Knowledge Capital Reporting Award

ARA acknowledges the support of The TOC Centre of Australia in the development of this Award

Introduction of the International Financial Reporting Standards (IFRS) resulted in the top 100 Australian organisations writing off $7.5bn in intangible assets in 2005¹. By introducing a Special Award for Knowledge Capital Reporting, ARA is seeking to acknowledge organisations demonstrating a broadening approach to accounting for organisational performance by reporting about the management of the intangible capital and knowledge intensive resources within the organisation.

In entering this award, organisations will be expected to recognise intellectual capital and knowledge intensive resources comprehensively and to disclose and discuss how they are managing their value with respect to the criteria below.

The Annual Report should:

Provide guidance in recognising intangible capital and knowledge intensive resources by reporting in the form of an extended performance account, which classifies intangibles into three categories: relational; structural; and human capital. These categories are defined and examples of reporting elements are provided below.

Relational capital refers to the value created from an organisation’s relationships with external stakeholders be they suppliers, customers and others. Relational capital elements include, but are not limited to, an organisation’s:

  • company name and brands
  • alliances and partnerships
  • licensing / franchising
  • government relations
  • community relations
  • distribution channel relations
  • customer relations
  • financial relations
  • industrial relations
  • supplier relations.

The report should provide details/comments/explanations of strategies, activities, outcomes and outlook regarding the organisation’s external stakeholders where appropriate.

Structural capital refers to the value created from the structures and processes employees develop and deploy in order to be productive, effective and innovative. Structural capital elements include, but are not limited to, an organisation’s:

  • management processes and programmes
  • information systems and processes
  • management philosophy
  • organisational structure
  • organisational culture
  • intellectual property.

Where appropriate the report should provide details/comments/explanations of strategies, activities, outcomes and outlook of the organisation resulting from structures and process developed and utilised by employees.

Human capital refers to the value created from the skills, attitudes, abilities, competencies and qualities of an organisation’s employees. Human capital elements include, but are not limited to, an organisation’s:

  • employee diversity
  • employees’ innovative capacity
  • learning and development abilities
  • leadership and top management quality
  • educational and work-related qualifications
  • employees’ analytical and problem solving skills

The report should, where appropriate, provide details/comments/explanations of strategies, activities, outcomes and outlook of the organisation resulting from the personal qualities and capabilities of employees.

These criteria are adapted from the Society for Knowledge Economics Guiding Principles which highlight that information about an organisation’s relational, structural or human capital needs to be developed in line with its business strategy. This may include narrative explanations about how management utilise, develop and sustain their intangible resources and the contribution and significance of such resources to the realisation and achievement of business strategy.

In brief, an extended performance account is:

  • strategic in nature, placing knowledge intensive resources within the strategic business context in which they rightfully belong,
  • forward looking, providing insights into how an organisation is positioned to create value across different time horizons,
  • simple in structure, providing a one-page snapshot of the organisation’s knowledge intensive resources and activities.

The Society for Knowledge Economics Guiding Principles provides examples of two Australian organisations, the NSW Department of Lands and Westpac Banking Corporation, which have initiated the development of extended performance accounts using the relational, structural and human capital reporting categories.

For more information, please visit www.ske.org.au

1 Society for Knowledge Economics (2005) Australia Guiding Principles on Extended Performance Management, page 6. http://www.ske.org.au/downloads/Australian-Guiding-Principles.pdf