BAC21
Financial Accounting Theory
Semester 1 2017Assignment
Instructions
- This is an individual assignment
- The assignment is to be submitted on the Moodle in Turnitin
- The Due date is 16/04/2017 by 23:55 pm
- The weight of the assignment is 10%
- The assignment is out of 50 Marks
Answer the following questions
Q1:Chambers' theory of accounting, Continuously Contemporary Accounting, relies on the notion of the ‘capacity to adapt’. What is the capacity to adapt and how is it determined? (10 Marks)
Q2: In 2006 the Australian Government established an inquiry into corporate social responsibilities with the aim of deciding whether the Corporations Act should be amended so as to specifically include particular social and environmental responsibilities within the Act. At the completion of the inquiry it was decided that no specific regulations would be added to the legislation, and that instead, ‘market forces’ would be relied upon to encourage companies to do the ‘right thing’ (that is, the view was expressed that if companies did not look after the environment, or did not act in a socially responsible manner, then people would not want to consume the organisations ‘products, and people would not want to invest in the organisation, work for them, and so forth. Because companies were aware of such market forces they would do the ‘right thing’ even in the absence of legislation).
You are required to explain the decision of the government that no specific regulation be introduced from the perspective of:
(a)public interest theory (5 Marks)
(b)capture theory (5 Marks)
(c)economic interest group theory of regulation (5 Marks)
Credit card profit soars but ANZ feels no guilt
Anthony Hughes
The Sydney Morning Herald, 27 April 2001, p. 3
ANZ denied yesterday it was overcharging customers after reporting a 71 per cent increase in credit card profits.
The bank, which only last week responded to critics by announcing a new customer charter, also reported a 93 per cent profit rise from mortgages.
For the first time the public gained an insight into the profitability of a leading bank's separate divisions. This was because ANZ disclosed its results in a more detailed way.
The overall net profit for the March half was $895 million, a record for the bank and a pointer to more record-breaking profits by the big four banks this year.
ANZ said the rise in credit card profits to $58 million for the half year was due to slightly higher margins, increased market share and new fees. In mortgages, the almost doubling of profits to $112 million reflected growth in sales and better margins in an environment of falling interest rates.
The result comes just a week after the bank unveiled a plan to tackle community concern about banking standards, including a new customer charter, fee-free over-the-counter banking for people over 65 and the appointment of a senior customer advocate.
ANZ's chief executive, Mr John McFarlane, defended the credit card profits.
He said profits would come under pressure as a result of the Reserve Bank plan to cut fees charged to merchants.
In the mortgages arena, consumers could not complain because competition meant profit margins were a fraction of what they were years ago.
‘The reality is these are fair businesses for the community. These are not unfair businesses and we are not getting unusual levels of returns,’ he said.
Mr McFarlane admitted the banks had been slow to recognise the depth of community concern, but the ANZ had ‘got the message’ and he hoped re-regulation of the banks was not required.
‘It is true that politicians of all flavours have been concerned about banks and I think it has taken quite a while for that to hit us fair and square,’ he said.
‘Whether we are going to be regulated or not we are going to have to do things differently.
‘When you look at the policy positions of both parties we are almost operating in line with everything in these.
‘If we behave properly, it should not be necessary but we understand the forces at work.’
The executive director of the Financial Services Consumer Policy Centre, Mr Chris Connolly, said: ‘The banks really are scrambling and the ANZ's actions have been great for some groups of consumers. But it's guaranteed we would not have got that if it was not an election year. If [consumers] are going to get any wins in banking it's going to be in the next 12 to 18 months.’
The national secretary of the Finance Sector Union, Mr Tony Beck, said income from fees and charges had hit an all-time high and ANZ customers were paying more for fewer services.
‘Record bank profits are based on higher fees and fewer staff, so ANZ customers pay more for less service,’ he said. Year on year, ANZ's staff numbers fell by about 6000. There are now the equivalent of about 23 000 full-time staff members.
The general banking operations, which manage all ANZ transaction accounts and deposit products, saw a small rise in earnings to $191 million as a result of higher fee income.
Required:
After reading the case study above, answer the following questions (be specific about the theories you are using when providing your answers):
(a)Why do you think the bank ‘unveiled a plan to tackle community concerns’?
(5 Marks)
(b)What do you think motivates the government to take action against the banks?
(5 Marks)
(c)The bank's reported profit seems to be an issue of concern. Do you think that community concern about the actions of the bank would be as great if the bank was not so profitable? (5 Marks)
(d)Do you think that community concerns about the profits made by banks might motivate the banks to adopt accounting policies that reduce their reported profits? Explain your answer.(5 Marks)
Marking GuideContinuously Contemporary Accounting / Students in-depth understanding of topic will be checked / 10
Australian Government established an inquiry into corporate social responsibilities / Application of appropriate theories and understanding / 15
ANZ Case study / Application of appropriate theories and understanding / 20
Total Marks / 45
BAP21 : Financial Accounting Theory
Semester 1 2017 AssignmentPage 1 of 4