in a detailed manner to inform the public regarding its financial performance and also, issues the new community plan to equate both things (Kern & McGuigan, 2010).
Banks are established with a motive to provide deposit & withdrawal facility and financial products services to channelize economy. They charge appropriate prices for its banking services. This is a customer –oriented sector which must complete its actions through appropriate customer approach. In banking operations, there is always government intervention to mobilise banking functions in respect for the wellness of the society (Naceur & Omran, 2011). But the politicians which are appointed for this job role does not necessarily perform their duties.
Politicians and official authorities get into their job role only in respect of votes, resources, taxes or any other monetary benefit. As per the case study, in fact, it is assumed that the ANZ action plan for the community was also an initiative for benefitting political party for the coming elections. This scenario reveals the fact the public or community issues are addressed only if the authorities have any personal advantage and not otherwise. Personal gain is the major motivating factor of politicians for tackling community issues. ANZ has been over-charging for it services and making profits and this was affecting hundreds of people. Thus, for the benefits of politicians and for justifying banking unauthorised high charges, the bank unveiled a new customer charter and other benefits (Naceur & Omran, 2011).
The bank revealed high profitability data in just a half year. The profitability became a major concern because it was quite significant as compare to other big banks. Such high profitability figures gained the attention of the public. The public became curious to know the justification behind such high figures. As per the data revealed the organisation made profits of $ 58 million (for credit cards), $ 895 million (for a mortgage) and $191 million (for regular banking operations). The figures were unexpectedly high and thus, bank’s flaws were coming out which led to such high profitability. The bank, in fact, started showing concern for community and has made up a plan for the betterment of society and its customers.
The major concern for all was the significant profits figures. As per my views, if the banks have not made such profits or must have disguised the profits through accounting tricks. The community would not have made such concerns for the actions of the banks. The banks have been charging high for past few months for all of it operations whether it would be over the counter transactions, ATM charges, banking solutions, mortgage facility, accounts transactions, general operations, online transfer etc (Salehi & Alipour, 2010). Despite high charges, customers have been associated with the banks and no opposition were raised against it. It was the financial statement figures which led to increasing community concern towards banking actions.
High profits or a significant increase in profits always make an organisation a centre of attraction in a market. In fact, such organisations are always under the surveillance of respective officials agencies. It is evident that organisations use that accounting principles and policies which help in decreasing the net profitability of an organisation. It is done so as to reduce tax obligations, dividend distribution and stakeholder’s distribution etc (Trujillo?Ponce, 2013).
In regard to the case study, my views are that the ANZ bank would surely modify its accounting practices in order to reduce the profits figures. As the case study reveals that customers dissatisfy on such high profits as they were the ones who were inappropriately charged by the respective for the banking services and in fact, the organisation has also employed lesser staff which meant high payment for lesser services. In such scenario, immense revenue generation would cause dissatisfaction among customers. The organisation in fact planned up a new customer charter. Customer charter is a written document which specifies the standards which must be met by the respective bank in order to satisfy customers (Antony, 2015). ANZ included high standards for its customers; it also made over the counter services free for its people above 65 and appointed a senior customer advocate to compensate customers for over- charging and high profits. Thus, the bank would surely change its reported profits for balancing the standards and for gaining customer satisfaction.
The assignment enriched knowledge in respect of financial accounting theory. Continuously contemporary accounting specifies the valuation of assets on the changing general price level to provide relevant information for users. The accounting theories such as public interest theory detailed the use of legislation for the public interest. The capture theory also depicted that the government legislations are formed for benefiting society. The economic interest group theory depicts the supply and demand relation. Lastly, ANZ case study revealed the fact that banks regulations and profits are somewhere through the exploitation of customers and which must be stopped through framing appropriate legislations.
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