This article discusses the importance of the Integrated Reporting Framework in creating long-term value for businesses. It analyzes BHP Billiton's reporting framework and its six-capital approach. The article also covers the different types of capital included in the framework and how they help in decision-making.
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Running head: ADVANCED MANAGEMENT ACCOUNTING Advanced Management Accounting Name of the Student: Name of the University: Author’s Note:
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2ADVANCED MANAGEMENT ACCOUNTING Integrated Reporting Framework A concise way of communicating various factors about the company in the context of organisation’s strategies, governance, performance and other future prospects of the company that can be directly attributable and linked to the company. Integrated report of the company is a detailed report explaining about the various activities of the company which can help the company in the long-term creation of value by taking various factors and points into considerations (Brown & Dillard, 2014). Integrated reporting did not focuses on a particular concern or area where the activities of the company is focused on instead it focuses on how the company integrates he approach and application of the various social and economic activities with the business operations of the company(Cheng et al. 2014). Financial activity, employees, environmental and social factors are some of the common factors in the operations of the business. Alignment of these key factors with the operations and the policies of the company are also some of the key factors that should be considered for the sustainability of the business (De Villiers, Rinaldi & Unerman, 2014). Application of various factors and points into consideration will help the company identify various areas and factors which are important for the operations of the business and the role they play. Use of integrated reporting is done commonly in the corporate world by many corporate companies and institutions so that they can create better value for the stakeholders of the company. The assessment considers a business which follows integrated reporting practices for the purpose of effective reporting of the information of the business. The business which is considered for this assessment is BHP Billiton ltd which is engaged in mining sector and the same analyses the reporting framework which is applied by the business(De Villiers, Rinaldi,
3ADVANCED MANAGEMENT ACCOUNTING & Unerman, 2014). The reporting framework helps businesses to appropriate report about values which are created by the organization. In today’s world most of the businesses are adopting integrated reporting framework for the purpose of ensuring that the needs of the stakeholders are considered with priority. In additiontothis,integratedreportingalsofacilitatesbetterinternaldecisionmaking. Integrated reporting practices are being widely accepted by different businesses due to the focus its provides on long term sustainability of the business. The integrated reporting process has further improved following the six-capital approach. The six-capital approach is a useful process in strategic planning process of the business and ensure that the overall level of sustainability is maintained in the organization. The integrated reporting framework allows the management of a company to appropriately show the activities which are carried out by the business and In order to analyse the integrated reporting framework, the reporting framework of BHP Billiton ltd is considered. The sustainability report for the year 2018 shows that the management of the company has put emphasis on the sustainability practices of the business. The management of the company recognises the fact that in order to create long term value for the business, special emphasis needs to be provided on sustainability of the business (Sustainability Report 2018., 2019). The three major area where the management of the company focuses as specified in the sustainability report are safety of the employees, environment protection and supporting the entire community.
4ADVANCED MANAGEMENT ACCOUNTING Figure 1: (Activities undertaken by BHP Billiton ltd) Source: (Sustainability Report 2018., 2019) The above chart shows the different activities which are undertaken by BHP Billiton ltd for the year 2018 and the same is covered in sustainability report which is prepared by the management of the company. The main purpose of the business is to create long term values forthestakeholdersbydiscovery,acquisition,developmentandmarketingofnatural resources (Churet & Eccles, 2014). The management of the company effectively follows policies which requires them to invest 1% of the pre-tax profits to programs which can help in developing the community at large and ensure that the funds are also used for the purpose of protecting the environment. Theintegratedreportingfollowsthesix-capitalapproachwhichallowsthe organization to create value over time. The six-capital approach is the best way to create
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5ADVANCED MANAGEMENT ACCOUNTING value and measure the same on the basis of qualitative and quantitative standard. The different types of capitals are discussed below in details: Financial Capital:The financial capital refers to the pool of funds which is used by businesses for the purpose of financing different activities of the business. The financial capital is invested in the business so that operations can be conducted and revenue can be generated from the same (Baboukardos & Rimmel, 2016). In the case of BHP Billiton ltd, the equity share capital and the long-term borrowings which is used by businesses form part of the financial capital of the business and the same is shown in the annual reports of the company.Manufactured Capital:The manufactured capital is either purchased or developed by the business. The manufactured capital comprises of products which are produced by the business by using the assets. In the case of BHP Billiton ltd, the natural resources form part of the manufactured capital which is used by the business for creating long- term value for a business.Intellectual Capital:Such type of capital forms a key part of the business and includes all the investments which is undertaken by the management of the company in research and development and innovations (Flower, 2015). These types of capital are responsible for generating competitive advantage for a business. In the case of BHP Billiton ltd, the sustainability report for 2018 shows that the business has significantly undertaken innovative approach with a view to support the biodiversity of the business. Human Capital:The human capital refers to the employees which are employed in the business for carrying out the operations of the business. This type of capital analyses the relationship between the firm and the employees who are working the firm. In addition to this, it also states the relationship between the stakeholders of the
6ADVANCED MANAGEMENT ACCOUNTING business and the firm (Dumay et al., 2016). The sustainability reports which is prepared by the management of BHP Billiton ltd shows that the business considers the employees of the business as an asset of the company and therefore takes all the necessary steps to ensure the safety of the employees.The culture of care and trustful relationships is a fundamental principle of the employee relations strategy at BHP. Social and Relationship Capital:Social and relationship capital deals with the social relations which is established within the organization and also the relations which the businessshareswiththeexternalstakeholders.SocialandRelationshipcapital includeseffectivenessofsupplychainmanagement,communityacceptance, government relations and relationship with competitors. The sustainability report formulated by the business shows the role which is played by the management (Reuter & Messner, 2015). Nature Capital:The nature capital comprises of the natural resources which is available from nature. In respect to the core activities of BHP Billiton ltd the major resources and operations of the business is done related to the nature capital. The management of the company also engages in restoration of the area where mining is carried out. The main activities of BHP is mainly associated with resources which is generated from mining activities. On the basis of the six types of capital which is included in integrated reporting framework, the management of the company can take major decisions relating to major activities of the business. All major decisions relating to activities and operations can be taken effectively following integrated reporting framework. The application of the integrated reporting in the operations and daily working of the business can help the company in achieving the better management of the resources of the company. BHP Billiton can achieve and explore the various opportunities in contrast to the same where the company can see and
7ADVANCED MANAGEMENT ACCOUNTING evaluate the risk management policies of the company.The management of BHP Billiton recognises the fact that in order to create long term value for the business, special emphasis needs to be provided on sustainability of the business. There were several areas and factors analysed for the company that will help the company in the identification of the creation of the values for the stakeholders of the company(Flower, 2015). The sustainability report presented by the company shows that the various application of the factors for the company helps them in identifying crucial factors and the influence of the same in the operations of the BHP Billiton Company. Risk Management Policies and strategies used by the company should be such that it guides that company in the overall business and financial operations of the company.
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8ADVANCED MANAGEMENT ACCOUNTING Reference Baboukardos, D., & Rimmel, G. (2016). Value relevance of accounting information under an integrated reporting approach: A research note.Journal of Accounting and Public Policy,35(4), 437-452. Brown, J., & Dillard, J. (2014). Integrated reporting: On the need for broadening out and opening up.Accounting, Auditing & Accountability Journal,27(7), 1120-1156. Cheng, M., Green, W., Conradie, P., Konishi, N., & Romi, A. (2014). The international integrated reporting framework: key issues and future research opportunities.Journal of International Financial Management & Accounting,25(1), 90-119. Churet, C., & Eccles, R. G. (2014). Integrated reporting, quality of management, and financial performance.Journal of Applied Corporate Finance,26(1), 56-64. De Villiers, C., Rinaldi, L., & Unerman, J. (2014). Integrated Reporting: Insights, gaps and an agenda for future research.Accounting, Auditing & Accountability Journal,27(7), 1042-1067. De Villiers, C., Rinaldi, L., & Unerman, J. (2014). Integrated Reporting: Insights, gaps and an agenda for future research.Accounting, Auditing & Accountability Journal,27(7), 1042-1067. Dumay, J., Bernardi, C., Guthrie, J., & Demartini, P. (2016, September). Integrated reporting: a structured literature review. InAccounting Forum(Vol. 40, No. 3, pp. 166-185). Elsevier. Flower, J. (2015). The international integrated reporting council: a story of failure.Critical Perspectives on Accounting,27, 1-17.
9ADVANCED MANAGEMENT ACCOUNTING Flower, J. (2015). The international integrated reporting council: a story of failure.Critical Perspectives on Accounting,27, 1-17. Reuter, M., & Messner, M. (2015). Lobbying on the integrated reporting framework: an analysis of comment letters to the 2011 discussion paper of the IIRC.Accounting, Auditing & Accountability Journal,28(3), 365-402. SustainabilityReport2018.(2019).BHP.Retrieved2February2019,from https://www.bhp.com/investor-centre/sustainability-report-2018