Full Project – HUMAN RESOURCE ACCOUNTING

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CHAPTER ONE

THE HUMAN RESOURCE ACCOUNTING

1.1          BACKGROUND OF STUDY

The statement “people” are the greatest assets of an organization”, cannot be over emphasized, therefore its true that world wide knowledge has become a key determinant for economic and business success.

Presently, in all parts of the world, Accounting is being practiced by all sectors since it defines a business. Until recently the value of an enterprise as measured within the traditional balance sheet was viewed as a sufficient reflection of the enterprise assets. While most companies can readily give a detailed information about their tangible assets like plant and machinery, land and building, there is no formal records of investment on employees. They concentrate more on Return On Investment (ROI) with little focus on Return On Knowledge (ROK). Which is needed is the measurement of all employees in an organization at every level to produce value for their knowledge and capability.

Estimating or evaluating the worth of intangible asset such as company culture, management, system and employee skills is the holy grain of accounting. Executives know that these intangibles being hard to initiate are power source of sustainable comparative advantage. (Koplan and Norton, 2004).

The present conventional method of Accounting treatment human resources outlay consist of costing all Human capital formation expenditure, recruitment and training, cost wages and salaries and capitalizing physical resources. This result to understatement of the firm’s net worth in balance sheet of company. Gupta (2004): states that current accounting system inability to make reading actual value of employee’s power and knowledge indirectly affects the future investment of a business. Experts equally noted out that information generated by human resources accounting systems can be put to use for taking variety of managerial decision like planning, turnover analysis, recruitment and capital budgeting which can aid organizations in the preventing a lot of problem in the foreseeable future of the company.

1.2          STATEMENT OF RESEARCH PROBLEMS

Through the years, there has been an anomaly in question mark in the values disclosed in the financial statement. This is because there is undisclosure of human asset in the balance sheet. As a result of these, the following questions can be asked which are:

How do we measure the effects of managerial actions on employee’s morale productivity and sales?

Are there problems resulting from the valuation of human resources?

Should human resource be measured in both quantitative and qualitative term?

Will human asset inclusion in the financial statement improve the quality of the financial statement?

Do financial statement contains information on human asset in enterprise?

If yes, is it possible to obtain information on human resources which are reliable and comparable across organization?

1.3          OBJECTIVES OF THE STUDY

This study focuses on the inclusion of human asset in the financial statement of an organization which is believed would boost the financial statement in a positive way. It intends to achieve the following which are;

To know if the users of financial statement will appreciate it more if it contains adequate information on human capital.

To ascertain the type of information users of financial statement would need/prefer on human resources. If they would prefer a qualitative one or quantitative information that is adding it to the asset of the company monetarily after valuing their worth.

To compare and contrast the difference in the value and quality of the financial statement if human resource has been included or not.

1.4          SCOPE OF STUDY

The scope of this research work is restructured positively to financial and accounting firms. This is simply because they have ideas about the latest issues and do apply human assets and also prepared financial statement for users to make decisions regarding the company. In this work, the beneficiaries of financial statements involves:

Internal Users: These are the management, consisting of Top Directors, Middle Managers and Lower level employees.

External Users: These comprises of Shareholders, Creditors, Government and others.

1.5          SIGNIFICANCE OF THE STUDY

This research is targeted at drawing the attention of the users of financial inclusion of human asset in the preparation of financial statement. It intends to show the importance of employees as economic resources and as it relates to the preparation of financial statement.

As a result of the above, this work will be of immense importance to internal and external users of financial statement simply because human resource accounting provides complete information concerning the worth of the Human asset. Sharma (2004), states that “when a company is able to access an individual’s worth, it helps in increasing its own worth”.

The great value of this work to internal users is that, it will center on human resource as an asset thereby placing high premium on employees. For the firm, it will serve as a key determinant incase of mergers and acquisition.

The government will also gain from this research because it will help them in ascertaining the value of her labour force and then enable them make a proper plan for the development and organizing training fo her human resources. As for the organization, its value would improve as qualified employees would be trained and developed in the company.

1.6          STATEMENT OF RESEARCH HYPOTHESIS

To give scientific research study a meaningful direction, it is proper to make tentative propositions which may either be true or false, therefore, requiring an empirical validation. As a result of this the following hypothesis are set forth in alignment with the research problem; which are:

1.     H0: Financial statements of companies do not contain

adequate information on human assets.

H1:          Financial statement of companies contains adequate information on human assets.

2.     H0: Users of financial statement of companies are not

interested in valuing human asset in the financial statement either monetarily or otherwise

H1:          Users of financial statement of companies are interested in valuing human asset in the financial statement monetarily as part of the capital base.

3.     H0: The inclusion of human asset value in the financial

statement will not improve the quality of financial statement.

H1:          The inclusion of human asset would improve the quality of financial statement

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