Costing the Banking Services: A Management Accounting Approach Jordi Carenys Professor at the Management Control Department. EADA Business School EADA, c/o Aragó 204, 08011 Barcelona, Spain E-mail: firstname.lastname@example.org Tel: 934 520 844; Fax: 933 237 317 Web: www.eada.edu Xavier Sales Professor at the Management Control Department. EADA Business School E-mail: email@example.com Abstract The present study aims to outline the characteristics of the cost systems used in banking institutions. It does so by describing the partial costs and full cost systems in banking institutions. It then looks at the limitations of these approaches to the current competitive conditions and goes on to consider the applicability of the activity based costing system in the allocation of indirect transformation costs to branches, products and customers. Finally, we will look at the findings of a questionnaire to Spanish savings banks in order to evaluate how widespread these systems are and how they are used in savings banks. We found that direct costs systems predominate in customer and products entries whereas full costs systems are much more widespread in the case of branches. Furthermore, we also found that the use of activity based costs systems is very limited.
Keywords: Saving banks Cost structure Management accounting Cost systems Activity based costing. JEL Classification Codes: M41 – Accounting G21 - Banks; Other Depository Institutions.
Historically, management accounting in banking institutions was introduced considerably later in comparison with companies in other sectors. There are a number of reasons for this limited development. This was due, on the one hand, to external causes. For example, it was not until the 80's that competitive conditions in the banking sector fostered the development of accounting management planning and control systems. On the other hand, there were also internal conditions that had to do with the nature of the banking business and the operations that these companies carry out, which differ significantly to those of other sectors. This hindered the transfer of models that had basically been developed for industrial companies to the financial sector. As regards internal factors, the accounting regulations set down by regulating bodies of the banking system have traditionally been the starting point from which banking institutions have drawn up their accounting information. The purpose of he latter was clearly to address the needs of central
Journal of Money, Investment and Banking - Issue 6 (2008)
banks that used this accounting information in order to supervise and control the solvency of the financial system and to control the relevant variables of monetary policy (Túa and Larriba, 1986, p.37; Cates, 1997, p.51-56; Kimball, 1997, p.24). Furthermore, the environment in which these companies had traditionally operated had been sufficiently stable in order for them not to see the need to improve their management accounting systems (AECA, 1994a, p.12-13). On an internal level, Waden-Berghe (1990, p.569) Rouach and Naulleau (1992, p. 101-102) and Carmona (1994, p.210) point out that the characteristic features of the products and the production process of banks hinder the application of management accounting techniques: the intermediation function they carry out, the permanence on the balance sheet of the main sources of income and expenses, the problematic definition of outputs and input, given that there is no difference between the nature of the raw material obtained via financial markets or deposit taking and the final product (loans), the fixed cost and marginal revenue syndrome, the difficulty in allocating indirect costs to cost objects or the diffuse figure of the customer-supplier. However, the deep transformation of the...