Accounting Theory Homework

Accounting Theory

Question One (15 Marks)

Banks to slash extra 1000 jobs

On 21st August 2002 the Commonwealth Bank (CBA) announced that it would slash 1550 jobs while creating 550 jobs, a net loss of 1000 jobs. It planned to reduce inefficient operations, task duplication & some back-office processing functions, but stated that it would not close more branches even where closures had been planned. The news received hostile reactions from both unions and consumer advocates like the Australian Consumers’ Association (ACA).

Union officials said that the job cuts were scandalous, and that bank staff were suffering from uncertainty following previous cuts and closures. ‘ It is unbelievable’ said Tony Beck, Finance Sector Union national secretary. ‘ They have just shed 500 jobs, all from the retail network. Now we get this punch with another 1000 jobs.’

The ACA was equally unimpressed. Its finance policy officer Catherine Wolthuizen asked when the losses would stop. ‘ How much profit is enough for greedy banks like CBA and how much further will it flout consumer and community demands before the Government acts?’

The ACA wants a social charter set up to delineate minimum standards around access to banking and affordability. It has been lobbying the Federal Government to act for consumers in the face of massive bank profits.

CBA’s annual profit leapt 11percent to $2655 billion in the previous financial year, increasing income (over $1.8m) from fees, commissions and other charges contributing to the profit surge. The strong housing market contributed to an increase in lending fees income: $618m, up 3percent. Commissions and other fees raised a massive $1.242 billion, up 6 percent.

Required:

Explain whether you think the banks would or should respond to the concerns of the ACSA and/or concerns of the Finance Sector Union. What theory(s) did you rely on (if any) to form your judgement?

Question Two (Marks 15)

Explain the efficiency perspective and the opportunistic perspective of Positive Accounting Theory. Why is one considered to be ex post and the other ex ante?
Give two examples to illustrate your answer.

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