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accountants around the world

March 18, 2016 | Author: | Posted in geology and geophysics, nature


In the past decades , it has become common knowledge among managers that human factor is the decisive force in the company and the main contributor to increases in efficiency . However , accounting systems have not yet found a way to report the value of human capital because this concept remains too vague and elusive for accountants . Companies now have to assess their human capital in very subjective terms and do not have any reliable measures for evaluating their human capital

Economists , too , are challenged with computing the cost of [banner_entry_middle]

human capital . Manuelli Seshadri (2005 ) state that human capital can be calculated with the help of using output per worker , marginal return on the year of schooling or in terms of Thus , there is no standard measure according to which economists can evaluate the human capital and compare it across countries

There is even less consensus in accounting as to what contstitutes a reliable measurement of human capital in accounting . At this point ratio analysis mostly ignores human capital and concentrates only on ratios that account for the hard ‘ assets such as buildings , equipment etc

Companies that are not required by legislature to report on their human capital often prefer not to worry about this `extra ‘ problem . This attitude was discovered by the Water for Fish company that performed a survey of executives ‘ attitudes toward reporting on human capital trying to evaluate the prospects for its Human Capital Management Toolkit . One Interim Finance Director reacted to their question with saying Are we required to do this ? If we are , we will , but if we are not , we won ‘t (Water for Fish , 2005

However , accounting for human capital opens up important possibilities for companies . Introducing reporting standards in accounting principles and procedures would enable companies to assess objectively their human resources , how they compare to other companies , what they can contribute in terms of productivity etc . One can consider , for instance , two companies , one of which has an excellent building and equipment , but under-qualified personnel that works sloppily , and another where the building and equipment are somewhat outdated and lower quality , but at the same time the personnel is exceptionally qualified and highly motivated and organized . Under the standard reporting system that does not account for human capital , the first company that has good equipment will be seen as having as good asset base , better than that of the second company

However , what does this tell the investor about the company ‘s prospects and productivity ? A tightly cooperating , enthusiastic workforce can generate more income than a assets are excellent . Without the effort of the working people , machines lose their value and will not lead to high revenues . Therefore , to give investors accurate information about the prospects of a business venture , the company has to account for the value of human capital After all , supplying investors with information that will assist them in decision-making is the main function of accounting

Jeffrey A . Schmidt , a consultant with experience in the… [banner_entry_footer]

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