• May 7th, 2015

Accounting Theory

Paper, Order, or Assignment Requirements



Read the following newspaper article:

Commonwealth Bank full-year profit climbs by 8 per cent to $7.67 billion

The Commonwealth Bank’s annual profit has climbed to a new record of $7.67 billion. Australia’s biggest bank says its earnings for the 2012-13 financial year increased by 8 per cent. The result is within the range anticipated by analysts.

But the bank’s overall revenue was down by 5 per cent to $44.87 billion dollars. It has increased its final dividend to
$2 per share, taking its total full-year dividend to $3.64.

In a statement released to the share market, CBA chief executive Ian Narev says he expects business conditions to remain mixed this financial year.

“Our primary areas of economic focus are the level of confidence of Australian business and households, the impact of economic conditions in China on the demand and price for resources, the value of the Australian dollar and the resultant impact on export-sensitive parts of the Australian economy and the stability of funding markets,” he said.

“Indicators relating to all of these factors have been mixed over the past six months, and we expect that to remain the case in the near term.”

Mr Narev expects business and consumer confidence to improve after next month’s federal election.

“We need an election of a government from either side of politics with a clear majority that can lay out a very clear and very inspiring picture of the economy,” he said during an analyst briefing.

“There should be a lift in both business and household confidence if that picture can be outlined and people can get a clear picture of how these forces will affect the economy in the short, medium and long term.”

The value of CBA shares fell after the announcement.

At 11am (AEST) they had dropped by 1.4 per cent to $73.51.

Retail banking revenue rises, business banking drops
Income from CBA’s retail banking division increased by 13 per cent for the year, but business and private banking revenue fell by 3 per cent.

There was also higher revenue from the company’s wealth management and institutional banking divisions. Income from CBA subsidiary Bankwest increased by 6 per cent to $561 million.
Reported by business reporter Pat McGrath ABC news Wed 14 Aug 2013, 3:45pm http://www.abc.net.au/news/2013-08-14/cba-profit-result/4885516

Assignment 2 40 marks

a) Australia’s biggest bank’s announcement of annual profit has climbed to a new record of profit.
Explain the contents of this announcement in relation to the information perspective and in terms of Signalling theory
(4 marks)

b) Commonwealth Bank’s announcement of increasing profit is a strong signal of the firm’s earnings prospects. Other comments in the article emphasise that signal. What could Commonwealth Bank do to strengthen the signal in relation to its profits even further? 

(6 marks)

c) What factors might increase the credibility of the signal provided by Commonwealth Bank’s announcement and media attention? What factors might decrease the credibility of this signal? Give at least three factors for each answer.

(6 marks)

d) What do you expect would have been the impacts of the record earnings on management compensation contracts
(Salary Package) of Commonwealth Bank? Explain your reasons.
(6 marks)

e) Not all information is reported in this manner. Explain what motivates managers to disclose information voluntarily? 

(5 marks)

f) What factors instigate voluntary disclosure by management in annual reports? (5 marks) 

g) Why would managers voluntarily disclose environmental performance information in annual reports? How can positive accounting theory explain corporate, social and environmental reporting? 
(8 marks) 

The word limit for this case study is 1400 words with 10% variation. Words in excess of this limit will not be marked.


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