Case 1: Answer to Question 1:
From the viewpoint of Chambers, the pivotal role of accounting would be to deliver information regarding the capacity to adapt of a reporting entity. This measure is tied directly to cash, which would be gathered from the sale of assets (Bryer 2013). The higher the market values the assets of the organisation, the higher is the adapting capacity to changing scenarios, while other things remain constant. According to this theory, the companies having specialised assets’ however, there is absence of steady market, have low adapting capacity. A blast furnace could be used as an instance of an asset having minimum exit value. Thus, it has little contribution to the adapting capacity of the organisation (Cascino et al. 2016).
According to Chambers, the valuation of assets is conducted at current cash equivalents, which is the amount expected to be derived from the sale of assets. The “Continuously Contemporary Accounting Approach” to valuation of assets states that the unsold assets like goodwill need to be assessed as having no value for preparing the financial statements. As prescribed by Chambers, all values need to be valued on identical basis and hence, it is argued that the values of all assets could be added together to obtain the total assets. However, this is a comparison to the identical situation, in which various approaches of valuation are used to measure various asset classes. Nevertheless, the overall asset values need to be provided, which could be referred as the problem of additivity.
Answer to Question 2:
(a) Public Interest Theory:
According to the public interest theory, the regulations are formed to ensure public interest in accordance with the public demand for rectifying ineffective practices. In this context, Christensen, Nikolaev and Wittenberg?Moerman (2016) remarked that the regulations are implemented for the betterment of the society, instead of meeting individual interests. Thus, with special reference to this theory, it is necessary for the Australian government to introduce the legislation that necessitates the corporate to reveal the influence of their activities on the overall community and environment and the initiatives undertaken.
In order to assess the feasibility of the proposed legislation, the Australian government could conduct a survey for seeking comments of the corporate professionals; an expert panel could be appointed for contrasting the survey outcomes and public comments. If the gap is found out to be large, the public interests need to be selected. Thus, this theory necessitates the need for implementing the legislation.
(b) Capture Theory:
According to the capture theory, close association exists between government agencies and the industries, in which they operate. For instance, the Australian government has developed an agency at state level to regulate the cotton die industry for preventing its negative effects. However, if the agency members belong to that industry, then this agency would favour the industry, instead of ensuring the welfare of the society. Thus, according to this theory, the regulators could manoeuvre certain things for profit. However, the disclosure of regulations could provide benefits to banks, employees, common public, investors and the government.
(c) Economic Interest Group Theory of Regulation:
According to this theory, several groups are formed within the industry to ensure particular economic interest. However, these groups are supposed to have inter-group conflicts (Collison et al. 2016). Such groups might lobby the Australian government for making legislations based on their interest. Both the economic groups and regulators do not take into account the public interest in their agenda. The economic groups are supposed to possess stronger power and thus, introduction of the proposed legislation might not result in accountability in relation to environmental and social performance.
Case 2: Answer to Question (a):
The bank has unveiled a plan for handing community issues for depicting itself in positive light. As the banks provide certain essential services, they are engaged in dealing with high customer levels for making higher profits (Edwards 2013). In addition, there have been wide fluctuations in the rates of interest for managing inflation. Due to these reasons, bad reputation with the public has been developed. With the help of this voluntary disclosure, ANZ has been trying to attract new customers through revealing their concerns for the community. This resembles with the positive accounting theory, which intends to describe and project the way of interaction of the different firm groups. It has been observed that ANZ has published a voluntary disclosure to its customers for minimising the pressure of political costs imposed on the banks.
Answer to Question (b):
Since majority of the voting public are the customers of the big four banks in Australia, the banking industry often experiences external political costs. The big four banks of Australia constitute of Commonwealth Bank, National Australia Bank, Australia-New Zealand Bank and Westpac. As the banks often make huge profits, the public often perceive them as villains, which offers a bid target for the politicians. The positive accounting theory estimates that the government needs to act in a manner that pleases the voting public for remaining in power (Henderson et al. 2015). The provided article attracts specific reference that it has been a voting year, which implies that the politicians undertake certain efforts for improving their public images by bringing the banks into line.
Answer to Question (c):
The higher profits might create an argument for people that the banks could deliver more to the community and less to the managers and shareholders. The community concerns might not be great, in case, the bank has been struggling to maintain its profitability. As the banks are highly profitable, the customers often search to find the answer regarding the transfer of profits to them through minimisation of interest rates or fees. However, many customers do not have adequate knowledge about the economic consequences of the banks in relation to change in rates of interest and thus, they tend to blame the banks for sch high rates (Oldroyd, Tyson and Fleischman 2015). In case, the banks failed to maintain the desired level of profit, they have legitimate causes for not minimising fees for easing the pressure on the customers. However, the banks might argue that their initial priority is to ensure the interests of the shareholders. Therefore, the banks are needed to act in a manner that assures their interests through profit maximisation (Penman 2015). The supporters of positive accounting theory would state that greater profits would make a firm a political scrutiny target.
Answer to Question (d):
In case, the government initiates action against an organisation by taking into account profits as an excuse and it believes that it could be able to win public trust, the banks are advised to undertake strategies for minimising income (Van Mourik 2013). As a result, it would minimise the ability of the government in justifying its move. However, if the management of the banks do not believe in the fact that the government or the community would result in favourable reactions to minimised profits; it is suggested not to adopt the above-depicted strategy of reducing income. However, it needs to be borne in mind that minimising profits due to governmental threats and community concerns is an opportunistic demeanour and this would comprise of creative accounting.
In addition, if the accountants and management believe in objectivity according to the conceptual framework, it is expected that they would not conduct unethical practices by manipulating profits for obtaining the desired outcomes (Wagenhofer 2015). However, it is the personal view that the people would act objectively regrading the motivation of individual behaviour.
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Cascino, S., Clatworthy, M., Osma, B.G., Gassen, J., Imam, S. and Jeanjean, T., 2016. The decision usefulness of financial accounting information: an experimental interview study of institutional investors.
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Wagenhofer, A., 2015. Usefulness and implications for financial accounting. The Routledge Companion to Financial Accounting Theory, p.341.