Improving the system of internal control through regulation: cases of small-sized building societies, circa 1960

Batiz-Lazo, Bernardo and Noguchi, Masayoshi (2011): Improving the system of internal control through regulation: cases of small-sized building societies, circa 1960.

Abstract

Following the previous research conducted in Noguchi and Bátiz-Lazo (2010), this study aims to analyzes how the system of internal control entailing the effectiveness of the management and governance of building societies were improved within individual societies following the Building Societies Act, 1960 (BSA60). By specifically focusing on and comparing the process to reform the systems of internal control executed at two small-sized building societies, i.e. Lloyds Permanent and Eagle Building Societies, this study also purports to analyze how the improvement of the system of internal control affected the management and governance of both societies. The two cases examined in this study prove that an order, forbidding some activities by a building society, recognized to the CRFS under the regulation of BSA60 provided an important opportunity for the building societies to reform their systems of internal control and that the improvement of the system of internal control could have an important impact upon the management of the small-sized building societies in the UK, as a necessary condition for the withdrawal at an early stage of the order once made.

• Item Type: MPRA Paper
• Language: English
• Keywords: the system of internal control; BSA60; the Chief Registrar of Friendly Societies (CRFS); the Treasury; building societies; supervision of retail financial intermediaries; delegated monitoring; UK
• Subjects: N - Economic History > N8 - Micro-Business History; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting; N - Economic History > N2 - Financial Markets and Institutions > N24 - Europe: 1913-

References

Bátiz-Lazo, B. and Billings, M. (submitted - 2009) “Accounting Regulation and Management Discretion in an English Building Society, circa 1960”, Abacus.

Bátiz-Lazo, B. (2006) “Changes in the Depreciation of Buildings in an English Building Society, circa 1959: Financial and Governance implications” mimeo. http://ideas.repec.org/p/pra/mprapa/4617.html (Accessed May 10, 2010).

Benston, G. J. and Smith, C. W. Jr. (1976) “A Transactions Cost Approach to the Theory of Financial Intermediation”, Journal of Finance, vol. 31, 215-31.

Boléat, M., Building Societies - A Descriptive Study, Building Societies Association, 1981.

Cawson, A. 1985. Varieties of corporatism: the importance of the meso-level of interest intermediation. In Organized interests and the state: studies in meso-corporatism, ed. A. Cawson, 1-21. London: Sage.

Cleary, E. J. (1965) The Building Society Movement, London: Elek Books.

Coles, A. (2004) How Big is the Building Society Sector? London: Building Society Association.

Davies, G. (1981) Building Societies and their Branches: A Regional Economic Survey, London: Fianey & Co.

Diamond, D. (1984) “Financial Intermediation and Delegated Monitoring,” Review of Economic Studies, vol. 51 (July), 393–414.

Diamond, D. and Dybvig, P. (1983) “Bank Runs, Deposit Insurance and Liquidity”, Journal of Political Economy, vol. 91, 401-419.

Drury, C. (1994) Survey of Management Accounting in UK Building Societies, London, ICAEW.

Guinnane. T. W. (2002) “Delegated Monitors, Large and Small: Germany’s Banking System, 1800-1914.” Journal of Economic Literature vol. 40, 73-124.

Guinnane. T. W. (2003) “A ‘Friend and Advisor: External Auditing and Confidence in Germany’s Credit Cooperatives, 1889-1914”, Business History Review vol. 77, 235-264.

Humphries, J. (1987) ‘Inter-War House Building, Cheap Money and Building Societies: The Housing Boom Revisited’, Business History, vol. 29 (3), 325-45.

ICAEW (1960) Audits of Building Societies, London, Institute of Chartered Accountants of England and Wales.

ICAS (1954) A History of the Chartered Accountants of Scotland from the Earliest Times to 1954, Edinburgh, Institute of Chartered Accountants of Scotland.

Jeremy, D. J. (1998) A Business History of Britain 1900-1990s, Oxford: Oxford University Press.

Noguchi, M. and Bátiz-Lazo, B. (2010) “The Auditors’ Reporting Duty on Internal Control: The Case of Building Societies, 1956-1960”, Accounting, Business & Financial History, vol. 20 (1), forthcoming.

Perks, R. W. (1977) “Building society accounts and the control of operating performance”, unpublished dissertation, Accounting and Finance, Glasgow, University of Strathclyde.

Phillips, B. H. (1983) Building Society Finance, London and Wokingham, The Chartered Building Society Institute and Van Nostrand Reinhold (UK).

Scott, P. (2008) “Marketing Mass Home Ownership and the Creation of the Modern Working Class Consumer in Interwar Britain”, Business History, vol. 50, 4-25.

Scott, P. and Newton, L. (forthcoming) “Advertising, Promotion, and the Rise of a National Building Society Movement in Interwar Britain,” Business History, vol. 52.

Solvin, M.B., Sushka, M. E., Hudson, C.D. (1990) “External Monitoring and its Effect on Seasoned Common Stock Issues”, Journal of Accounting and Economics, vol. 12 (4), 397-417.

Spicer, E. E. and Pegler, E. C. (1908) Audit Programmes, London, H. F. L.

Townsend, R. M. (1979) "Optimal Contracts and Competitive Markets with Costly State Verification", Journal of Economic Theory, vol. 21(2), 265-293.

Vinten, G. and Greening, M. (2001) “Internal Control and Fraud in the Smaller Building Society”, Journal of Financial Crime, vol. 8 (3), 201-6.

Williamson, P. J. (1989) Corporatism in Perspective: An Introductory Guide to Corporatist Theory. London: Sage.