Accountability and financial statement presentation of early Western Australian banks,1837

Abstract

This study uses legal origin theory to consider the influence of the British imperial government on financial statement presentation of early Western Australian banks. Accountability and patterns of financial presentation were explored through an examination of 192 quarterly returns and three annual returns for the Bank of Western Australia, Western Australian Bank and National Bank of Australia over the years 1837–1880. Findings from the study suggest the banks demonstrated a willingness to prepare forms of Western-narrow and Western-broad accounts. Early Western Australian banks consistently prepared timely financial statements to keep stakeholders informed of the banks’ quarterly returns. Despite the harsh economic conditions, Western Australian banks appeared to keep pace with the changing legal, political and fiscal accountability reforms carried out by the colonial government during this early settlement period of Western Australia.

Keywords

accountability financial statement presentation legal origin theory Western Australian banks

Introduction

This study analyses the financial statement presentation of early Western Australian (WA) banks between 1837 and 1880, a period commencing shortly after settlement in 1829 and ending just before the formation of responsible government in 1890. The period straddles the enactments of the Banks 1837 (WA) Act and The Joint Stock Companies Ordinance 1858 (WA), which represented critical forms of British imperial government accountability that informed early WA banks’ financial statement presentation.

Banks were seen as important for the early economic development of the WA colony, and financial statements were almost certainly used as a basis for the decision-making by government and private investors in the colonial period (Bunn and Gilchrist, 2013). If accountability is interpreted as representing an account of operations to its stakeholder groups, then reporting and financial statement presentation may be seen as informing a specialised readership about the underlying business transactions through accounting techniques.

During the nineteenth century, financial statement presentation was a subject of considerable interest to entities and governments of the United States and the United Kingdom (Hoag, 2015; Jones and Aiken, 1994; Lloréns, 2004; Parker, 1990) and in the more established eastern Australian colonies of New South Wales (NSW), Tasmania, Victoria and Queensland (Morris, 1984). Indeed, government and private investors in the United States were concerned about financial statement presentation in the Free Banking Era (1837–1862) and the National Bank Era (1863–1913) (Hoag, 2015). In the United Kingdom, between 1840 and 1880, the importance of the presentation of balance sheets was heralded as a form of financial accountability (Collins, 1984).

The need for financial accountability might also explain the generation of financial statements presented by the early east-coast banks of Australia (Blainey and Hutton, 1983; Butlin, 1961, 1968; Johns and Ville, 2012). From 1830, early NSW banks were expected to disclose the monetary amounts of average note issues (Butlin, 1968). Those early NSW banks that sought government deposits were also required to submit a half-yearly balance sheet to the colonial Governor for government scrutiny (Butlin, 1968). From 1832, regular reporting on the holding of coins by banks began. Then, in 1840, the British Colonial Office introduced regulations on early east-coast banks that imposed restrictions on the banks’ maximum debt-to-equity ratio, lending policies, dividend pay-outs and half-yearly and yearly publication of a return in the same form as the Australasia charter model (Butlin, 1968; Morris, 1984). However, Governor Gipps of NSW ignored these imposed restrictions by introducing a disclosure rule [4 Vic. No. 13], which required quarterly published returns of assets and liabilities based on averages from weekly records with the added inclusions of capital paid up, the last dividend declared and reserved profits at the time of dividend declaration (Morris, 1984).

Apart from Butlin’s (1968) work on the development of WA’s monetary system, very little research has been conducted on the development of the reporting of early WA banks. This study aims to bridge this gap and complement the narrative on the development of banks in Australia by providing an overview of banking accountability in WA at the time of early colonial settlement. In this context, the study illuminates how WA banking institutions were able to function as an accountable going concern, despite the harshest economic difficulties of early settlement. Furthermore, with the assistance of Peng and Brown’s (2016) spectrum of alternative reporting models, the study provides evidence of the systematic application of legal origin theory to the published financial accounts of WA banks in the context of transplanted laws.

The assumptions of legal origin theory as an explanation for the acceptance by British colonies of transplanted financial statements have wide support (Bushman et al., 2004; Jaggi and Low, 2000). There appears to be evidence that countries adopting English law were able to enhance their creditor and shareholder protection which influenced the development of accounting systems, accounting information and disclosure practices (Hope, 2003; Jaggi and Low, 2000; La Porta et al., 1997). According to legal origin theory, this milieu of accountability built up by the imperial nation’s specific rules, regulations, laws and institutions had the potential to make a profound influence on the take-up of accountability by institutions of outside colonies (Deakin, 2009; Fernández and Tamayo, 2017; Gibson, 2011):

The influx of British people and the corresponding inflow of British capital resulted in the importation of accounting techniques, institutions, and concepts from Britain in what has been described as the transfer of accounting technology. Accounting, like other technologies, was transferred to Australia as part of British colonisation. (Carnegie, 2009: 277)

However, not all entities operating in British colonies readily accepted imposed reporting techniques and regulations from Britain (Peng and Brown, 2015, 2017). This arose because some entities preferred to take up Traditional reporting mechanisms (see Table 2), which, in deference to communal customs, attempted to provide oral reports or

generate written reports for stewardship but raised an ‘accountability of undecided space’ in the sense that it was not always clear which elite group or entity the entity was directed towards. (Peng and Brown, 2016: 1185)

Just as accountability processes within Indigenous communities were in place long before China and the Pacific Island Countries were influenced by the West (Brown, 2011; Peng and Brown, 2016), ‘accountability processes within Indigenous communities were in place long before Australia was colonized’ (Lombardi, 2016: 1321). In China, the Traditional reporting model was informed by a sophisticated and literate culture with its own accounting tradition (Peng and Brown, 2015). In the Pacific Island Countries and Australia, the Traditional reporting models were also informed by a sophisticated but non-literate culture embedded within their own accounting traditions (Brown, 2011; Lombardi, 2016). Australian Aboriginal accounting systems were grounded on value based on cultural laws through such mechanisms as rituals, kinship, myths, oral archives and natural laws (Elkin, 1974; Martin, 2005), a Traditional reporting system very different to the West’s understanding of reporting (Gallhofer et al., 2000).

Those entities operating in the colonies that did embrace introduced reporting and regulations from Britain produced Western-narrow reports (financially focussed), Western-broad reports (societal and financially focussed) or hybrid reports (a melding of Traditional, Western-narrow and Western-broad reporting) (Peng and Brown, 2016). As each reporting model brought about a different form of accountability, a critical contribution of this study of early financial statements of WA banks is to consider the legal origins of early bank reporting in terms of the adoption of alternative reporting models and accompanying accountability. It is salient to point out here that in contrast to the overwhelming focus in the past of using legal origin theory to explain the systemic adoption of the imperial nation’s specific rules, regulations, laws and institutions, this study uses legal origin theory to explain the pattern of accountability of the early reporting of banking entities operating in the WA colony. With this in mind, the following research question is presented:

What patterns of accountability were evident in the early financial statements of WA banks from 1837 to 1880?

The article is structured as follows. The next section presents an overview of legal origin theory. This is followed by an account of the background to this research presenting a historical account of the growth of the colony of WA and the rise of the WA banking industry. A chronological glimpse of the banking financial statement initiatives taken up by WA and other colonies is elaborated. In addition, the legal, fiscal and political environments of the colonies and British imperial government during the period of the study are described. Furthermore, the constructs of legal origin theory are appraised and considered as an explanation for the adoption of specific patterns and forms of financial statement presentation by early banks of WA. Following this, the methodological foundation of the study is outlined. Results of the textual analysis for three WA banks are then presented followed by the conclusion of the study.

Theoretical approach

Legal origin theory enquires into the historical trajectory by which a country’s laws and legal institutions have been developed (Mahy, 2012). The theory posits that legal traditions of the ‘origin’ country transfer to the ‘transplant’ country as a result of colonisation or conquest (Fairfax, 2009). Legal traditions effectively characterise origin and transplant countries into legal families, with common law and civil law being the most dominant (Glaeser and Shleifer, 2002). Common law represents the law of England and is made up of judicial precedents broadening over time, whereas civil law, being the oldest and most widely distributed, is primarily based on the French civil law tradition governed by doctrines developed by legal scholars (Glaeser and Shleifer, 2002). A country’s legal family is said to influence not only its laws and legal institutions but also how they respond to economic, political and social challenges (Fairfax, 2009).

The term ‘legal transplant’ originates from the works of Alan Watson on comparative law (Gibson, 2011). The legal transplant process provides that the laws should have a clear meaning that can be detached and transferred between legal systems and that those laws must have a functional purpose that provides a practical benefit to society (Gibson, 2011). In line with this process, British legal institutions were homogeneously implanted across Australia on colonisation (Berkowitz et al., 2003). British migrants were also familiar with the basic principles of British laws (Berkowitz et al., 2003):

In sparsely populated territories with a favourable disease environment, the common law was extensively implanted and fitted well with the colonial society. This led to a more intense legal-institutional transfer, which made it possible to develop a legal system that is comparable in many respects to the British one. In these cases, the positive features associated with the common law are expected to prevail, and therefore the legal system can provide good protection of investor and creditor rights as well as be efficient at enforcing private contracts and debts. (Oto-Peralías and Romero-Ávila, 2014: 573)

The level of investor and creditor rights across a number of countries with varied legal origins was the subject of pioneer studies by La Porta, et al. (1997, 1998). These studies observed that common law countries were associated with stronger investor and creditor protection than civil law countries. This finding raised a branch of accounting research focussed on the extent to which these factors influenced accountability practices of the business enterprise (e.g. Hope, 2003; Jaggi and Low, 2000). Through the lens of Western-narrow and Western-broad reporting, this study considers the influence of legal origin theory in ascertaining the pattern of accountability produced by early financial statements of WA banks from 1837 to 1880.

History of the colony of WA and the rise of the banking industry

As shown in Table 1, which depicts the major events of the period between 1828 and 1892 and their impact on WA banking, British laws and accompanying legal accountability were imposed on WA with the establishment of WA as a Crown Colony in 1829 (Castles, 1963). The intent of the arrangement between the British government and private investors of the newly established colony was

Table 1.

Key events.

Year	Major events	Impact on WA banking
1828	British government approves colonisation of WA	Arrangements for settlement of the colony of WA begin with the first settlers to arrive in 1829
	Peter Broun appointed as Colonial Secretary (and Acting Treasurer)	Set up an early form of fiscal accountability in the colony of WA in terms of the stewardship of government funds
1829	WA established as a Crown colony	British laws and accompanying legal accountability were imposed on WA
1832	Colonial Treasurer appointed	Expansion of fiscal accountability requirements led to segregation of Colonial Secretary and Treasurer duties
1830s	Economic difficulties associated with land distribution, food shortages, limited capital and lack of labour	Created a need for formal monetary facilities in the colony of WA
1837	The Bank of Western Australia established	Banking facilities welcomed into the colony of WA at a time when access to capital was limited
1840	Bank of Australasia merged with The Bank of Western Australia	The Bank of Australasia (an English bank) gained a foothold into the banking sector in the colony of WA
1841	The Western Australian Bank established	A dislike of foreign ownership in the Bank of Australasia led to the opening of the Western Australian Bank, creating competition within the banking sector in the colony of WA
1843–1844	Recession in the colony of WA	Impacted economic development of the colony and the performance of business entities
1845	Bank of Australasia closed	The Western Australian bank was left as the sole provider of banking facilities in the colony of WA
1850	Convict transportation began	Start of significant economic growth in the colony of WA. The most significant contribution of convicts to WA’s economic growth during the initial stages related to the supply of labour for public works with a majority entering either the pastoral or the extractive industries
1863	Post Office Savings Bank established	Monopoly of the Western Australian bank became a duopoly
1866	National Bank of Australasia established	Duopoly of banking in the colony of WA ends enhancing competition in the sector
1868	Convict transportation ended	Accelerated rates of growth end. Between 1850 and 1868, total exports increased from £22,135 to £192,636 and total imports increased from £62,351 to £225,614. Population increased from 5,886 in 1850 to 24,292 in 1868
1870	Representative government formed	In a demonstration of reformed political and legal accountability, WA gained representative government with a Legislative Council structure comprising six individuals nominated by the Governor and 12 elected individuals
1878	Union Bank of Australasia branch opens	Increased competition in the banking sector
1885	Gold discoveries Kimberley region	Triggered significant economic and demographic growth
1888	Commercial Bank of Australia branch opens	Increased competition in the banking sector
1890	Responsible government formed	The existing unicameral legislature of WA became bicameral, a two-chamber parliament with a Legislative Assembly formed
1893	Further gold discoveries in Kalgoorlie region	Continued economic and demographic growth. Population increased from 53,177 in 1891 to 100,515 in 1895. Large capital works projects in roads, railways and construction followed

Source: Appleyard (1981), Barnes and Newton (2014), Butlin (1961), De Garis (1981), Department of Treasury and Finance (2004), O’Connell (2014), Preece (2002), Statham (1981) and Uren (1966).

WA: Western Australia.

to transplant the best of British rural society; it was to be commanded by gentlemen of means and populated by yeoman farmers and industrious working families. (Ford and Roberts, 2013: 136)

In 1828, Peter Broun was appointed as the first Colonial Secretary (and acting Treasurer) of WA, setting up an early form of fiscal accountability in terms of the stewardship of government funds (Uren, 1966). Broun was given the responsibility for administering public funds and had the authority to offer limited banking services to the colony (Uren, 1966). A further step in augmenting accountability arose in 1832 with the appointment of a Colonial Treasurer whose task was to render an account of the WA colony’s revenue and expenditure (Bunn and Gilchrist, 2013). As shown in Figure 1, which depicts the key developments in bank regulations and events in the colony, the British pound had already been confirmed as the primary currency of the Australian colonies with the colonies’ adoption of the British Sterling Silver Currency Act 1825 (UK). This enactment paved the way for meaningful financial statements with a uniform monetary valuation for the measurement of all elements of the statements. This adoption of a uniform currency represented an early form of ‘legal transplant’.

Figure 1.

Timeline.

Banking facilities in the colony of WA were highly sought-after by settlers from early colonisation; however, the small size of the colony was an impediment to attracting overseas banking investment (Butlin, 1968). This resulted in a reliance on savings from colonial households to fund share ownership in WA’s first bank, the Bank of Western Australia in 1837 (Statham, 1981). Colonists hoped that the era of rapid advance, wealth and prosperity that followed the establishment of banks in the Eastern Australian colonies would similarly unfold in WA (The Bank of Western Australia, 1837). The establishment of the bank coincided with legislative moves to govern banking operations in the colony of WA (Medcalf, 1967). The assent of the Banks 1837 (WA) Act imposed a form of legal accountability on banking entities through explicit forms of financial statement presentation to carry on the

trade and business of bankers in WA, and to make and issue their bills or notes payable on demand, or otherwise; and to borrow, owe, or take up any sum or sums of money on their bills, or notes so made, or issued. (Banks 1837 (WA) Act, s.1)

The instituting of banking bills and notes and accompanying legal accountability for the presentation of financial statements was welcomed at a time when economic growth of the WA colony was limited due to a lack of available capital and investment in local production and exports (Department of Treasury and Finance, 2004). The Banks 1837 (WA) Act may be seen as another early example of the influence of legal origins, as the Act was substantially framed on The Country Bankers Act 1826 (UK). The aim of The Country Bankers Act 1826 (UK) was to stabilise the British banking system following the 1825/1826 crisis by enabling joint stock banking as an industry (Barnes and Newton, 2014). The system of joint stock banking had already fared well in Scotland where joint stock banks had operated since 1810 (Newton and Cottrell, 1998). In contrast to The Country Bankers Act 1826 (UK) which excluded any prescribed financial reporting requirements, Section 13 of the Banks 1837 (WA) Act required reporting entities to keep weekly accounts of average notes in circulation and of the amount of deposits, and from such weekly accounts make up quarterly returns. These account-keeping requirements align with those contained in Section 8 of The Bank of England Act 1833 (UK). Further legislation included minor amendments of the Banks 1837 (WA) Act in 1839 and 1841 (Banks Amendment 1839 (WA) and Banks Amendment and Currency 1840 (WA)).

To gain a foothold within the WA financial sector, the Bank of Australasia took over the Bank of Western Australia in 1840 (Butlin, 1968). This raised complaints from some shareholders of the Bank of Western Australia who were already concerned about the existence of overseas shareholders, with a majority of the bank’s directors and shareholders being London-based. As a consequence, WA investors set out to establish a new bank with the Western Australian Bank commencing operations in 1841 (Butlin, 1961; Statham, 1981; Turner, 1997). In keeping with the civic-based duty to be accountable to the citizens of the colony of WA, the prospectus of the Western Australian Bank stated that the bank ‘aimed to be “of the public for the good of the public”’ (Turner, 1997: 389). The effect of the establishment of a second bank in the WA colony was to create increased competition in the banking sector forcing a decline in interest rates and increased demand for loans (Statham, 1981).

The British Colonial Banking Regulations were introduced into the Australian colonies in 1840 and provided a number of ‘rules and conditions’ for implementation within chartered banks or banking legislation for the purpose of incorporation (Butlin, 1968: 545). While a number of the ‘rules’ were not viewed favourably among colonial banks, disclosure requirements were more positively received (Morris, 1984). Governor Gipps of NSW adopted an amended version of the disclosure rules to enact the Bank Liabilities Publication Act 1840 (NSW). Under the Act, banks were to make statements of weekly average liabilities and assets and from such accounts prepare quarterly statements to be lodged with the Colonial Secretary and published. The disclosure requirements, ultimately enacted in NSW, extended to Victoria, Queensland and South Australia at later dates, with a variation of the rules applied in Tasmania in 1841 (Morris and Barbera, 2015). The colonial bankers of WA were relatively less accepting of disclosure regulations, particularly those targeting the publication of results. The colony of WA had only two banks at this time, the Bank of Australasia and the Western Australian Bank. The former was a chartered bank and the other was a colonial bank. It was argued that the chartered bank could not be called upon to meet the disclosure restrictions under the proposed act, whereas the colonial bank would be compelled to abide (Legislative council, 1842). Indeed, a WA bill modelled on the tenets of the Bank Liabilities Publication Act 1840 (NSW) was flatly rejected.

The directors of the Bank of Australasia announced in mid-1845 its closure after succumbing to the faltering conditions of the colony and experiencing competitive pressure from the Western Australian Bank (Butlin, 1968). In 1846, the British Treasury amended its Colonial Banking Regulations of 1840 to include incorporation (for a period not exceeding 21 years) and a limitation on note issues up to the value of paid-up capital. On this occasion, it was clearly represented to Colonial Governors that take-up of the regulations was expected. Notably, the WA Governor succeeded in securing a more extensive form of return from the Western Australian Bank (Butlin, 1968). Liability disclosures now distinguished between interest-bearing and non-interest-bearing deposits, and assets included new disclosures of cash, bills, cash credits and premises.

Assent of WA’s first general companies’ legislation, The Joint Stock Companies Ordinance 1858 (WA) brought about additional prescriptions of financial statement reporting to the colony of WA (Butlin, 1968). This represented a further form of legal transplant to the Australian colonies because ‘as a function of colonization’ (Gibson, 2011: 49), legal origin theory suggests legal transplants such as the Joint Stock Companies Act 1856 (UK), which informed The Joint Stock Companies Ordinance 1858 (WA), offered wide-ranging forms of accountability such as shareholder protection, enhanced market capitalisation, potentialities for economic growth and ‘lower legal formalism’ (Oto-Peralías and Romero-Ávila, 2014: 562). Like the Joint Stock Companies Act 1856 (UK), The Joint Stock Companies Ordinance 1858 (WA) specifically excluded banking associations. Both banks were included on the Joint Stock Companies Register which appeared as a result of securing individual acts which determined the banks ‘joint stock banking companies’. The first individual banking Act was an Ordinance to incorporate the National Bank of Australasia in 1866.

In 1863, the Western Australian Bank lost its monopoly due to the opening of the government-owned Post Office Savings Bank (Butlin, 1968). This was followed by a number of interstate banks establishing branches in the colony. In 1870, in a demonstration of reformed political and legal accountability, WA gained representative government with a reconstituted Legislative Council comprising six individuals nominated by the Governor and 12 elected individuals (De Garis, 1981). Curthoys and Martens (2013) suggested that the system ensured the elite groups of the colony maintained power. It appeared that the British Colonial Office was wary of relinquishing control of WA to a small population. In a further example of broad legal and political advancement of accountability, WA finally established responsible government in 1890 (De Garis, 1981). The existing unicameral legislature of WA became bicameral, a two-chamber parliament with a Legislative Assembly formed (Preece, 2002).

A broad sweep of the history of the WA colony has been provided along with an early financial, political and legal milieu that opened up opportunities for banks to demonstrate their own forms of accountability with the enhancement of financial statement presentation. Although legal requirements for financial statement presentation were initially lightly imposed through the Banks 1837 (WA) Act, the requirements became more exacting with the passing of The Joint Stock Companies Ordinance 1858 (WA). The methodology for examining aspects of financial accountability by the three early WA banks between 1837 and 1880 is described in the next section.

Methods

Overlaying legal origin theory with the lens of Peng and Brown’s (2016) alternative reporting models, this study considers whether the export of Western-narrow reporting by Britain brought with it trappings of written documentation, selective measurement techniques, linguistic practices and formal standards that attempted to perpetuate selective patterns of financial statement presentation prepared by early banks of the colony of WA. The export of Western-narrow reporting created interpretations of reported profits and asset values that troubled British reporting entities during the colonial period (Wale, 1990). Many British reporting entities found it difficult to comply with the Western-narrow reporting expectations established by British enactments, particularly in terms of reporting profits and asset values (Wale, 1990). This is relevant because early WA banks were also expected to comply with local enactments informed by British enactments.

The typology of alternative reporting models (Traditional, Western-narrow and Western-broad), as shown in Table 2, suggests that alternative forms of accountability may exist across a broad spectrum of reporting models ranging from a Traditional reporting model established by Indigenous accounting systems to a Western-broad comprehensive reporting model grounded on civic-based practices of Britain (Peng and Brown, 2015). For the purpose of this study, it is assumed that an early Indigenous aboriginal system of reporting was closely aligned to the Traditional reporting model, with its connection to oral accounts, cooperation and spiritual connection (Gallhofer et al., 2000). It is also assumed that the introduction of technical forms of Western bookkeeping was tightly connected to the Western-narrow reporting model.

Table 2.

Alternative reporting models.

Traditional (Theory of Indigenous Alternatives)	Western-narrow (Legal Origin Theory)		Western-broad (Legal Origin Theory)
Very little or no written reports. Resistance to transplants of accounting techniques. Indigenous system of reporting:- Oral accounts- Cooperation- Spiritual	Narrowly based, financially oriented written accountsEconomic agency system of reporting where entities need to keep written financial records to monitor and account for stewardship		Recalibration of reporting to respond to political economies and social contexts of the colony. Reshapes financial statement presentation, where entities recognise broader written accounts revealing implications of transactions
Values underpinned by the intergenerational equity principle. A society based on cooperation whereby relational interactions provided access to and sharing of resources. Hunter-gatherers, all ‘needs’ came from the land which had spiritual as well as economic value	Banks 1837 (WA) Act (based on The Country Bankers Act 1826 (UK) informs formation of early banking partnerships in the colony; the Sterling Silver Currency Act 1825 (UK) confirms use of the pound in account preparation; The Bank of England Act 1833 (UK) informs account preparation); s2, s5, s13:• Annual return to comprise details of public officers and partners• Weekly accounts, including notes in circulation and amount of deposits to be maintained• Quarterly returns, including details of any amendments to public officers or partners	The Joint Stock Companies Ordinance 1858 (WA) (based on the Joint Stock Companies Act 1856 (UK)); XVII, s70–74:• Register of shareholders to be maintained with an annual list provided to the Registrar of Joint Stock Companies• Statement of income and expenditure and balance sheet• Annual balance sheet to be delivered to each shareholder• National Bank of Australasia 1866 (WA) (aligns with British Colonial Bank Regulations); s4, s18:• Shareholder list to be lodged with the Supreme Court• Weekly accounts and statements• Quarterly general abstract of the average amount of liabilities and assets, capital stock paid up, rate and amount of last dividend declared and the amount of reserved profits• Quarterly general abstracts to be published	Publication of results by colonial banks in WA between 1837 and 1880 were seen as entirely voluntary:• No requirement for publication included in either the Banks 1837 (WA) Act or The Joint Stock Companies Ordinance 1858 (WA) • The British Colonial Banking Regulations 1840 (amended 1846) included an expectation of colonial banks to provide a timely publication of results. Action while preferred was not mandated

Source: Butlin (1961), Gallhofer et al. (2000), Gibson (2011), Gray et al. (1987), Parker (1990) and Peng and Brown (2016).

WA: Western Australia.

Accountability represents the disclosure and/or publication of accounting information by early WA banks. These banks were accountable to the Governor of WA, the British imperial government, shareholders of the bank, the WA public and other local banks. Patterns of accountability suggest the discernment of a regular and intelligible form or sequence of accountability occurring over a period of time (Brown, 2011; Peng and Brown, 2015, 2016). The discernment of this regular and intelligible form of accountability was guided by the use of alternative reporting models. Western-broad reporting provides an accountability of civic culture and is

based on civic-based practices of Western democratic countries placing considerable value on governance and social responsibility. (Peng and Brown, 2016: 1185)

This ‘creation of selective patterns of civic visibility’ rendering a sense of accountability of civic culture contrasts sharply with Western-narrow’s ‘creation of selective patterns of economic visibility’ that offers an ‘accountability of agency’ (Brown, 2011: 170). Both these forms of accountability differ from the selective patterns of customary visibility and obligations found in the Traditional reporting model that conveys a sense of ‘accountability of undecided space’ (Brown, 2011: 170).

Foreign investment in WA raised the expectations of accountability rendering an emphasis on preparing narrow, financially based, written reports. Reporting through certain forms of financial accounting presentation was thus encouraged to demonstrate nuanced forms of Western-narrow reporting that gave insights into balance sheet elements (assets, liabilities and equity) and profit or loss (revenue less expenses).

Until 1866, legislation governing financial reporting of banks in WA was limited to clauses contained in the Banks 1837 (WA) Act. Those companies carrying on a business of banking, particularly in making and issuing promissory notes payable on demand, were required by the Act under Section 13 to maintain weekly account books detailing notes in circulation and amount of deposits. From weekly accounts, quarterly returns detailing the average quarterly notes in circulation and amount of deposits were required to be prepared and lodged with the Colonial Office. Quarterly accounts ended the first days of April, July, October and January, respectively, for each year, representing a standard calendar year. Disclosures in regard to public officers and partners of the bank were also required. Section 2 of the Banks 1837 (WA) Act required the inclusion of all the personal particulars of public officers and partners of the bank in the annual report, including names and place of abode, while Section 5 required quarterly returns to disclose any changes to those public officers or partners. The requirement to supply a list of partners and names of public officers was consistent with requirements under Section 4 of The Country Bankers Act 1826 (UK). The Act removed the six-partner restriction on English banks, and the requirement to disclose equity holdings would have allowed regulators to monitor increased shareholdings. Legislators in the colony of WA followed suit.

The Bank of Western Australia and the Western Australian Bank were selected for analysis in the sample set as they represent the first two banks established locally in WA offering banking facilities to settlers within the colony. The local establishment seemed to have a powerful influence in driving the initial success of these two banks. The National Bank of Australasia commenced operations in the colony of WA in 1866 and is also included in the sample set as its operations were established after the assent of The Joint Stock Companies Ordinance 1858 (WA). The National Bank of Australasia and the Western Australian Bank were both registered joint stock companies, despite a specific exclusion of banking entities under Section 2 of The Joint Stock Companies Ordinance 1858 (WA). Both banks were determined joint stock banking companies after securing individual Acts – for the National Bank of Australasia, an Ordinance titled ‘National Bank of Australasia (1866) (WA)’ and for the Western Australian Bank, ‘An Act to incorporate the Shareholders of “The Western Australian Bank” and for other purposes 1879 (WA)’. The influence of The Joint Stock Companies Ordinance 1858 (WA) on the ongoing disclosure of the WA banking sector is of interest to this study as the enactment borrowed heavily from the Joint Stock Companies Act 1856 (UK). This presents insight into the Western-narrow and Western-broad strands of legal origin theory on the financial statement presentation of early WA banks.

The sample of financial statements used by the early WA banks consisted of 11 quarterly returns and one annual return generated by the Bank of Western Australia from 1837 to 1841, 115 quarterly returns and two annual returns by the Western Australian Bank from 1848 to 1879 and 66 quarterly returns by the National Bank of Australasia (General and WA branches) between 1866 and 1876. The annual returns were used to extract a listing of partners of the banks, whereas quarterly returns were used to glean information about the addition or cessation of partners. It should also be noted that the National Bank of Australasia used the term ‘general abstract’ to denote the quarterly return.

The State Records Office (SRO) in Perth, WA, provided access to the original primary source of the Colonial Secretaries ledger book comprising quarterly and annual returns for four banks. The ledger maintained in manual form includes returns filed with the Colonial Office for each bank, detailing members and officers and general abstracts of financial information. Financial records for the Western Australian Bank between 1841 and 1848 (quarter 3) were not included in the Colonial Secretaries ledger book. However, secondary data were sourced for these quarterly averages from Butlin’s (1968) review of WA’s banking statistics.

Textual analysis compared the sampled bank returns between 1837 and 1880 in terms of the attributes of the alternative reporting models, detailed in Table 2’s research instrument. Furthermore, a review of compliance was conducted with sampled returns of the Western Australian Bank and Bank of Western Australia compared to Section 13 of the Banks Act 1837 (WA) and for the National Bank of Australasia, Schedule B of its own Ordinance, National Bank of Australasia (1866) (WA). An Act to incorporate the Shareholders of ‘The Western Australian Bank’ and for other purposes 1879 (WA) came into force after the date of the final sampled return of the Western Australian Bank and is, therefore, not considered in the review of compliance.

Textual analysis is concerned with the extraction of text for the analysis of particular meanings (Carley, 1997). As a qualitative technique, it represents a system of document analysis that assesses specific meanings or concepts within a document (Carrera-Fernández et al., 2013). In contrast to the processes of quantitative-based textual analysis with its leanings towards calculative content analysis (Loughran and McDonald, 2016), interpretive textual analysis seeks out patterns, meanings and themes in chosen materials of texts to dig around for complex interpretive understandings (Gephart, 1997). While critics of textual analysis suggest that it suffers complexities associated with relational interpretation and therefore impacts results (Loughran and McDonald, 2016), the approach is deemed suitable for the contextual comparison of the sample of financial statements over time to determine the extent of change as well as compliance with applicable Acts in terms of accountability (Peng and Brown, 2017). Copies of both legislative instruments were obtained from the Government of WA’s Department of the Premier and Cabinet, State Law Publisher.

Analysis

Bank of Western Australia

Financial statement analysis of the Bank of Western Australia shows that the quarterly returns of the average weekly assets and liabilities written in the colonial ledger were consistently presented in a simple T-format, with liabilities shown on the left-hand side and assets listed on the right-hand side. Assets included disclosure of specie and treasury bills, discounted bills and dishonoured bills. Liabilities comprised disclosure of notes in circulation and deposits. These disclosures exceeded the requirements detailed in Section 13 of the Banks 1837 (WA) Act which only required the quarterly average amount of notes in circulation and amount of deposits. From the start, the bank also published quarterly returns, despite no requirement to do so under the Banks 1837 (WA) Act. Sponsors of the bank had promised in the initial prospectus publication of a quarterly statement of coin, deposits, notes and discounts (Butlin, 1968). There appears, therefore, a satisfaction of Western-narrow reporting methods as well as an early form of Western-broad reporting and accountability.

Mandatory currency regulations were maintained by the Bank of Western Australia. As shown in Table 3, the first quarterly return (ending 27 September 1837) revealed liabilities amounting to £3,557 and assets of £4,652. While the amounts appear relatively modest in size, the second quarterly return (ending 27 December 1837) revealed a dramatic rise in activity, with liabilities increasing by 41.75 per cent to £5,043 and assets climbing by 32.29 per cent to £6,154. This suggests that once the Bank of Western Australia was established, there was a clear need for shareholders to showcase performance using the pound as the medium of exchange for reporting evaluation, which of course may be traced back to the legal origins of the Sterling Silvery Currency Act 1825 (UK). The quarterly returns also reflect an endeavour of Western-narrow reporting, providing written financial records to assess performance across time.

Table 3.

Bank of Western Australia: Disclosure of assets, liabilities and number of equity partners (1837–1841).

Date of return	Position of return	Annual or quarterly return	Liabilities, £^a	Assets, £^a	Equity (number of partners)
10 August 1837	1st	Annual			75
27 September 1837	1st	Quarterly	3,557	4,652
27 December 1837	2nd	Quarterly	5,043	6,154
31 December 1840	10th	Quarterly	12,509	17,407
30 March 1841	11th	Quarterly	11,354	16,010	71

Source: Details extracted from Office of the Colonial Secretary, Bank Returns, Statements of Bank Assets and Liabilities. State Records Office of Western Australia (AU WA S2755-cons 49 20).

Currency amounts in this table are unadjusted for inflation.

By the 10th quarterly return (ending 31 December 1840), Table 3 shows that the Bank of Western Australia had secured £17,407 of assets and generated £12,509 of liabilities. Importantly, over the 11 quarterly returns, the bank’s financial statement presentation consistently provided information well above the presentation requirements of the Banks 1837 (WA) Act, commensurate with patterns of Western-narrow reporting and early forms of Western-broad reporting. Over this period, the Bank of Western Australia also disclosed information about the number of equity partners (refer to Equity column of Table 3), thereby generating additions of Western-broad reporting and accountability. Indeed, the annual return dated 10 August 1837 highlighted the names of partners engaged in the bank as well as their place of abode. Of the 75 partners detailed, six partners had no place of abode (listed as ‘absent’), 34 resided in Perth and the remainder were dispersed across WA. The Bank of Western Australia was a home-grown institution. Local ownership highlights the determination of colonists to remain self-sufficient despite the perception that the colony of WA was reliant on foreign-capital and foreign investors.

Western Australian Bank

Consistent with the tenets of Western-narrow reporting, between quarter 3 of 1841 and 1848 the Western Australian Bank fulfilled the minimum disclosure requirements outlined in the Banks 1837 (WA) Act, including notes in circulation and deposits (Butlin, 1968). From 1845 to 1846, the Western Australian Bank published their returns, notably ending after closure of the bank’s only competitor, the Bank of Australasia (Butlin, 1968). Rivalry between the two banks inhibited regular publication between 1841 and 1845 despite the Bank of Australasia’s charter mandating the requirement (Butlin, 1968). The WA Governor was reluctant to enforce the Bank of Australasia’s charter to publish returns, given its only rival, the Western Australian Bank, refused to release information on their own financial affairs (Butlin, 1968). Publication of returns by the Western Australian Bank recommenced in 1847 although the usefulness of the statements was questioned by the Governor who requested an alternative presentation of reporting with regular publication of reporting information in the Government Gazette (Butlin, 1968). This decision was accepted by the bank, and the return in quarter 4 of 1848 not only continued the presentation of liabilities but also provided information which split deposits between those bearing interest and those not bearing interest, ‘being funds of charitable institutions’. Assets were also disclosed and included bills receivable, cash credits, speciality securities and other debts, specie, treasury bills, notes of other banks and balances at agents and landed property.

In terms of colonial banking reporting practice, bills represented a common exchange transaction between the bank and customer (usually merchants and traders) whereby the customer accepted a bill as payment for goods or services and then on-sold the bill to the bank at a discount (Hamilton, 1880). The customer acted as guarantor to ensure the bank collected on the amount due from the drawee at maturity (Hamilton, 1880). Cash credits operated in a similar manner to bank overdrafts with a sum of money lent to the customer with interest payable (commonly taken up by primary producers) (Butlin, 1968; Hamilton, 1880). Specie was another term representing gold and silver coins, while landed property represented bank premises (per quarterly returns). Agents were viewed as an ‘intermediary’ party providing opportunity to transact in foreign exchange or solicit overseas deposits (Butlin, 1961). Notes were considered a ‘cash’ alternative at a time when currency availability was limited, and therefore, the holding of notes by the bank represented an ability to collect cash for the equivalent value of the note (Hamilton, 1880). Indeed, disclosures generated by the Western Australian Bank exceeded requirements of Section 13 of the Banks 1837 (WA) Act and were more extensive than those disclosures provided by the Bank of Western Australia, suggesting that the bank not only satisfied the requirements of Western-narrow reporting but also displayed aspects of Western-broad reporting.

Financial statement analysis of the Western Australian Bank from the first quarterly return (ending 31 December 1848) showed that they were initially presented in a similar T-format as that presented by the Bank of Western Australia, with liabilities shown on the left-hand side and assets listed on the right-hand side. From the 35th quarterly return (ending 30 September 1857), presentation of the quarterly return changed to present liabilities at the top of the return with assets shown below. This top-down presentation, presenting liabilities before assets, reflected the thrust of the Banks 1837 (WA) Act which gave priority to disclosure of liabilities ahead of other accounting elements.

However, a reduction in disclosures by the Western Australian Bank was evident from the 70th quarterly return (ending 30 June 1866) to the 115th quarterly return (ending 31 March 1879). Fear of the imminent entry of the National Bank of Australasia in July 1866 may explain the reduction in disclosure. These quarterly returns filed in the colonial ledger disclosed only the quarterly average amount of notes in circulation and deposits, split into those bearing interest and those not bearing interest including an amount for reserve funds. During the colonial period, the reserve fund represented a sum of cash held as emergency funds in case other liquid assets were not available (Butlin, 1968). Despite this change in presentation, the Western Australian Bank in a continued demonstration of Western-narrow reporting remained compliant with the basic reporting requirements detailed in Section 13 of the Banks 1837 (WA) Act.

As shown in Table 4, the first quarterly return (ending 31 December 1848) revealed liabilities amounting to £16,638 and assets of £25,821, while the third quarterly return (ending 30 September 1849) showed a slight decrease in both assets and liabilities before returning to earlier values. However, a sizable increase in activity can be seen from the commencement of the 1st quarterly return (ending 31 December 1848) to the 115th quarterly return (ending 31 March 1879). Not adjusting for inflation, liabilities increased 1,117 per cent between these two periods. It is well to note that convict transportation commenced in 1850. This marked the beginning of increased economic activity in the colony of WA (Department of Treasury and Finance, 2004). The 87th quarterly return (ending 31 December 1870) reported notes in circulation and amount of deposits of £98,148. By the 115th quarterly return (ending 31 March 1879), this amount had more than doubled to £202,542.

Table 4.

Western Australian Bank: Disclosure of assets, liabilities and number of equity partners (1841–1879).

Date of return	Position of return	Annual or quarterly return	Liabilities, £^a	Assets, £^a	Equity (number of partners)
30 June 1841	1st	Annual			66
31 December 1848	1st	Quarterly	16,638	25,821
31 March 1849	2nd	Quarterly	16,775	25,040
30 June 1878	2nd	Annual			87
31 December 1878	114th	Quarterly	204,209	NA^a
31 March 1879	115th	Quarterly	202,542	NA^a

Source: Details extracted from Office of the Colonial Secretary, Bank Returns, Statements of Bank Assets and Liabilities. State Records Office of Western Australia (AU WA S2755-cons 49 20).

NA: not applicable.

Currency amounts in this table are unadjusted for inflation. In addition, from the 70th Quarterly Return (ending 30 June 1866) assets were no longer disclosed.

The number of equity partners in the Western Australian Bank grew from 66 in 1841 to 87 in 1878, as shown by Table 4. From this rendering of Western-broad reporting, the annual return for 30 June 1878 shows ownership as widely dispersed across the WA colony, with less than 10 per cent of partners at 30 June 1878 identified as overseas shareholders.

National Bank of Australasia

The National Bank of Australasia with its own Ordinance assented in July 1866 had more onerous reporting requirements than those outlined by the Banks 1837 (WA) Act. Section 18 of the Ordinance required weekly accounts and statements to be kept by the bank. Section 18 also required the National Bank of Australasia to provide a quarterly general abstract of the average amount of liabilities and assets. The Ordinance listed quarterly periods as ending on 31 March, 30 June, 30 September and 31 December. In variation to the Banks 1837 (WA) Act, the Ordinance required the quarterly statements to be published in the Government Gazette. These new requirements of the 1866 Ordinance, thus, represented a rise in the expectations of Western-narrow and Western-broad reporting.

This was particularly apparent in Schedule A of the Ordinance, which provided a standard form for maintaining weekly accounts and statements, and Schedule B, which provided a similar form for preparing the quarterly general abstract. For the quarterly general abstract, liabilities disclosed included notes in circulation, bills in circulation and deposits, all split into those bearing interest and not bearing interest. Balances due to other banks also required disclosure. Required asset disclosures included coined gold and silver and other coined metals, gold and silver in bullions and bars, public securities, landed property, notes and bills of other banks, balances due from other banks and all other amounts of debts due to the bank except notes, bills and balances due from other banks. In addition to liabilities and assets, Section 18 and Schedule B of the Ordinance required the disclosure of capital stock paid up, the rate and amount of the last dividend declared and the amount of reserved profits at that time.

In keeping with tenets of Western-narrow reporting methods, financial statement analysis of the National Bank of Australasia showed that the quarterly returns filed in the colonial ledger consistently included liabilities, assets, capital stock paid up, rate and amount of last dividend and amount of reserved profits as listed within Section 18 and Schedule B of the bank’s Ordinance. In some instances, a T-ledger format was followed, with liabilities presented on the left-hand side, assets presented on the right-hand side, and capital stock paid up, rate and amount of last dividend and amount of reserved profits detailed at the bottom. In other instances, presentation would change to show liabilities at the top of the abstract, assets below, followed by capital stock paid up, rate and amount of last dividend and amount of reserved profits. It is not outside the realm of possibilities that the positioning of liabilities on the top of the statement underscored the importance of showcasing the risk to potential investors of the bank’s current financial position in the growing economy.

For the most part, between the 1st quarterly return (ending 30 September 1866) and the 66th quarterly return (ending 26 June 1876), the colonial ledger showed two quarterly returns, one for the National Bank of Australasia (WA Branch) and one for the corporation generally, which was based in the State of Victoria (Blainey and Hutton, 1983). As shown in Table 5, the third quarterly return (ending 31 December 1866) revealed liabilities amounting to £13,056 and assets of £34,461. In the 10 years to the equivalent 64th quarterly return (ending 27 December 1875), the amounts had increased dramatically to £101,231 and £93,133, respectively. Table 5 also shows that in the earlier period of financial statements sampled, assets exceeded liabilities. However, from the 45th quarterly return (ending 30 September 1872), liabilities exceeded assets. The end of convict transportation in 1868 and subsequent decrease in imperial spending added to the already depressed state of the colony of WA and likely impacted the bank’s financial performance (Butlin, 1968).

Table 5.

National Bank of Australasia (WA Branch): Quarterly disclosure of assets and liabilities (1866–1876).

Date of return	Position of return	Liabilities, £^a	Assets, £^a
30 September 1866	1st	5,997	18,709
31 December 1866	3rd	13,056	34,461
27 December 1875	64th	101,231	93,133
26 June 1876	66th	119,053	102,629

Source: Details extracted from Office of the Colonial Secretary, Bank Returns, Statements of Bank Assets and Liabilities. State Records Office of Western Australia (AU WA S2755-cons 49 20).

WA: Western Australia.

Currency amounts in this table are unadjusted for inflation.

Disclosure of shareholders was not provided in the Colonial Secretaries ledger book for the National Bank of Australasia, suggesting a decrease in Western-broad reporting. Section 4 of the Ordinance required a list of shareholders to be lodged with the Supreme Court office annually.

By June 1878, the financial statement presentation of the quarterly return comprised a vertical appearance with categories and corresponding amounts of liabilities shown on top and categories and corresponding amounts of assets shown below. An example is shown in Figure 2, which highlights results for the 66th quarterly return (ending 26 June 1876). Liabilities comprised notes in circulation, bills in circulation, amounts owed to other banks and deposits. Assets included amounts held in gold and silver, landed property and premises, notes and bills of other banks, amounts owed from other banks and debts owed. A signed statement of oath indicating results reflected that the assets and liabilities were faithfully represented. A requirement under Section 18 of the Ordinance, the quarterly abstracts were to be verified under oath of the Manager, Chief Cashier or Clerk at which time the abstract would be provided to the Colonial Secretary to be published. Any false statement of oath by the Manager, Chief Cashier or Clerk as to the quarterly abstract of averages was subject to penalties under existing laws at the time. The statement could be interpreted as a guarantee of financial compliance in presenting the bank’s affairs to the public.

Figure 2.

General abstract for National Bank of Australasia (WA branch) showing the average amount of liabilities and assets being the 66th quarterly return ending 26 June 1876.

Conclusion

Taking the broad assumption that financial statement presentation may cast light on the type of accountability that took place by early WA banking entities operating between 1837 and 1880, it appears all three banks demonstrated facets of Western-narrow and Western-broad accountability. This somewhat aligns with the expectations of banking legislative reporting that was informed by UK legislation, although the additional voluntary information provided by the financial statements of early Western Australian banks shows they were eager to provide a pattern of extensive accountability. No discernible form of Traditional reporting is recorded as having taken place in the Colonial Office records.

Consistent with the Western-narrow facet of legal origins theory, there is evidence that financial statement presentation of early WA banks over a 43-year sample period grew in sophistication. The presentation of the financial statements shows that the Sterling Silver Currency Act 1825 was very important in introducing the British pound as the currency of the colonies. After 12 years of its enactment, the first WA bank used the pound to generate the first of a modest but informative set of measurements of assets and liabilities for contrast and comparison of performance over 11 quarterly returns of the average weekly assets and liabilities. As the analysis of the study bears out, this unit of measurement not only provided an indication of the going concern of the Bank of Western Australia but also afforded a glimpse of financial activity in the colony from 1837 to 1841.

A further legal transplant the ‘Banks 1837(WA) Act’ appeared to provide a coherent and well-understood set of requirements for the financial statement presentation by WA banks. This was evident as up to 1858, before the passing of The Joint Stock Companies Ordinance 1858 (WA), all quarterly returns were generated in a timely and compliant manner. Clearly, the British Colonial Banking Regulations along with the adoption of The Joint Stock Companies Ordinance 1858 (WA) prompted the National Bank of Australasia to provide relatively more information in its financial statement presentation than was prepared by earlier banks. As the transactions of the National Bank of Australasia grew in number and complexity, so did the quarterly returns of liabilities and assets broaden and deepen in aspects of reporting and accountability.

Footnotes

Appendix 1

Appendix 2 Acknowledgements

The authors of this paper would like to acknowledge the assistance of staff at the State Records Office of Western Australia with providing access to original historic records from the Office of the Colonial Secretary of Western Australia. The authors would also like to acknowledge the contribution of an Australian Government Research Training Program Scholarship in supporting this research.

Funding

The author(s) received no financial support for the research, authorship and/or publication of this article.

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Accountability and financial statement presentation of early Western Australian banks,1837–1880

Abstract

Keywords

Introduction

Theoretical approach

History of the colony of WA and the rise of the banking industry

Methods

Analysis

Bank of Western Australia

Western Australian Bank

National Bank of Australasia

Conclusion

Footnotes

Appendix 1

Appendix 2

Acknowledgements

Funding

References