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Accounting Theory 1
Every organization is made to earn economic profit by selling out their products or services to the end users. The main thing which is essential for the sake of an organization is enhancing the revenue by selling high number of products and mitigating the operational expenses of the company. Operational expenses also include the General and Administrative Expenses in which salaries of the employees are duly included (Barrow, 2011).
There are certain ways due to which organizations would lay off several jobs from their premises. Some of the major reasons are spoiling the tame of the company or the company is encountering with a severe economic crisis. However, the reasons are not limited to the same stance as declining demand of the product of a company can also be a dominating reason. This particular reason is associated with the Holden Company mentioned in the case study. According to the case scenario, HOLDEN Company is willing to cut 170 jobs from their Elizabeth plant (Bierman and Smidt, 2012).
There are certain issues which have been highlighted in the scenario for Holden Vehicle Operations (HVO) in terms of their social contract which are voluntary separation and the declining demand of the vehicles of the company. As per the case study, the company initiated different stances to enhance the future volume of their vehicles but externalities of competition and ever changing demands of the customers are some of the major aspects due to which the company becomes unable to catch up the speed of competition. Holden, according to the case is expecting to receive AUD 275 million as a bailout package but the company has to lay off 170 different positions from their company, and they would like to initiate through voluntarily separation in which the employees are entitled to receive high amount of money on the name of Golden Handshake and HVO has to entertain their employees from every angle. Due to this social problem, a marginal decrease in their operations and financials are still on the thread for them in near future.
Organization has been termed as a place which has been surrounding from different departments particularly and every department is essential for the sake of the entity. Apart from this definition, there is yet another term which specifically associated with the organization which is that a place wherein people belong to different demographics and mindset work together for the achievement of a single and pre-specified goal. Hence, the core mantra of an organization is to attain economic efficiency with the best utilization of their work forces. It is an important aspect and used by different parts of the world. In order to accomplish the same target, there are some legal aspects as well from which the organizations have to comply (Brigham and Daves, 2009).
Organizational Legitimacy is the proper and desirable actions or norms which have to be in compliance by an organization in order to compete with their peer companies operating in the same line of business (Brigham and Daves, 2009). Legitimacy of an organization not only associated with the customers and officials of an organization, but it is also associated with the employees of the organization. According to the case study, there is a social contract that is associated with HVO in which they are voluntarily laying the jobs of their employees through a great deal of handshake. This particular aspect is a perfect example of organizational legitimacy and HVO is not breaching any law by lying off the jobs of their employees in this manner (Deep, 2012). The case study is reflecting that the external pressure of declining demand and increasing competition are creating numerous problems for the company, and they have to lay off the job to sustain their organization. However, they can announce at-least a month before to their employees that their jobs are in danger and sooner they will be fired from the job but with high deals of golden handshakes. It is in the concept of corporate governance that organizations can intimate the hard times to their employees before their actually happenings.
There are two different individuals who have to be in line with the management of an organization and organizations have to take good care of them, which are shareholders (PUBLIC) and the competitors. In the scenario of Holden, there is a chance of the negative public reaction in particular which is about the shareholders (Dlabay and Burrow, 2008). Shareholders have the proxy rights to select the management of their choice and they also have the chance and authority to make their employees available accordingly. The main reason behind the potential negative impact of the public reaction is the method of lying off the job of the people as prior intimation is necessary. Corporate Management can play a vital role as far as understanding the terms of social contract is concerned and they can initiate the same by referring to the law contracts and social contracts as employees cannot be laid off without the prior intimation in particular (Ehrhardt and Brigham, 2003). It is like breaching of contract and the labor laws and it certainly has a direct implication and affects over the financial and strategic position of the company. It also increase the conflict of interest among the management and the employees and among those employees as well which exist with the company.
After the current economic crisis and problems associated with the company that really affected their financial and strategic structure and well-being, the management of the company is trying to have new actions to strengthen them accordingly (Fabozzi, Peterson Drake and Habegger, 2004). In terms of maintaining and enhancing the organizational legitimacy, the company enhanced their compliance structure with the legal requirement and emphasized a lot on the retaining of employees accordingly. Publically, these perceptions and records could be extremely essential and effective which also increased their share price as well as compared to the share price of the company in the year 2011. Increments of 55% have been envisaged in the share price.
Commonwealth bank of Australia (CBA) is known as the largest banks of Australia in terms of profit and deposits. Anticipation and forecasting is an important aspect that associated with an organization and this particular element is essential for their productivity and efficacy. The productivity and efficacy of an organization lies on the fact that how effectively, it manages their operations accordingly and for that purposes they required different aspects (Fabozzi, Peterson Drake and Habegger, 2004).
From the case study, it is found that the biggest bank of Australia which is Commonwealth Bank has climbed to a new record of profit and they announce categorically that they have earned this much of money and they are expecting a similar year’s growth in the near future as well (Finch, 2010). The announcement of CBA based upon the information perspective and in terms of signaling theory as well. Signaling theory is a theory in which result would have been furnished after a critical observation and analysis and result would have been revealed on the basis of the perceived signals. The content of the announcement for CBA based upon the information perspective and signaling theory are organized as the bank reported increment of 8% in their net income in the financial year 2012-13, which lies in the range of anticipated amount. By referring to the same anticipation, CBA announced their future earnings and power through signaling accordingly.
Proper forecasting and anticipation for a company or for the earnings are more than effective and essential for the sake of an entity and it is equally beneficial for Commonwealth Bank as well. On the basis of past signals, the bank announced their future effectiveness and anticipation and they have to strengthen their functions to further strengthen their earnings accordingly (Halpin and Senior, 2009). It is required that the company should empower all of their departments to take timely decisions and actions to strengthen the financial structure of the company and motivate their employees to work more effectively. Operating in this way would certainly strengthen the function and infrastructure of the bank and would assist the bank to reach on a definite conclusion in terms of earning money.
Credibility and surety are some of the major aspects that deem important for the sake of an organization as far as strengthen their sales functions in particular. From the case study, it is found that there are certain signals provided specifically by the Commonwealth Bank of Australia in terms of having credibility on the signals (Halpin and Senior, 2009). The factors of increasing credibility are
Correct Future Anticipation: as the range of growth of CBA was exactly the same or in the same range which was actually anticipated
Improvement in the economic situation after the current economic crisis: after the current economic crisis, many of the companies and banks throughout the world are improving their financial structure and earnings which are clearly giving strengths to the bank as well as far as achieving the targets signaling of betterment is concerned
Strength of the management: The management of CBA has introduced new methods from which they can enhance the functionality and workings of their employees and management to reach on a certain conclusion
In terms of decreasing the credibility of the signals, mentioned below factors are highlighted
High Cost initiation: It may happen that CBA would achieve the sales target which they are willing to attain, but it is also possible that operational or direct cost would be on a higher position which may derail the company from achieving their signals and financial targets
High Employee’s Turnover: If the employee’s turnover would be on a higher scale then, it will not be a chance for the bank to increase their financial belongings and revenue with succession.
In-Effective Planning of Achievement: The essence of planning and achievement is essential for any company and it is equally beneficial for CBA as well, while in-effective planning would certainly derail the functionality and operational emphasize of the company.
The productivity of an organization would be effective for two different personnel for an organization which are the shareholders of the company and the employees of the company (Halpin and Senior, 2009). Employees also include directors and upper management professionals as well. From the analysis of the record earnings of CBA, it is found that it will certainly affect over the compensation contracts of the Commonwealth Bank (Halpin and Senior, 2009). The main reason behind the same is that when organization is growing then they will always take good care of their employees and it is one of the major techniques to tackle with employee’s issues and motivate them for the future consequences of the company, therefore the time is near when a huge impact is expected on the compensation of the management personnel of CBA provided that the company complies with forecasted signals.
Shareholder’s equity or residual claims are some of the major elements associated with an organization, as far as enhancing their productivity and efficacy is concerned and these are some of the major elements that deem important from the viewpoint of productivity of an organization. Among numerous authors, Ball and Brown described the effectiveness of shareholders and earning management for an organization in the year 1968. According to their analysis, shareholders are concerned solely with the financial position of an organization because they are the one who invested all of their money in the stocks of the company and have the highest amount of risk association (Halpin and Senior, 2009).
The video of Ball and Brown demonstration is maneuvering towards analyzing the core relationship among the earnings and share price. As per the analysis of these authors, earnings of a company have a direct linkage with the financial position of an organization and the same has a definite impact over the share price of a company (Moyer, McGuigan and Rao, 2007). According to the video, there are certain actions and pre-requisites which organizations have to attain in order to get appreciation in their earnings and share price as well. Ball and Brown are in the fact that accounting numbers and accounting income are very much in the favor of the productivity and efficacy of an organization and it has a direct linkage with the share price of the company. Ball and Brown showed in the video that how annual reports would have been used by the shareholders to get their desired information about the company and about the financial effectiveness and well-being of a company and if the financial well-being and structure of a company is effective, then shareholders would park their money in the stocks of the company without any external approval or any other thing.
According to the video of ball and brown, financial statement is an important document for an organization and it has effective information for an organization. There are four different elements that found in a financial statement which are income statement, balance sheet, cash flow and changes in equity. According to the Ball and Brown share price is an important aspect from the viewpoint of an organization and all the big organizations and multinational organizations used different aspects and methods to deliver the best thing for their company and to enhance the share price and enhancing the share price is the most effective strategy for an organization to increase the amount of their shareholders and increasing the amount related to the shareholder’s equity. Every company in the world should use the theory and statements introduced by ball and brown because it is a major key of effectiveness for them in their future.