Institutional Theory is related to the social structure of the society and gas various aspects of the social structure. The theory relates with the various polices, norms, routines, rules are established by an authority in order to establish such as authoritative guidelines for social behaviours. Institutional theory is also related to various components which are diffused, created and adopted over time. Many of the philosophers are also of the view that the institutional theory throws light on the concepts of rational myths, Legitimacy and isomorphism. The trends which are associated with such a theory are institutionalism and new institutionalism. New Institutionalism is concerned with the development of the theory of sociological view of the institutions. This theory is also known as neo-institutionalism which is concerned with how the institutions interact and how the activities of such institutions affect the society. Some of the ideologies which are present in the new institutionalism and the roles of different organisation following such a theory is seen to reject the rationale characteristics of models which is included in the classical economies (Mosco 2014).
As per the new institutionalism theory, organisations must follow the predominant belief system and rules in a particular business environment and also the rules which are applicable on the same. Instances can be provided of multinational companies facing immense pressures which generally relates to domestic pressure and in some case international pressure as well (Greenwood et al 2017). The decision which was taken by the management of JB hi-fi can be related to the classical political economic theory which is focused on the resources-based view and considers that the main motto of the company behind any strategies should be based on profits. The resources of the business comprise of intangibles, property, capital and know how. The company acted as per the current market condition of the business and therefore the company was unapologetic.
The analysis of the management decisions to lower the profits of the business can be traced to the good guys driving shares down by 10% since late November. The range of the electronic retailer which was earlier between $ 235 to $ 240 dropped its profit to $ 230. According to the institutional theory, in several instances business corporations tackle the decreasing earnings by avoiding additional payment of tax. Many businesses following the institutional theory follow such an approach. In the case of JB hi-fi, the company has shown more amount of profit after tax, however the same is shown to be written down by 5 to 10 million in the consolidated statement so that the business can pay lesser amount of taxes to the authorities. Therefore, it is easier for JB hi-fi company to so that the company does not have to pay additional taxes which will help the business to be competitive in an intense market (Senge 2013). Therefore, the reason for the drop of sales is clear from the above discussions as the company wants to stay competitive in the market and at the same time generate more revenues for the business. Thus, the business has rightly downgraded its profits by lowering the sales of the business.
Managerial Branch of stakeholder theory focuses on the identification of the stakeholders of the business. Stakeholders are individuals who have interest in the activities of the company and who are affected by the activities of the company such as investors, lenders, banks and society at large (Ali and Rizwan 2013). The theory requires the management of the company to meet the needs of particular stakeholders of the business. The theory also emphasizes that the management of the company should look after the needs of the stakeholders for the best interest of the company itself. There are various theories which can be tested for the purpose of this theory. It considers those shareholders who can best manage the self-independency rather than as a society in case of legitimacy theory. The expectations and needs of the shareholders are taken into expectation before polices and disclosure practices are formulated. The managerial branch theory also specifies that the management of the organization should not consider the needs of each stakeholders and respond equally but can respond differently to powerful stakeholders. The power of the stakeholders is determined by the ability of the stakeholders to influence the stakeholder has over the resources of the business. The resources which can be influenced by the stakeholders are finance capital funds, labour supply and similar other resources.
As per the case study which is provided on JB hi-fi, the company has followed managerial branch of stakeholder theory for the purpose of revising the net profit after tax of the business. As per section 7.3 of the guidance note 8 published by the ASX, a company is expected to treat its variation in earnings as per the guidance equal to 5% less than being material and presume the guidance therefore does not need updating. However, JB hi-fi overlooked such a consideration (Strand and Freeman 2015). Therefore, it can be said that the company follows the consideration of managerial branch of stakeholder theory that makes it clear that the management does not need to respond in an equal manner to the needs of every stakeholders and the management can respond to the needs of the powerful stakeholders of the business. The business of JB hi fi in this case follows the materiality guidelines which are issued by the Australian Stock Exchange (ASX).
The future anticipated earnings of the business are important indicators of the business and effective forecasting of the same is helpful in decision making process of the management. The management of the company is anticipating of future earnings can be done with the current share prices of the business by considering the key concepts which are plough back of profits, book value of shares, EPS of the business and dividend yield ratio. With the help of the current dividend yield ratio and the earning per share of the business helps the investors to determine the regular earnings which the investors can expect from the business and is the main consideration which the investors consider before investing in a business (Al-Qenae and Wearing 2015). The dividend payout ratio also helps the business to estimate the amount of revenue which can be generated by the business. The primary consideration for the revenue generation is the dividend payout ratio of the business and the secondary consideration is the capital appreciation which the business can achieve. Based on the anticipation of dividend yield ratio companies with high dividend is not only have a poor growth record but often show for future growth. On the contrary, high-growth companies generally have records of bleak dividend pay-out. Investors are interested in the relationship of dividend during as per the market price of the company’s share rather than that they are more interested in the relation of dividends which beer to the market’s price of company’s share.
Earning per share which can also determine the profits and future earnings which can be generated by the business in future years. The estimate is calculated on the basis of the number of shares which are held by the investors of the business (Cooper, Gulen and Rau 2016). The formula which is used for calculating the earning per share of the business is by dividing the net profit which the business is able to generate after tax divided by the number of shares which is issued by the business.
In the case of JB hi fi, the eps of the business is shown to have increased from 153.8 cents to $ 154.3 cents per share which shows the improvement which is made by the business during the period. The growth rate which is achieved by the business is about 22.4% which is quite significant. The net profit of the business has also significantly increased during the year which is shown as $ 152.2 million in 2016 and the same increases to $ 172.4 million in 2017 as per the annual reports of the business. There is a growth of 36.5 % in net profit for tax. The dividend payout ratio of the business also shows that the company is able to achieve 88.27% in 2016 which increased to 101.4% in 2017 which shows the improvement in the business and the business efforts to meet the expectations of the business effectively.
The above estimates are useful for the purpose of determining the future earnings which the business can expected based on the current estimates which are mentioned above. However, certain indications about the share price at the end of 2017 can predict certain aspects of the declining profit after tax. The share price of the company at the end of 2015 was about $ 19.4 per share which has increased to $ 24.10 per share. The increase in the shares can be measured by the increase in net profit after tax and the same can be related. However, the share has fallen to $ 23.37 per share in 2017 which shows a decline in the share price of about 3% from previous year. This decrease in the share prices of the company has further anticipated the rational for declining future earnings (Demers and Vega 2014).
The Lens model is identified as a way of thinking which is associated with the various relationships among the environment and behaviour of companies in a particular environment (Orquin 2014). The fundamentals to this theory was designed by Egon Brunswik and the concept was later on popularised by Kenneth Hammond by including various components of social judgements. It is known as lens model because it looks like the framework of this model is passing through a convex lens including the attributes of cues, judgement, achievement and criterion (Hirschmüller et al. 2013). This model helps in clarifying the scope of items with a greater understanding. As per the lens model which is based on the psychology of the investors and the behaviour decision theory which can be related to the investors of the business (Nenycz?Thiel and Romanik 2014).
The theory is related to the factors of the environment which can relate to dependent variable of the business. The cues are identified as independent variable as per the lens model terminology. The main decision-making criteria helps in determination of human decision process as an involvement of various mathematical indexes. Majority of the research studies have applied this theory to indicate many realistic settings which relates to the basic information of division situation, actual decision which is identified by the decision maker and in a particular situation.
In the case of JB hi-fi, the theory can be effectively applied foe which the investors need to identify the investment criteria of the business which are depended on three level which are input level, information processing level and output decision level. The investor first need to consider the financial performance of JB hi-fi by the historical data which is available for the business. The data can be accessed through the financial statements of the company for the year 2015, 2016 and 2017. The investors can then compare the performance of the business from year to year basis and judge the company’s performance in terms of revenue which the business is able to generate and also based on the stock market performance.
The next step which the investor need to take for the purpose of making investment decisions which is based on the lens model. Firstly, the investors need to make the decisions as per the cues used in the model and then compare the same with the actual outcomes (Bristow, Mowen and Krieger 2015). Based on the significant level of comparison of statistic modelling provided in the lens model it will be ideal for the shareholders to hold the shares of JB hi-fi and wait for future market indications to take the final decision of buying or selling of shares. The decision which is to be taken about the investment decision of the business should be based on the further indications which are provide in future by significant financial indicators of the business. The present decision of the business should be based on the competitiveness and volatility of the market.
As per the question the role of accounting process is to be considered whether the same is in the interest of the public and shareholders of the business. As per the modern situation of the business market, due to market changes, the role of accounting is very important and it is expected that the business needs to act in the best interest of the shareholders and the general public (Foss, Lyngsie and Zahra 2013). In Australia, accounting plays a vital role in both private and public sector and the professionals act in the best interest of the public following the accounting standards which are issued by the accounting regulatory authority. Many of the critics are of the view that the accounting process and the standards which are set by the businesses are used for the purpose of capital interest and not for the interest of the general public.
The knowledge and the professional ethics which are necessary to be developed by accounting professionals for effective protection and serving of the interest of the general public. Over the past 50 years the importance of systematic knowledge has been considered to remain axiomatic for defining various constraints of accounting profession. In addition to this, based on various events it can be argued that state has accommodated multinational corporate interests instead of public interest as per the section of CLERP Act 1999 and ASIC Act 2001.
The case study cannot be regarded to support the critical view of this notion as that based on the guidance in the section 7.3 of the guidance note 8 published by the ASX, a company is expected to treat its variation in earnings as per the guidance equal to 5% less than being material and presume the guidance therefore does not need updating. The case study which is provided does not suggest in any way that the company JB hi-fi is any way opposed to the general interest of the public.