Summary of research on human capital accounting
Filomena Antunes Brás – University of Minho - Portugal
Human capital has always been a critical factor for business success. Nowadays, in the
information era and the study of intellectual capital, the interest for human capital study
has grown.
We still hear and read frequently from top management or in the financial report that
people are the most important asset that an organization has, but at the same time
financial statements do not demonstrate this. Human resources (human capital) are seen
just like an important cost item in the income statement. Even here we find that only
wages and social charges paid by the organization due to his employees are considered.
If this resource is so important as it is said by many people, it demands a better
treatment, namely by accountants.
At same time, there is some empirical evidence suggesting that when there is human
capital information disclosure, investors make different decisions from those that would
be made with no such information. Studies like Elias (1972), Schawn (1976), Hendricks
(1976), Flamholtz (1976), Hansson (1997) are examples of that. There is also empirical
evidence that suggests a relationship between human resource (human capital) practices
and the firm’s outcomes, and sustain the premise that better deployment and use of
human resources practices are correlated with higher business results (Ulrich, 1997;
Flamholtz and Main, 1999; Boudreau, 1998). So, in the presence of such powerful
empirical evidence we, accountants, must study how can we disclosure useful
information about human capital.
Accounting for human resources has already been a theme of agenda in the accounting
community. In the sixties and seventies (20th century) several studies have appeared,
trying to account this kind of resources. The main purpose of the authors at that time
was to put information into the financial statements, that is, they tried to put a monetary
figure (value) to each human being working at the organization. Though the
extraordinary development of models in this period of time, the lack of impact on
management practices and normalization in accounting, during the following period,
has stable this field study. As several authors say, many kinds of models have been
proposed in scientific journals over this time (about thirty years) but human resources
accounting has progressed at something less than a snail’s pace in the past two decades
(Johanson and Mabon, 1998, 67).
Nowadays, in a context of a rapid transfer from the industrial society to the postindustrial or service society and appearance of concepts like balanced scorecard of
Kaplan and Norton (1996), intellectual capital (ex: Edvinsson, 1997; Sveiby, 1997),
knowledge management (ex: Huang, 1998) and the knowledge worker, human resources
increase in importance, so there is a greater need to measure and control its utilisation.
In the intellectual capital literature, human capital is an important component. Several
authors present metrics to value this resource but mostly all measurements rely on
indicators, mostly non-monetary ones. I believe that this kind of information is
important but the quantity of indicators that have been proposed may be so huge that it
is impossible for management and investors to consider all the information they
provide. Therefore, no practical impact exists in the organizational policies. On the
other hand, if we cannot translate human information in a monetary basis and in a more
aggregate form, investors and financial analysts will not consider it important in such a
way that it would lead them to make different decisions or different projections of
firm’s financial performance.
Although I consider that the research that is being made by human resources academics
and managers is important, I think accountants should play an important role translating
human resources or human capital information in a monetary way, in terms of
cost/benefit for the organisation from its human resources. And since it appears that
although several attempts to incorporate information of these resources in the traditional
financial statements have had a null impact on the accounting community, maybe it is
time to think human resources (human capital) as a whole, but outside the financial
statements, in order for them to be fully studied, so then we may integrate this two
perspectives.
My point of view relies on my research done until the moment. The discussion of
human resources as an asset or as an expense hasn’t got an end yet. If we read IAS 38
we conclude that human resources are still considered not as an asset, because they do
not fulfil all the requirements for that, although almost everyone thinks human capital as
an asset, and most importantly, the critical factor for creation and sustainability of a
competitive advantage for any organization. The financial statements do not show this,
neither the financial report. The accounting community has been very conservative on
this matter. Indeed, they usually point out the great mobility of workers, the fact that
organization does not own human capital and the great subjectivity in valuing this kind
of resources. But this is precisely the kind of information that needs to be studied and
eventually disclosure. We need to understand what kind of flows there are between
organization and human capital holders, and try to value them in monetary way, if
possible. If we do this, we will obtain an overall picture of organization human capital.
In Portugal, the financial statements only report about wages and social charges paid by
organization due to its employees. But there is a document called “Social Balance” that
must be filled by organizations with more than 100 employees, and enclosed to the
Employment and Social Security Minister, as well as to unions, that contains qualitative
information about human resources (human capital) inside organization. There is no
obligation to disclosure this information in or out the financial report. This information
is not collect in order to form a database for further studies. So the only way I may
investigate the flows between those two entities is doing a case study. I have already
authorization from one big Portuguese organization to do my empirical work. I want to
try to develop a statement where relevant information about human capital, mostly on a
monetary basis, is presented. I want to be able to show how the profile of human capital
is changing or not, and at the same time I want to know more about the indirect costs
concerning the human capital, in order to define rules. Finally, I would like to give a
contribution for the accounting treatment of training costs as an expense or as an asset.
At this moment, I am collecting and analysing documentation about my case study and
that’s way I do not present any results, but I hope to have some in a short time from
now.
References
BOUDREAU, John W. (1998); “Strategic Human Resource Management Measures:
Key Linkages and the PeopleVantage Model”; Journal of Human Resource
Costing and Accounting; Vol. 3, nº 2, Autumn, pp. 21-40.
EDVINSSON, Leif (1997); “Developing Intellectual Capital at Skandia”; Long Range
Planning; vol. 30, nº. 3, pp. 366-373.
ELIAS, N. (1972); “The Effects of Human Asset Statements on the Investment
Decisions: an Experiment”; Empirical Research in Accounting: Selected Studies,
pp. 215-233.
FLAMHOLTZ, E. G. (1976); “The Impact of Human Resource Valuation on
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FLAMHOLTZ, Eric G. and MAIN, Erica D. (1999); “Current Issues, Recent
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HUANG, K.-T. (1998) ; “Capitalizing on Intellectual Assets”; IBM Systems Journal;
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INTERNATIONAL ACCOUNTING STANDARDS COMMITTEE (IASC) (1998);
“International Accounting Standard”, nº 38, Intangible Assets, London, IASC.
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KAPLAN, R. S., and NORTON, David P., The Balanced Scorecard: translating
strategy into action, Harvard Business School Press, Boston, Massachusetts,
1996.
SCHAWN, E. (1976); “The effects of human resource accounting data on financial
decisions: an empirical test”; Accounting, Organizations and Society; Vol. 1, nº 23, pp.219-237.
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Knowledge-Based Assets, San Francisco: Berrett-Koehler Publishers, Inc., 1997.
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prescription for results”; Human Resource Management; vol. 36, nº 3, Fall, pp. 303-320.