1: Use Classical Political Economy Theory to explain JB Hi-Fi’s decision to release its profit downgrade in the way it did. Make sure you explain what Institutional Theory is, and support your observations with evidence from the case study.
2: Use the Managerial branch of Stakeholder Theory to explain JB Hi-Fi’s reporting decisions. Make sure you support your observations with evidence from the case study.
3: To what extent do current share prices anticipate future earnings announcements? Use the case study to support your answer.
4: Show how the Brunswik Lens Model might be used to explain an investor's decision about whether to buy or sell shares in JB Hi-Fi following their downgrade “announcement”.
5: Some academics have criticised the accounting profession for acting to legitimise the capitalist system (supposedly by supporting the “haves” against the “have nots”. Indicate whether the case study supports the critical view of accounting, or whether it doesn’t. Use the case study to support your answer.
Classical Political Economy Theory and Institutional Theory
1. Answer: JB Hi-Fi took a drastic step for not disclosing the profit warning to the ASX and shareholder of the company, as it only provides details to the conference and indicated a conference presentation conducted by Macquarie. From the evaluation it could be identified that the steps taken by JB hi fi was not appropriate and not according to the regulations of ASX, where the company indicated a downgrade in its profits at only 1 page of the 14-page conference conducted by Macquarie. The classical political economy theory is mainly considered as economics, whether relevant actions taken by the Economist let to be development of free economy. Moreover, the decision made by JB Hi-Fi regarding the profit downgrade that was portrayed in the release can be evaluated with the help of classical political economy theory. The classical political economy theory relatively indicates the measures that was taken by The Economist during the industrial stage to improve clarity and reduce any kind of uncanny measures. Therefore, from the evaluation of the decision made by JB hi fi it could be identified that the organisation has made the decision to minimise its negative impact on a share price. The company hid the disclosures regarding Decline in the profits was to minimise the negative impact on its share price. According to the institutional theory, the decision made by JB hi fi for releasing the profit downgrade in the way that it did was not adequate (Hull, 2017).
Institutional theory relatively depicts that companies relatively need to consider all the relevant rules structures and norms establishing a social behaviour towards the society. under the institutional theory companies to comply with all the railway rules and regulations laid down by authorities to minimise any kind of unethical behaviour on their part. However, the decisions regarding the JB hi fi report release is considered to be non-cooperative to institutional theory, as the company did not provide adequate information regarding the disclosure of profits in the next fiscal year. This Limited disclosure to the shareholders and stakeholders regarding the downgrade of profits indicate the unethical measure used by the company in the current disclosure measures. After evaluating the case study, it could be identified that JB Hi-Fi has not use adequately used the measures indicated by the institutional theory in describing the overall profit downgrade in the release. Moreover, JB hi fi did not consider the information contained in the release was having any kind of material effect on the overall share price of the organisation in the fiscal year (Mosco, 2014). Therefore, the understanding between your organisation and the institutional theory is not adequate where all the relevant information needs to be portrayed according to the regulations laid down by ASX.
Managerial Branch of Stakeholder Theory
2. Answer: Managerial branch of stakeholder theory relatively indicates that the organisation needs to meet the information demand for a stakeholder who is important for achieving the organisational goals. the theory indicates that the organisation such as JB Hi-Fi needs to evaluate and understand the need of information for a particular stakeholder, where adequate information needs to be provided for achieving its goals. the case study directly indicates that the information provided by JB hi fi in the announcement was a relatively conducted towards financial analyst who was keen on understanding the level of profits that the organisation will meet in the near future. The information provided by JB hi fi was a relatively consist to unlimited of one page, which was only understood and targeted by the financial analyst. under managerial perspective stakeholder theory in the case study directly indicates that JB hi fi should include all the relevant information to the shareholders, who is able to help the organization achieve their goals. The ASX announcement relatively indicated that the organisation was not providing all the substantial information to the shareholders regarding the future decline in profits. Information directly indicated that the organisation was not able to provide all the relevant information to the shareholders which directly declined its share after the disclosure made by ASX on the profit downgrade of JB hi fi. Therefore, the decision made by JB hi fi regarding the report of profit downgrade was not adequate and it is not supported by the managerial branch of stakeholder theory (Kent & Zunker, 2017).
The case study directly indicates That the downgrade of profit was a relatively at the levels of 3%, which was way below the ASX guidelines regarding the material guidance that could impact profitability of the organisation. The ASX rule indicates that the profit level less than 5% is considered a material impact all operations of the company, whereas any kind of decline less than 5% would not be considered as material information. Therefore, JB hi fi did not came to provide a single announcement for the downgrade of its profit earnings in the fiscal year. Therefore, it could be identified that the organisation was effectively providing all the relevant information to with stakeholders and following the Managerial branch of stakeholder theory. hence from the evaluation of the case study it could be identified that JB hi fi was following all the relevant information as per the ASX rules and violated no unethical measures.
Anticipation of Future Earnings Announcements
The observations made from the case study are relevantly evident for indicating that the organisation has effectively conducted an adequate announcement within the confinement of ASX. This announcement had an impact on the adequate stakeholders that was meant by JB hi fi according to the managerial branch of stakeholder theory. Hence, the shareholders of the organisation were informed regarding the profit downgrade and any kind of problems that it might face in future (Deegan, 2014).
3. Answer: After the announcement for drastic fall on share price JB Hi-Fi was relatively witness, which directly indicates the significance of Future earnings of the company. the current share price of the company has a relatively fallen immensely, which directly indicates the widespread panic among investors regarding the profitability and return key generator capability of the company. the anticipation of the investors is relatively downgraded seeing the downgrade in future earnings of JB hi fi, which has instituted the decline and share price by 10% on the day of the announcement. the drastic decline and share price relatively indicates the problematic situation that JB hi fi is currently into, where the organisation is not able to achieve higher profitability during the period. The case study analysis directly indicated that JB hi fi sank 10% after the declaration of profit cuts in 2018 fiscal year which was considered the biggest single day fall since 2011.
The downgrade of the share price was a relatively compared to the 7-year-old price movement, which was conducted by the investors due to the lack of future growth in the organisation. Therefore, the investors reacted towards the decline in profits in a very adverse manner as depicted by Bruce Smith in the case study. the share price of the organisation was declined greater than the actual downgrade on the profits. After the announcement to share price of the company relatively decline to from the values of 25.7 per share to 22.05 per share within the matter of 10 days (Asx.com.au, 2018). this was relatively conducted due to the decline in overall profits of the company for the current fiscal year. The anticipation of the investors was relatively to decline the share price according to the valuation of the company with the profit downgrade. Therefore, the immense decline in share price was relatively in inevitable and compounded by panic in investors regarding the future growth of the organisation.
The current share price of the organisation adequately depicts the overall anticipated future earnings announcement of the company. The decline in share price was the result of mass panic between investor, which directly declined share price of the company. Therefore, it could be understood that the overall share price of the company depicts its actual future earnings announcement. Moreover, the current share price of the company directly reflect the earnings announcements and the valuation of the organisation in the eyes of the investors.
The Brunswik Lens Model and Investor Behavior
4. Answer: With the help of Brunswik Lens Model, the investors decision regarding to buy or sell the shares of JB hi fi after the downgrade announcement can be evaluated. The lens model directly indicates that the organisation has provided all the relevant information to the investors regarding the future growth and prospects. The information is relatively processed in different stages to allow the investors make adequate investment decisions in the company. Moreover, the interpretation of all the relevant accounting information for decision making is adequately conducted by the investors the regarding the downgrade in profits. The model is directly based on behavioural research where the psychological ground of investor is evaluated. The current accounting statement directly in the cage or downgrade in profits, where the information was taken by the investors in a degrading manner. the main anticipation of the investors is to increase the profit level of the organisation, while any downgrade would directly impact profit generation capability of the company. The model directly believes the perspective of the environment through a set of imperfect cue and acts, which needs to be evaluated for identifying the decisions made by investors. The information provided by the company regarding the accounting condition needs to be evaluated on three different circumstances where what the accounting information was used, and how and where was it presented. the information provided why the company was relatively conducted in a small interview where the relevant decline and profits was enclosed in only one page of the conference. Seeing the downgrade of the profits, the Organisation was not able to decline adequate information to the investors, which helped in understanding the level of investors impact on share price of the company (Hamm & Yang, 2017).
Therefore, under the Brunswik lens model it could be identified that all the relevant information provided by the company was adequately pointing towards the selling process of JB Hi-Fi shares. Information indicated that the company was not able to achieve higher profits doing the fiscal year, while a downgrade in profit of 3% was anticipated. hence, the information processed by the investors regarding the downgrade of prophets relatively indicate a massive selling of JB Hi-Fi shares during the period. Thus, evaluating the decisions made by the investors under the lens model would eventually indicate the problems anticipated by the investors regarding the future growth of JB hi fi. The relevant stages of the Brunswik lens model evaluate all the negative information regarding the organisation which could instigate investors to take adverse action. The evaluation of JB hi fi information regarding the profit downgrade directly indicate that investors decision for selling the shares was viable, as the company's future outlet was a relatively not portrayed by the company (Orquin, 2014).
5. Answer: Yes, the case study directly supports overall Critical view of accounting which is conducted by academic regarding the accounting profession. the changes in overall Accounting Principles is relatively conducted to support the legitimacy of capitalist system, which might allow the organisation to maximize the profits overtime. some academic has directly criticize the accounting profession as it acts to legitimate capitalist system, where the regulations are conducted to authenticate the decisions made by the organisation. The case study directly indicates the overall measures taken by JB hi fi in disclosing their profit anticipation for the fiscal year. The case study evaluation directly indicated that the accounting Profession directly evaluate the organisations progress and act to legitimate all the relevant capitalist system. JB Hi-Fi directly disclosed the relevant decline in profits, which was legitimacy by Infinity investment management Bruce Smith who indicated that the surprise announcement conducted by JB hi fi was in line with the material definition of ASX. The disclosure conducted by the company directly indicates the measures that accounting professionals take to legitimate the act of capitalist system. The accounting professionals directly evaluated all the relevant information regarding JB hi fi and anticipated a downgrade in its profits during the fiscal year. The downgrade was below 5%, which did not mandate the organisation to depict an adequate announcement regarding the downgrade. Hence, it could be identified a critical view of accounting, as no relevant announcements was conducted by JB hi fi regarding the price downgrade. The loopholes in accounting system has a relatively cloud the organisation to cloud the future downgrade in its profits from the investors. Moreover, from the evaluation of the case study it could be identified that actions taken by the organisation was legitimized by accounting professionals, who provided details regarding the future growth of the organisation. In this context, Horvat & Korosec (2015) stated that organisations before the financial crisis by using unethical accountant loopholes to support its operation, where the accounting professionals were helping the organisation to legitimize the capitals actions for maximizing the profits. Therefore, it will be understood that accounting professionals help legitimize the capital system of the organisations.
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