Advanced Management Accounting | IIRC

Running head: ADVANCED MANAGEMENT ACCOUNTING
Advanced management accounting
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Introduction
IIRC (international integrated reporting council) issued the framework for the purpose of
integrated reporting. It is followed by 3 moths of global consultation as well as trials in 25
nations. IR framework determines the principles as well as concepts through which the overall
content of the integrated report (IR) is governed. The IR sets out the manner in which the
strategy, prospects, governance and performance of the organization leads towards value
creation. No benchmarking is there for these matters and IR is primarily aimed for the private
sectors however the same can be adopted by the not-for-profit firms as well as public sectors
(Integratedreporting.org 2020).
Discussion
More than 70% of the largest and listed entities under ASX and large number of non-
registered entities are focussing the reporting in context of long term value through adopting the
principles of IR. Major purpose of IR is explaining the financial capital providers the manner in
which the organisation generates value over the time period. Further it benefits all the
stakeholders including customers, employees, business partners, local communities, regulators,
legislators and policymakers those are interested in the ability of the entity in creating value
(Integratedreporting.org 2020). Integrated reporting framework encourages preparation of the
report that states the performance as compared to strategies and explains different capitals
utilised as well as impacted and provides long term view for organisation. IR creates next
generation for the annual report as it allows the stakeholders for making more informed analysis
in context of the organisation as well as prospects. IIRC set out the principle-based framework
instead of specifying detailed disclosures as well as measurement standards (De Villiers, Venter

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and Hsiao 2017). It allows each of the entities in setting out the own report instead of adopting
the checklist approach. Changes in the culture shall allow the entities in communicating the
value creation in better manner as compared to disclosures made in accordance with IFRS.
However, IR will not replace the various other forms for reporting however the form is that
where the preparers pull together the information those are relevant and produced for explaining
key drivers for business value. Information is included under report where the same is material
for the assessment of the stakeholders in context of the business. Various concerns were there
that the concept of materiality had specific legal connotation with the outcome that some of the
organisation are in the view that they shall incorporate the regulatory information under IR.
However, it has been concluded by IIRC that usage of materiality term shall be continued in the
same context (Lodh 2016).
Major components on which the IR is built are – (i) structure of the governance and the
manner in which the same supports the ability for creating value (ii) overview of the organisation
as well as the external environment where it operates (iii) model of the business (iv)
opportunities as well as risks and the manner in which they dealing with the same and the
manner in which the same have its impact on the ability of the entity in creating value (v)
strategies as well as allocation of resources (vi) achievements and performance of the strategic
objectives for he concerned period and its outcomes (vii) challenges and outlook those the entity
is facing and the implications for same (viii) presentation basis shall be determined along with
the matters those are required to be included in IR and the manner in which the elements are
evaluated or quantified (Integratedreporting.org 2020).
Value creation

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Value generated by the organization over the time period assists it in decreasing,
increasing or transforming the capitals on account of business activities of the organization as
well as outputs. Those values have 2 international aspects – value created for (i) the organization
that allows the financial returns to providers of the financial capital and (ii) others including
stakeholders as well as society as a whole. Providers for the financial capital are primarily
interested in organizational value that is created for it. They are further interested in value of the
organization created for others while it has the impact on the organization’s capability in creating
value for itself or is related to stated objectives of the organization that has impact on the
assessments (Hoque 2017).
Strategic control
IR provides insight for the strategy of the organization and the manner in which it is
associated with the ability of the organization in creating value on short, medium and long term
period and using the same for having its impact on capitals. IR generally recognizes – (i)
strategic objectives of the entity in short, medium and long term period (ii) strategies applied by
the entity or is intended implementing for attaining the strategic objectives (iii) plans for
allocating the resources in context of implementation of the strategies (iv) manner in which the
measurements will be achieved along with the outcomes of target in context of long, medium and
short term period (Lai, Melloni and Stacchezzini 2016). These include description for the
association among the strategy of the organization and plans for allocating the resources and
information covered by other elements of control such as the manner in which the strategies as
well as allocation of resources – (i) related to the business model of the firm and the changes to
the business model that is required for implementing the strategies selected for offering
understanding the ability of the firm in adapting the changes (Integratedreporting.org 2020) (ii)

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influenced or responded to external environment and opportunities as well as risks identified (iii)
has impact on the capitals and arrangements made for managing risks associated with those
capitals (iv) differences required for competitive advantages and allowing for creating value such
as role for innovation, manner in which the organisation exploits as well as develops the
intellectual capital (iii) level of social as well as environmental considerations those are
embedded into the strategies of organization for providing competitive advantages
(Integratedreporting.org 2020).
Capitals under IR framework
For the purpose of IR framework, capitals are segregated and described in to the
following –
Financial capital – pool of the funds (i) available to the organization for using the same in
good’s production or service provision (ii) generated through financing like equity or grants or
debt or those are generated through investments or operations (Simnett and Huggins 2015).
Manufactured capital – the physical objects those are manufactured as separate from the natural
physical objects available to the organization for using in production of the goods or service
provision including equipment, buildings and infrastructure like ports, roads, bridges and
treatment plants for water and waste. Generally manufactured capital is created by other firms
however includes assets those are manufactured by reporting organisation for the purpose of sale
or while they are retained for own use.
Intellectual capital – organizational as well as intangibles those are knowledge-based includes –
(i) organizational capital like systems, tacit knowledge, protocols and procedures (ii) intellectual
property like copyrights, patents, software, copyrights, licenses and rights (Dumay et al. 2016).

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Human capital – competencies of the people, experience, capabilities, approach for risk
management and their motivations for innovating including the – (i) ability for understanding,
implementing as well as developing the strategies of organization (ii) aligning and supporting the
governance framework of the organization, ethical values and approach for managing risks (iii)
motivations and loyalties to enhance procedures, services and goods including the ability of
leading, collaborating and managing (Zhou, Simnett and Green 2017).
Relationship and social capital – institutions and relationships between and within communities,
shareholder group as well as other network and ability of sharing the information for improving
collective and individual well-being. Social as well as relationship capital involves – (i) common
values, behaviours and shared norms (ii) relationship among key stakeholders along with
willingness and trust for engaging that the firm has established and strives building and
protecting with the external stakeholders (iii) intangibles those are related with reputation and
brand that is developed by the organization (iv) social licence of the organization for operating
(Smith 2015)
Natural capital – all the non-renewable as well as renewables resources from environment as
well as procedures that deliver services or goods that maintain future, current or past prosperity
of the entity. It includes – (i) eco-system and biodiversity health (ii) forests, minerals, land, water
and air.
All the capitals are not equally applicable or relevant to all the organization. While most
of the firms interact with all the capitals to some level the interactions may be minor
comparatively or it is so indirect that they are not adequately crucial for including under IR
(Adams 2015).

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Conclusion
It is concluded on the basis of above statements that IR is considered as crucial as it
enhances the information quality and allows the users in allocating the capita in more productive
and efficient manner. In addition, IR improves the stewardship and accountability for the
capital’s broad base including manufactures, financial, human, intellectual, natural and social
and relationship along with promoting the understanding of interdependencies. Further, it
supports the integrated thinking, actions and decision-makings that is focussed on generation of
values over the long, short and medium term of time.

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Reference
Adams, C.A., 2015. The international integrated reporting council: a call to action. Critical
Perspectives on Accounting, 27, pp.23-28.
De Villiers, C., Venter, E.R. and Hsiao, P.C.K., 2017. Integrated reporting: background,
measurement issues, approaches and an agenda for future research. Accounting &
Finance, 57(4), pp.937-959.
Dumay, J., Bernardi, C., Guthrie, J., & Demartini, P. (2016, September). Integrated reporting: A
structured literature review. In Accounting Forum (Vol. 40, No. 3, pp. 166-185). Taylor &
Francis.
Hoque, M.E., 2017. Why company should adopt integrated reporting?. International Journal of
Economics and Financial Issues, 7(1), pp.241-248.
Integratedreporting.org. 2020. [online] Available at:
https://integratedreporting.org/wp-content/uploads/2015/03/13-12-08-The-International-IR-
Framework-2-1.pdf [Accessed 24 Jan. 2020].
Integratedreporting.org. 2020. [online] Available at:
https://integratedreporting.org/wp-content/uploads/2013/12/13-12-08-Summary-of-significant-
issues-IR.pdf [Accessed 24 Jan. 2020].
Lai, A., Melloni, G. and Stacchezzini, R., 2016. Corporate sustainable development: is
‘integrated reporting’a legitimation strategy?. Business Strategy and the Environment, 25(3),
pp.165-177.

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Lodh, S.C., 2016. Conventional accounting in determining an enterprise's wealth: sign or
referent-a theoretical discourse for augmentation.
Simnett, R. and Huggins, A.L., 2015. Integrated reporting and assurance: where can research add
value?. Sustainability Accounting, Management and Policy Journal.
Smith, S.S., 2015. Accounting, integrated financial reporting, and the future of finance. Journal
of Accounting and Finance, 15(2), p.11.
Zhou, S., Simnett, R. and Green, W., 2017. Does integrated reporting matter to the capital
market?. Abacus, 53(1), pp.94-132.

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