Application of Accounting Theories at DELL Company
Research the current state of Sustainability Reporting, including the issues, practices etc. using higher order analysis and explaining the implications for various stakeholders in relation to financial decision making.
There has been an increasing trend for companies to adopt the application of relevant accounting theories when it comes to disclosure in financial reporting. This trend has compelled the management to make use of good management practices so as to improve their relationship with the company’s shareholders and other stakeholders. Some of the common theories that are being applied today in financial reporting includes the stakeholder’s theory, the legitimacy theory, the agency theory and good management theory. Because of the influence of the aforementioned theories, corporations today are willing to disclose all the pertinent information that is of interest to all the stakeholders of the organization and to the general public. For instance, issues to do with sustainability disclosure and reporting in accounting is becoming an increasing trend for most multinational companies. DELL company is not an exception to this. This paper seeks to carry out an in-depth analysis using (higher order analysis) of the application of relevant accounting theories by DELL company and establish whether there is sustainability reporting being done at the company. The findings of the research will assist in assessing and explaining the implications of sustainability reporting on the decision making of various stakeholders of the company.
DELL is a multinational American computer technology-based company headquartered in Round Rock, Texas in the United States. The company deals with the development of computers, repairs, supports and sale of computers and other computer-related products. The word DELL has its origin from the founder named Michael S. Dell who founded the corporation in 1984. Since its foundation, DELL has been headed by Michael S. DELL as the CEO until 2007. The company has many subsidiaries including Dell Boomi, Dell A.S, EqualLogic and Alienware.
According to the Financial Accounting Standards Board (FASB), a conceptual framework is defined as the system of rules, ideas, objectives and policies that lead to the creation of a consistent set of regulations and standards. In accounting, a conceptual framework specifies the rules and standards that ought to be followed in the process of recording, summarizing, analyzing and reporting of accounting information and presentation of financial statements (The Conceptual Framework, 2018, np.). At Dell company, technology is interlinked with human resources thereby creating a unique and efficient business model (Bhandari, 2013, pp. 109).
Executive Summary
The Conceptual framework for accounting and financial reporting being adopted by Dell company is intended to assist the organization with the development of internal accounting policies and regulations that are in adherence to the concepts of International Financial Reporting Standards (IFRS) and the International Accounting Standards Board (IASB) (IFRS, 2018, np.; The Conceptual Framework, 2018, np.). Most of the accounting bodies require that companies should have consistency during the preparation of the accounting records and the underlying financial statements (The Roles of Conceptual Frameworks in Accounting | Sapling.com, 2018, np.). Having a look at the annual financial statements of Dell, it shows that company has been preparing its accounting records in line with the established accounting policies. In areas where the international standards do not cover, Dell company has strived to formulate new accounting policies that are relevant to the specific areas so as to assist all the stakeholders of the company to understand and be able to interpret the company’s financial statements.
There has been an increasing pressure for multinational companies to report their environmental and social accounting issues during the presentation of the annual reports in the recent past. This pressure has been created by the government regulations as well as by international accounting standards such as IAS, IASB, FASB, IFRS and ASB. Dell company has not been left behind as it has taken sustainability disclosure as one of the pillars of its Corporate Social Responsibility (CSR) (Dell US, 2018, np.). To achieve sustainable objectives Dell has set a number of goals, the main one being advancing the packaging of innovations. Through its annual general meetings, Dell has also resolved to promote voluntary transparency to all the stakeholders by showing a good ethical behaviour when it comes to financial reporting. Furthermore, Dell has shown a commitment to reducing the environmental impact that the company creates from its operations.
Following its merger with EMC, Dell has been aiming at building a ‘‘2020 Legacy of Good” which is a program that is centred on corporate social responsibility activities towards the society (Hardcastle, 2018, np.). With such goals, Dell believes that the employees, the communities, the environment and the supply chain of the company will be aligned towards a sustainable position. Through the expanded team of employees at Dell, who are working together towards sustainable development goals, the protection of the planet is attainable. The merger between Dell and EMC seems to have boosted the activeness of each of the team members to participate effectively in working towards embracing sustainability both at a professional and personal level. This has been demonstrated through the planting of trees in honour of the passion shown by the team members. The program was dubbed ‘‘the welcome gift program”
Conceptual Framework at Dell Company
In 2017, Dell company reported having surpassed part of its 2020 goals having used 50 million pounds of environmentally and socially sustainable products in the production of its core products. This saw the adjustment of the sustainable development goals of using recycled plastic materials and other sustainable materials from 50 million pounds to 100 million pounds by 2020 (Dell’s Sustainability Plan Sets Lofty Goals for 2020, 2018, np.). Another commitment that has been shown by Dell towards sustainability includes the shipping of the XPS 13 2-in-1 packaging that is made from ocean-bound plastic. This is aimed at reaching an annual usage of 10 fold by 2015. This particular sustainability development program has been given more importance by Dell and a source supply chain is yet to be opened to encourage the widespread use of the ocean plastics by other companies. Other sustainability development goals that have been achieved by Dell includes the recovery of about 1.8 billion pounds of waste electronics which represents 88% of the 2020 goals of recycling over 2 billion pounds (Dell – Sustainability-Reports.com, 2018pp. 23). Sustainability development goals adopted by Dell is bringing a lot of benefits to a number of stakeholders as described below.
The issue of reporting is usually of great importance to a number of stakeholders in an organization. Reporting in today’s era is not only tied to financial reporting as it used to be the case in the past. It is becoming an increasing trend to find sustainability disclosure reports in the annual reports of a number of companies(Dobrovolskien? and Tamoši?nien?, 2016, pp.485). Stakeholders theory requires that the management of an organization should employ business ethics requirements in addressing all the pertinent issues in managing an organization by making use of good norms and values. Companies such as Dell are using social and environmental disclosures to indicate both the financial and non-financial aspects of the company. It is also important to note the sustainability accounting is not only a positive report. Sometimes, companies have to report the negative developments that result from their activities and provide an assurance that such problems will not occur in future.
Good management theory requires that the management of any company should be compelled by ethical behaviour to work towards maximization of the stakeholder’s interests. Investors of any company usually desire that their funds are being used well by the management so that they can a maximum return at the end of a financial period. In addition to a keen scrutiny of the firms present and future earnings capacity, shareholders also usually have to look at the sustainability reports of the company to assess whether the company is acting ethically or not (Timbate and Park, 2018, pp. 522). Since sustainability issues can have an impact on the firm’s level of risk, it is important that a company discloses all the environmental and social affairs in its annual reports. As for Dell, the company shows its level of efficiency by being open on sustainability issues that the company is encountering in the course of its operations. This move can have an effect on increasing the stock prices of the company in the stock markets.
Sustainability Reporting at Dell Company
Since Dell is a company in the information and technology industry, customers are concerned about the ability of the company to deplete some of its patents rights and innovations in the near future. It is only through a sustainability report that customers can be reassured that the company will be in existence and will continue to produce new products into the foreseeable future (Azam, Warraich and Awan, 2011, pp.50). It is also trough sustainability accounting that customers are able to decide whether to establish supply relationships with the company or not.
Suppliers and long-term creditors of any company are usually concerned with the firm’s financial survival and survival. Before advancing any credit, therefore, these groups have to assess the company’s ability to generate cash and become profitable so that they can be able to pay both the interest and the principals of the money borrowed. In addition to analysis of the financial aspect of the company, research has also shown that sustainability reporting and assurance by a company has a big impact on the cost of capital of the company (Sutopo, Kot, Adiati and Ardila, 2018, pp.678). This is because sustainability accounting has an effect of increasing the credibility value of the company in the eyes of the creditors. Because Dell has done so much in disclosing all the relevant information relating to social and environmental impacts created by the company, I believe its creditors are assured that their funds are safe in the hands of the borrower(Dell).
Conclusion
To sum up, it is evident that the issue of sustainability reporting is becoming an increasing trend. Dell company has not been left behind when it comes to sustainability accounting a move which has seen the establishment of good relations with the shareholders, customers, creditor and also with regulators such as the government. As discussed above, it is also evident that sustainable development goals have a big impact on business accounting and reporting for a company has it has done to Dell.
Despite the fact that Dell has done so much when it comes to sustainability accounting, there are a few issues that the company needs to improve. First, the company needs to improve its transparency during the disclosure of the required information necessary in providing a true and reliable picture about the value of the company be it the social, intellectual, the human or the financial performance and capital of the organization for the sake of quoting on the stock markets. Secondly, Dell has to show commitment towards putting the health and safety of the workers and the community ahead, by defining, accepting and correcting any environmental problems. The company also continue to support the communities in environmental conversation as it did in 2017 through tree planting.
References
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Bhandari, A., 2013. Strategic Management: A Conceptual Framework. New Delhi: MC Grow Hill Education, p.109.
Dobrovolskien?, N. and Tamoši?nien?, R., 2016. Sustainability-Oriented Financial Resource Allocation in a Project Portfolio through Multi-Criteria Decision-Making. Sustainability, 8(5), p.485.
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Hardcastle, J., 2018. Dell Packaging Made From Recycled Ocean Plastics, An IT Industry First – Environmental Leader. [online] Environmental Leader. Available at: <https://www.environmentalleader.com/2017/02/dell-packaging-made-recycled-ocean-plastics-industry-first/> [Accessed 13 May 2018].
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Sutopo, B., Kot, S., Adiati, A. and Ardila, L., 2018. Sustainability Reporting and Value Relevance of Financial Statements. Sustainability, 10(3), p.678.
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Timbate, L. and Park, C., 2018. CSR Performance, Financial Reporting, and Investors’ Perception on Financial Reporting. Sustainability, 10(2), p.522.
Triple Pundit: People, Planet, Profit. 2018. Dell’S Sustainability Plan Sets Lofty Goals For 2020. [online] Available at: <https://www.bing.com/cr?IG=3F85652F538441E7BD4D548D04E7E34A&CID=307A6C65ECD16901392B678BED7E68A7&rd=1&h=zsLzH34mS_Wnhc1bEqQDx6T7HQaQxrGncUtVrqv9em8&v=1&r=https%3a%2f%2fwww.triplepundit.com%2f2013%2f10%2fdells-sustainability-plan-sets-lofty-goals-2020%2f&p=DevEx.LB.1,5573.1> [Accessed 13 May 2018].
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