Costing the Banking Services: A Management Accounting Approach potx

Keywords: Saving banks Cost structure Management accounting Cost systems Activity based costing.. 101-102 and Carmona 1994, p.210 point out that the characteristic features of the produ

ISSN 1450-288X Issue 6 (2008)

© EuroJournals Publishing, Inc 2008

http://www.eurojournals.com/finance.htm

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: jcarenys@eada.edu 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: xsales@eada.edu

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

1 Introduction

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

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 banking system, and, more specifically, deregulation,

disintermediation and innovation processes, have ushered in changes to the competitive behaviour and

the information needs of banking institutions We can therefore assume that the accounting systems of

these companies have most probably also evolved and established new conceptual frameworks 1 As a

consequence of growing competition in the banking sector and the reduction of financial margins,

banking institutions have had to give increasingly greater importance to the planning and control of

their non financial costs, which has opened up the debate around the adequacy of the costs systems

currently in use in these companies (Scias, 1985, p 48; Kimball, 1993, p 5-20; Bos, Bruggink et al.,

1994, p.12; Carmona, 1994, p 213) This essay aims to analyse the characteristics of the costs systems

of Spanish savings banks which operate in the universal retail banking segment In the first place, we

will look at the different theoretical models that will enable us to analyse the financial intermediation

activity from a microeconomic viewpoint Secondly, we will go on to describe the characteristics of

non financial costs in banking institutions, given that they influence the application of management

accounting in these companies Thirdly, we will put forward a costs classification in savings banks that

facilitates the allocation of their non financial costs to different cost objects (centre of responsibility,

products, customers and activities) Based on the above, we can then go on to assess the use of

different costing systems, looking at both traditional costing systems (partial and full) as well as

activity based costing The study finishes by presenting the results of a questionnaire given to the heads

of management control of Spanish savings banks with the aim of finding out which costing systems are

currently in use and how they are likely to evolve in the future

2 The Production Process in Banking Institutions

This section aims to present an overview of the different theoretical approaches that interpret the

productive process of banking institutions According to Bergés and Soria (1993, p 17-23) the models

that explain the productive process of banking institutions can be grouped into three groups: partial

decision models, portfolio theory and services production Let's look at these in more detail

2.1 Partial Decision Models

Partial models focus either on the assets and investment decisions (loans versus the treasury) or on the

composition of the liability structure (capital versus deposits), considering the other part of the balance

sheet as an external or exogenous variable In these models, the banking institution's balance sheet is

1

We can identify various evolution stages in bank accounting and management; for example, Chisholm and Duncan (1985, p.27-33) have divided its

historical evolution into three stages, Faletti (1986, p.88-95) refers to four stages, Rezaee (1991, p.26-28) and Roosevelt and Johnson (1986, p.30-31)

have established five stages, and Ernst & Young (1995, p.25-31) outline up to 11 phases Having said this, the different number of stages by different

authors reflect differences in nuances but not in fundamental aspects because the evolution of information drawn up by management accounting in

banking institutions may be seen as a continuous process rooted in financial accounting that is evolving towards objectives that are more and more

related with tactical and strategic decision making

viewed as the key element, because each of its components is modelled individually (Santomero, 2000, p.4) When loans are regarded as outputs of the banking institution, it is assumed that, given a certain level of exogenously determined deposits, which are not subject to optimization, the company's management decision is focused on determining what proportion of deposited funds will be allocated

to the provision of loans and what proportion will be kept in the treasury This is due to the fact that the banking institution needs to maintain a certain level of liquid reserves in order to address possible withdrawals of deposits Obviously, maintenance of this treasury will generate an opportunity cost, so banking institutions will have to minimise this opportunity cost by maintaining the treasury at a minimum level However, if the treasury that is kept is insufficient, the company exposes itself to a high liquidity risk (Baltensperger, 1980, p.3; and Swank, 1996, p.176)

When deposits are regarded as outputs, the problem focuses on determining the optimum balance between deposits and equity (Swank, 1996, p.177) According to this approach, a situation of insolvency could be brought on not only by the mass withdrawal of customer deposits, but also if the value of assets drops below that of liabilities This scenario is less and less likely the fewer the deposits It can therefore be minimised by increasing the volume of equity (Baltensperger, 1980, p.10-11; Swank, 1996, p.177) However, given that the opportunity cost of equity is greater than the financial cost generated by deposits, in order to maximise profitability the bank need to minimise the bank's own funds, which increases the possibility of an insolvency scenario and of meeting the ensuing costs associated with it (Baltensperger, 1980, p.13)

2.2 Portfolio Theory Based Models

The previous models seek to address the structure of assets or liability management whilst considering the other part of the balance sheet as exogenous A comprehensive theory of the productive process of banking institutions needs to simultaneously account for the structure of assets and liabilities The efficient portfolios selection model for banking institutions put forward by Markowitz (1959) and developed by Pyle (1971, p.737-747) concomitantly looks at decisions concerning assets as well as liabilities and gives us a more comprehensive view of the interrelations between assets and liabilities Having said this, it must be acknowledged that although portfolio theory overcomes the limitations of partial models by determining optimum treasury, loans and deposits levels together, it still has its drawbacks The most relevant to this study has to do with the fact that both partial models and portfolio selection theory regard non-financial costs as irrelevant when it comes to estimating the output level and composition of banking institutions (Swank, 1996, p 194)

2.3 Models Based on the Production of Services and Real Resources

The provision of financial services entails transformation costs which are not contemplated in the abovementioned models The services production model advocates that the production processes of banking institutions cannot be properly analysed by simply looking at the management of its optimal assets and liabilities structure, but that we also need to take into account the fact that both financial intermediation and the provision of other banking services generate transformation costs, which entail the use of real resources both human and technological (Baltensperger, 1980, p 27-29) The models developed by Pesek, (1970, p 357-385); Saving (1977, p 289-303) and Sealey and Lindley (1977, p.1251-1266) are approaches based on production and cost functions, and enable us to study the banking institution's behaviour from the point of view of profit maximisation According to the above models, the activity of banking institutions consists of providing a range of different financial services (both intermediation and other kinds of services), the production of which can be expressed in accordance with a production function The inputs of this production function are a combination of different types of factors consisting of real resources whereas the outputs are different possible combinations of assets, liabilities and services Hence the production function, along with the balancing of the accounts between assets, liquidity and liabilities, interest rates that are externally set

by the market and legally established coefficients, make up the restrictions under which banking

institutions must operate and try to maximise their profits These profits will ultimately depend on the

difference between revenue generated from the sale of their services on the one hand and the total costs

of their inputs both financial and non financial on the other (Sealey and Lindley, 1977, p 1255;

Santomero, 2000, p.3)

The following sections will discuss the problematic of the costing structure of real resources in

banking institutions and look at how these are classified for management accounting purposes This

will be followed by an overview of the different costing systems identified in the literature, partial

costs, full costs and activity based costing And finally, we will present the findings of an empirical

research study concerning the costing systems used by Spanish savings banks

3 The Cost Structure of Banking Institutions

Before we proceed to assess the different existing cost systems and their application to banking, we

would like to highlight some of the characteristic features of the banking business which influence the

cost structure of its costing systems These characteristic features can be summed up as follows

(Sloane, 1991, p.76-79; Sapp, Rebischke et al., 1991, p.56-57):

• Variable work load: the volume of operations fluctuates enormously from one moment to the

next, which obviates the problem of capacity management, given that at certain times there are

"peaks" whilst at other times there are "valleys" which means that these resources are underused

• High fixed costs: resources are usually allocated to covering "peaks" of activity However, the

cost of these resources does not vary with the volume of transactions, because they have a large

fixed component

• Predictability of the activity: although the demand for services tends to be highly variable, it is

relatively easy to predict, because it follows a cyclic behaviour pattern, which offers the

possibility of turning part of fixed costs into variable ones by means of outsourcing

• Mass services production activities: a comparison can be drawn between the high volume of

repetitive operations in banking institutions and traditional industrial mass commodity

manufacturing, which facilitates the use of methodologies that originated in industry and the

setting up of a standard costing system

• Joint production and an undefined product: the banking product is physically indefinable which

makes it more complex to identify For example, when a banking institution issues a loan to a

customer, the latter must open up a current account to meet the loan payments If on top of this

the customer orders a cheque book on his current account and takes out a life insurance policy,

we have four interrelated products

• Low cost traceability: given that we are dealing with joint production activities with elevated

fixed and indirect costs there are many resources that are shared by activities, customers, products

and centres of responsibility

As far as we see it, the most significant factors that influence the applicability of different cost

systems in banking institutions are on the one hand, the significant weight of indirect costs in relation

to cost objects, which makes it difficult to trace them in relation to cost objects Similarly, given that a

large part of the operations carried out by banking institutions are of a repetitive nature and susceptible

to standardisation, this makes it feasible to consider calculating the costs of these operations and

allocating them to cost objects, and to introduce the use of standard costs as a planning and control

instrument

4 Costs Classification in Banking Institutions

The classification of the non financial costs of banking institutions may prove useful in studying the

applicability of different cost systems to banking institutions Although we can make different

classifications of these costs, the most relevant for our purposes is the difference between

transformation and overhead costs (AECA, 1994a, p.61-62): "transformation costs are costs that are generated in profit centres and in operational cost or general services centres In general, the costs of these centres are directly or indirectly related to the consumption of products and services on the part

of customers" At the same time, transformation costs can be divided into direct and indirect costs, depending on their relation to cost objects (AECA, 1994a, p.61):

• Direct costs, are those costs that can be unequivocally and directly allocated to cost objects, in other words their allocation is controlled economically in an individualised fashion

• Indirect costs, are costs that cannot be directly allocated to cost objects because there is no exact allocation of funds that enables us to estimate the consumption of these costs by cost bearers,

It should be noted that a significant number of transformation costs of banking institutions are dual in nature when viewed from the previous classification criterion, to the extent that certain transformation costs can be direct with respect to the branches network but indirect in relation to products and customers (De la Cuesta, 1996, p.85-87) In banking institutions, transformation costs basically correspond to personnel costs, depreciations and other general costs, which although they are difficult to allocate to customers and products, are generally easier to allocate to responsibility centres (Cole, 1995, p.152)

The second costs category corresponds to overhead costs, which are generated in the bank's organisational centres These costs are generated by the various functions related to management, administration, organisation and control In general, these are indirect in relation to all the cost objects These costs are treated as costs assigned to support all the company's functions, and as such they are independent of production volume, the existing product lines and of the markets they serve (AECA, 1994b, p.58)

5 Traditional Cost Systems in Savings Banks

The process of allocating non financial costs to different cost objects begins with deciding on which costs must be transferred to cost objects This enables us to identify two types of approaches, the partial costs system, which allocates only a part of the company's costs and the full cost systems, which allocates all the costs (Amat and Soldevila, 1997, p.46) In any of these alternative systems, "the cost allocation process is usually a sequential process that consists of two stages In the first stage, the different cost categories are added to the different intermediate cost objects (cost centres or sections) and in the second stage, costs are allocated to the final cost objects" (AECA, 1994b, p.72)

Thus, coming back to the classification of transformation costs of banking institutions which differentiated between direct and indirect costs, it is worth considering the use of partial or full cost systems in banking institutions (AECA, 1994a, p.87-89)

5.1 Partial Cost Systems

This system only takes into account the direct transformation costs of a cost object and does not assign indirect transformation and overhead costs, which are simply allocated to cost centres or sections (AECA, 1994b, p.87) According to Anthony and Dearden (1976, p.554), the application of the partial costs system in banking is basically a consequence of the existence of the considerable volume of common and joint costs in relation to the different objects, which complicates their allocation to cost objects But at the same time, given that the direct costs are usually quite insignificant, that variable costs may be practically non-existent and that their outputs are difficult to measure, assessing efficacy and efficiency by means of a partial costs system seems an excessively limited approach

This cost structure also helps to explain why banking institutions were slower to adopt full cost accounting systems than were companies of other sectors (Sloane, 1985, p.75; Kimball,1993, p.7)

Authors such as Mecimore and Cornick (1982, p.13-18), when faced with the peculiarities of the cost structure of banking institutions, consider that the profitability analysis of the different costs objects should be based more on contribution margins than on net margins Their argument is that it is

preferable for decisions to be based more on the philosophy of contribution than on that of absorbing

costs Similarly, Gardner and Lammers (1988, p.36), after carrying out a survey of United States

banks, found that banks gave very little importance to obtaining full costs and attributed greater

importance to cost management and direct costs

However, as the mass of indirect costs gradually increases, the direct costs system or

contribution system becomes less and less important for planning and control purposes, although it is

still applicable to certain special types of decision making (De la Cuesta, 1996, p.88) It is therefore of

limited use in the case of multi-product companies with a high level of indirect costs Consequently,

considering the cost structure of banking institutions (the predominance of fixed indirect costs), the

margin obtained for cost objects by this method may end up being of little significance

5.2 Full Cost Systems

In addition to direct costs, the full cost system also allocates all or part of their indirect transformation

costs to cost objects (Leguay 1984, p.19) Rezzae (1991, p.29) points out that the traditional full cost

methods applied to banking have been based on establishing cost centres, generally related to the

organisational structure, which then transfer their costs to the different organizational units, products,

customers or distribution channels Marigot's work (1988, p.178-181) also follows along these lines

He in fact proposes a sequential allocation of non financial costs to the different responsibility centres,

as can be seen in Figure 1

Figure 1: Full costs system (I)

Source: Adapted from Marigot (1988, p.178-180)

Rouach and Naulleau (1994, p.124-132) and Rouach (1998, p.21-23) also follow the same lines They put forward a full cost model by sections that involves the allocation of indirect transformation costs to cost objects in five stages, which are summed up in Figure 2:

Figure 2: The full costs system (II)

Organisatio nal centres

Unallocated costs for the term

Unallocated costs for the term

Unallocated costs for the

term

General services centres

Operational cost centres

Cost of operation A Cost of operation B Cost of operation C Operational

cost centres

Financial

accounting

Costs of Accounting analysis

Profit centres

Profit centres

Profit centres

Source: Rouach and Naulleau (1994, p.125)

• Determining which costs will be incorporated in the accounting analysis

• Proceeding to locate costs in responsibility centres

• Proceeding to allocate the costs of general services centres into operational and profit centres

• Calculating the cost of service provision operations in the operational service centres, which can then be allocated to the cost objects that consume them 2,

• calculating the repercussions that the costs of operations have on cost objects The costs that are allocated to each cost object are equal to the number of operations carried out multiplied

by the unit cost of each type of operation

6 The Limitations of Traditional Cost Systems in Savings Banks

Given the above, we can conclude that the application of any of the traditional costing systems leads to

a paradoxical situation On the one hand, if we opt in favour of a partial cost system and only attribute direct costs to their final cost objects, then a situation arises whereby only a small fraction of costs can

be allocated to cost objects whereas the rest, which are indirect, are not accounted for under centres of responsibility, products or customers

On the other hand, if we opt for a full costs model, we will be faced with a number of

limitations Ernst and Young (1995, p.123), Sapp et al (1990, p.54), Raihall and Hrechak (1994, p.44),

Kimball (1997, p.31) and Helmi and Hindi (1996, p.8) argue that the traditional costing systems applied in banking assume that indirect costs are generated by production volume whilst ignoring the effects that the diversity and complexity of operations have on indirect costs On the other hand, as banking institutions develop initiatives in order to meet new competitive requirements, the weight of indirect costs on their structure increases because the costs of market research, marketing, the introduction of new products, automatisation of transactions, new technologies, etc are clearly on the rise Furthermore, Raihall and Hrechak (1994, p.45) point out that “the number of cost drivers that

2 The unit per operation is perfectly applicable and easily identifiable when it comes to calculating the unit cost of the provision of services in these types

of centres For example, the number of cheques handled, the number of discounted charges, number of transfers, stock purchase and sale orders, coupons, etc By simply adding up these operations the bank can get a precise idea of the magnitude of their evolution

have been used to attribute indirect costs to cost objects is very small, which makes it difficult to

discern the differences between the company's diverse service production processes as regards their use

of resources” Hence it is practically impossible to trace costs and this makes it difficult to develop

initiatives to improve their management (Mérindol and Obadia, 1998, p.28)

Hence, a full costs system that allocates indirect costs under a few headings based on business

volume may be acceptable in industries that have a relatively small proportion of indirect costs and

where output is reasonably homogeneous This is not advisable however in multi-product industries

with heterogeneous outputs which are difficult to measure and with a high percentage of indirect costs

(Carmona, 1994, p.213; Raihall and Hrechak, 1994, p.44-45; Kimball, 1997, p.31, Druker, 1995, p.8;

Lacan, 1986, p.152; Merlo, 1995, p.40; De la Cuesta, 1996, p.88)

7 The ABC System in Banking Companies

During the nineties traditional costing systems came under minute scrutiny: loss of relevance, lack of

reliability, inability to provide valid information for decision making as well as obsolete methods or

systems that were unadapted to the realities of companies are some of the criticisms that were directed

at traditional cost accounting systems Johnson and Kaplan (1987) and Mevellec (1988, 1991), after

demonstrating that traditional methods were unable to address the needs of companies, went on to

argue in favour of their comprehensive overhaul and proceeded to reinvent management accounting

Deregulation, that has been the general standard in financial sector companies, has facilitated

the entry of new competitors and has given companies a greater degree of freedom with regard to

pricing and the product mix they offer Companies in this sector have witnessed the disappearance of

the protectionist environment of regulated prices and the advent of new competitors and at the same

time are faced with significant threats and opportunities, the management of which demands a

comprehensive knowledge of markets, customers, products and the search for new competitive

advantages As a consequence, in the late eighties, a series of new concepts were introduced into cost

accounting One of the chief innovations in this respect was the activity based accounting system The

academic world has shown a considerable amount of interest in the application of the activity based

costing system in banking institutions In recent years a number of authors have published studies that

assess the applicability of ABC and ABM methodologies to banking institutions, some of the most

important of which are the studies by Kerebel (1997, p.60-62), Helmi and Hindi (1996, p.5-19), Blake

(1996, p.5-43), Ernst and Young (1995, p.123-140), Weiner (1995, p.37-38), Kimball (1993., p.5-20),

Mabberly (1992, p.17-79), Sapp, Crawford and Rebischke (1990, p.53-62; 1991, p.75-86), Mérindol

and Obadia (1998, p 27) or (Bos, Bruggink et al., 1994, p.12-16)

The development of a series of different theoretical approaches has gone hand in hand with the

increasingly widespread use of the ABC system among banking institutions Kimball (1997, p.31),

Weiner (1995, p.19) Innes and Mitchell (1997, p.190-205), (Berry and Britney, 1996, p.36), Hartfeil

(1996, p.23), Carroll and Tadikonda (1997, p.1) and Sweeney (1994, p.19; 1997, p.26) point to the fact

that from the beginning of the nineties North American and British banking companies began adopting

activity based costing in an attempt to attain a better understanding of the factors that influence the

behaviour of their costs and to improve the allocation of costs to cost objects

According to Obadia and Faubert (2000, 33), "ABC analysis enables us to draw up a model of

the logical sequence of cost formation and to reconcile the degree of profitability of different products,

customers and distribution channels The ABC system enables us to draw up a model of the following

chain of sequences:

• customers consume products and services via a distribution channel (branches, internet,

telephone ),

• the product-service/ distribution channel combination involves the performance of a series

of activities,

• these activities use up the company's resources"

For Mérindol and Obadia (1998, p.26) the ABC method works under a different logic and to a large extent does away with long lists of allocation components (Figure 3) Kimball (1997, p.32) and Hankes (1995, p 9) suggest that the ABC system enables banks to reduce the number of costs that are regarded as indirect costs in relation to cost objects In this way, a larger proportion of costs that were initially regarded as indirect costs can be directly allocated to products, customers or centres of responsibility that are directly responsible for their existence due to activities' consumption of resources

Figure 3: BC cost models in banking institutions

ACTIVITY BASED COST POOLS HIERARCHY

Activity

Management Security Auditing Cost drivers

All products

Activity

Marketing Data processing Accounting

Cost drivers

Product group

Deposit taking Means of payment

Loan investment

Activity

Introduction Development Advertising Cost drivers

Types of products

Credit accounts Sales discount Mortgage loans

Activity

Opening Closing Withdrawals Cost drivers

Product unit

XYZ Credit account XYZ Sales discount XYZ Mortgage loans

Source: By the author, adapted from Bos, Bruggink et al (1994, p.16)

With regard to the applicability of the ABC system to banking institutions, Kaplan and Cooper, (1991, p.467) and Kaplan and Cooper (1999, p.229) highlight the fact that there are no substantial differences between the implementation of activity based costing in cost centres belonging to a manufacturing company and costs centres of a service company And indeed, there don't appear to be any substantial differences between the specific proposals in the literature for applying the ABC

system in banking companies ABC (Sapp, Rebischke et al., 1990, p.53-62, Sapp, Rebischke et al.,

1991, p.75-86; Mabberly, (1992), Ruff and Hill, 1992, p.28-37; Weiner, 1995, 19-44; Ernst and Young,

1995, p.123-133; Helmi and Hindi, 1996, p.5-19) and the ABC models for manufacturing companies 3

3 We believe that, although the description of the ABC model applied to banking institutions does not differ from that developed for industrial companies, the nature and type of activities carried out by the former and the latter vary significantly Similarly, the hierarchy of activities in these two types of companies can be established based on different criteria

8 Survey Universe and Methodology

Our survey universe is made up of 47 savings banks that are registered in the Official Bank's Registry

of the Bank of Spain in 2006 We sent out 47 questionnaires, and received 26 replies, which represents

a response rate of 55.31% The 26 savings banks that responded to the survey represented 73.6% of the

total assets of all savings banks in Spain This response rate is comparable to those of similar research

initiatives, both nationwide and internationally For example, the BAI (Bank Administration Institute)

carried out a survey with the aim of finding out which accounting and management control systems

were being used by North American banks The BAI questionnaire was sent out to the 250 biggest

banks in the United States, and 40 banks responded (16%) although the respondents accounted for 43%

of the sector's total assets Similarly, Gadner and Lammers (1988) carried out a survey on the

application of management accounting between banks and saving and loans associations They selected

the 50 largest banks and the 20 largest saving and loans associations according to their asset volume

and sent out 70 questionnaires through the post They received responses from 49 institutions, with a

response rate of 68% Innes and Mitchel (1997) carried out a survey with postal questionnaires in order

to find out to what extent the ABC costs system was being used by financial institutions in Great

Britain They sent out their questionnaire to the 60 largest financial companies in Great Britain and the

response rate was 51.6% (31 companies) The response rate to our questionnaire is comparable to those

obtained in other research studies on banking management accounting carried out using the same

methodology The responses were segmented according to company size, measured based on their total

assets They were divided into three categories: the larger savings banks with assets above six billion

euros (segment A); medium sized savings banks with assets above three billion euros (segment B); and

smaller savings banks with assets below three billion euros (segment C)

The research method we used consisted of a questionnaire sent out by post to the heads of

management control of all Spanish savings banks Two variant analysis was used to tabulate this

questionnaire This is the method of choice for studying relationships between variables taken two by

two (Pedret, 1997, p 31) This type of analysis is useful for finding answers to questions such as for

example, whether the size of the savings bank influences the costs system that is used or whether there

is any relation between the size of the institution and the funds transfer system it uses The data was

treated using the programme SPSS version 6.12 In our case we used two variant analysis between two

qualitative variables and contingency tables were used to present the results

9 Costs Systems in Spanish Savings Banks

In this section we will go on to study the use that savings banks make of cost accounting In order to do

this we have thought it useful to identify the costing systems they use in order to allocate

transformation costs to centres, products and customers In addition, in the light of the current

conditions of competition, the diverse range of products and services savings banks offer and the

structure of their transformation costs, these companies appear to be ideal candidates for the

introduction of the activity based costing system We studied how much knowledge savings banks

have of the ABC system and how widespread its use is in these institutions

The majority of costing systems used by savings banks are based on the organizational chart

(Table 1) In 76.9% of savings banks, the centres that make up their organisational structure overlap

with the cost centres they use for accounting purposes