Human Resources Accounting: A Suggested Model for Measurement and Valuation
Human Resources Accounting: A Suggested Model for Measurement and Valuation

Summary/Abstract: The global transition from manufacturing to service based economies and later to knowledge-based economies implies a greater focus on employee resources because of global skill shortages, and more complex internal company knowledge that might be lost should an employee leave the organization. Acknowledged by economists as the most important resource because it controls and directs the other resources, people within an organization directly influence the success or failure of that organization. As a result of its significance, a special interest in Human Resource Accounting has developed where many models and techniques have been proposed for valuing human resources more broadly. Despite robust research there remains much debate as to whether human resource should be included or excluded in the financial statement. Historically, accounting has not recognized human resources as an asset in the statement of financial position, because of a dearth of acceptable metrics applicable to people under employment, and also due to a lack of suitable models for use in attributing a value to a human resource. Clearly, a knowledge gap of this nature raises questions for accounting practices where human capital is the focus. Human resource accounting has the potential to provide an alternative solution helpful to management decision-making especially regarding the adequacy of human resources when viewed within a financial health framework. To date however, there exists a need to further establish a credible platform for human resource accounting, particularly via the achievement of robust qualitative research results. As such this article analyses further the possibility of including human resources within the definition of asset, defines types of expenditure required in financial statements and proposes the types of disclosure necessary for a presentation of human resource assets. Specifically, this article also proposes a valuation model that overcomes the limitations of previous models, and includes calculations suitable for inclusion in the statement of financial position. An added outcome of this article is a more defined concept of Human Resource Accounting as a subset of general accounting, seen within International Financial Reporting Standards (IFRSs) and applicable to the 2015 financial reporting IAS 38.

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