Accounting for People

Introduction

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper

The importance of intellectual capital is something that is taking a centre stage in business research. The concept has also emerged in the accounting field, especially during the current era of accountability (Roslender & Monk, n.d). This is the basis for the development of the concept of accounting for people. The theory is based on the realisation that people are the most important asset for any company. Accounting for people has major implications in managerialism discourse, indicating the importance of the accounting practice to take into account the people affected in the process (Roslender & Stevenson, 2009). It is important for the management to ensure that the people are an important stakeholder group, being even more important than other assets. It is founded on the assumption that putting the people into consideration raises a workforce that is best suited to meet the goals and objectives of the company. While the concept of accounting for people plays an important role in the productivity of the business, it has a potentially negative side, explaining the slow progress in its adoption in accounting practice.

Accounting for People

The concept of accounting for people is founded on the common statement: “people are our biggest asset” (Bullen & Eyler, 2010). Therefore, it is critical for the companies to cost the people as assets. Accounting for people presents the concrete ways possible to cost the asset in a manner that is evidence-based. With the reality of the knowledge economy, companies should recognise that the human resource takes a central role in all the processes and activities of the business. They are the most important factor in ensuring the competitive advantage of the company. It is important to consider the people as both an asset and liability of the company. As the asset and liability of the company, it becomes critical for the people to be accounted for. In the annual financial statements and reports of the company, it is important that the intellectual capital takes an important place (Gneezy Imas & Madarász, 2014). This would show the business and other stakeholders the contribution that the human capital is making.

Accounting for people has, among other objectives to show the performance of the workforce and the contribution they are making in the profitability of the business. The information is important because of the huge investment that the business makes in the workforce. Human capital reporting should be as important as reporting of other business activities of the company (Roslender & Stevenson, 2009). The human capital of the company ought to be identified as playing a critical role in the ability of the business to make profits. Other assets of the business cannot achieve profitability without the input of the human capital. Hence, in accounting, the human capital should take a very critical position and best practice should be applied in the process. Traditionally, human resource has been viewed as an important factor of production, but it was not taken into consideration in the financial statements regularly produced to show the financial performance of the company (Gneezy Imas & Madarász, 2014). Accounting for people suggests the importance of moving from the conventional view of the human resources, and instead give it the importance it deserves.

Save Time On Research and Writing
Hire a Pro to Write You a 100% Plagiarism-Free Paper.
Get My Paper

Accountants, through accounting for people are challenged to find a way of including the human capital on the balance sheet. This changes the manner in which the statements are presented for decision-making purposes. The balance sheet would have a novel entry that would show the place the human capital assumes in the business (Roslender & Stevenson, 2009). In fact, this would indicate an acknowledgement of the important place of the human resources for the company. However, there has always been the question on how exactly to classify the employees as assets of the company. Among the recommendations has been to view them as operational assets rather than owned assets. This would play a role in maintaining the human view of the employee as opposed to the slavery point of view. It is also the basis for the identification of the financial value of human resources as the assets of the company (Gneezy Imas & Madarász, 2014). However, there is still the question of the actual classification of the asset in the balance sheet.

Benefits of Accounting for People

Accounting for people is an important process aimed at giving the accounting process a human face. The concept has an impact on the behavioural outcomes of the human resources, explaining the reason behind the concept of behavioural accounting. It is important for the human resource to take the central place it should assume in the performance of the business. The human resources will be more motivated from knowing that their contribution to the business is well recognized. It is imperative for the workers to know that their contribution to the organization is recognised and rewarded. It is not enough that the management focuses on the outcome and not the people who have played a role in achieving the outcome (Flamholtz, 2012). Accounting for people is created as a means of changing the conventional view of the human resources and placing them at the fore of the accounting and overall management process.

For the business, there is a huge benefit in accounting for people. The management is able to see what is working and what is not in terms of the human capital. Through accounting, the company is able to capitalise on the assets while controlling the liabilities. Thus, it is important to establish whether the human capital is an asset or liability to the company. Important decisions can be made around the outcome of accounting for people (Roslender & Monk, n.d). It only helps a company when there are returns on whatever investment is made. For the human resources, there has never been an effective way of establishing the returns on the investment until the introduction of accounting for people. The practice makes it possible to establish the value of the asset to the organization (Flamholtz, 2012).  The company can make major changes around the values that are reflected on the balance sheet as relating to the human capital.

Drawbacks of Accounting for People

The idea of viewing humans as assets of the organization does not always have a positive connotation to the business. Assets are items that are owned by the company, which can be manipulated for making profits. The management decides to either retain or dispose the assets to gain more value to the company. Hence, when the human resources are viewed as assets, it brings to mind the conventional view of asset ownership. Accounting for people has been viewed as though it equates human capital with the owned assets (Flamholtz, 2012). Some experts have tried to distinguish between owned and operational assets, but this might not help to clarify the view. In addition, the view of human capital as assets conjures an image of ownership and slavery. It suggests that the company owns the human capital and can manipulate it as it pleases for the profit-making role of the company. The idea can create negative outcomes among the human resources in the companies that have adopted the principle of accounting for people.

There has also been an argument that the United Kingdom-based idea of accounting for people was a tool to manipulate the human resource. The model introduced in the country did not succeed because of the challenges in its fundamental principles. The model was initiated during a time of economic challenge and it was possible that it was a means of ensuring that the companies had control over the human resources. The interests of the employees were not put into consideration in the proposal of the accounting for people framework. The powerful sectional interests have been used as the basis for challenging the ideas of accounting for people.  The model was effectively emasculated because of influence and power of the accountancy profession in the United Kingdom (Flamholtz, 2012). The idea of control is possibly the reason why the model has not achieved the kind of interest in practice as would have been expected.

Challenges in Adopting Accounting for People

While the concept of accounting for people has been around for decades, it is yet to be generally acceptable in the accounting practice. Practitioners are claimed to find it challenging to account for people. The accountants, for example, are yet to understand how they are expected to place the people on the balance sheet. The training of the accountants does not take into account this new area of accounting (Roslender & Monk, n.d). The training of the accountants still takes into consideration the balancing of the assets and liabilities and not of people. Hence, it becomes a challenge to determine whether the employees are an asset or a liability (cost). The training that the accountants receive, to-date, does not include the way of classifying human resource within the balance sheet (Flamholtz, 2012). Hence, while it might be agreed in theory that human resource should be incorporated in the balance sheet, the actual way of doing so in practice remains elusive. Indeed, this explains why the concept is yet to be adopted in practice.

There is another challenge, which is the possibility of assigning financial value to the human resource as an asset. The performance of the company in terms of profits can be quantified, but it is not possible to quantify the contribution that the employees put in achieving that profit. There have been efforts to place the asset in the financial statements, but in the situations where this is done, the results are highly subjective (Bell, Tzou, Bricker, & Baines, 2012). The cost of intangible assets has always been challenging to assign. Unlike tangible assets that have a defined value, the same does not apply to intangible assets. At the same time, it is not possible to tell for sure the appreciation value of such assets. While an asset like land can be quantified in terms of appreciation over time, this is not possible for human resources (Roslender & Monk, n.d). Therefore, even if it could be agreed that human capital can be used in the balance sheet, the actual way of doing this remains debatable.

Probably, the accounting for people model can work, but only if the drawbacks are adequately addressed. Some experts have suggested the application of best practice in the implementation of the model in practice. One of the ways of achieving this is implementing the most effective way of including the human resource in accounting and further training the accountants on how to use it in practice (Roslender & Monk, n.d). Creation of an accounting for people plan will also provide the guidelines on how to use the model in practice. In this case, the accountants need the answers on how the model will be used in practice. Therefore, the theory is not enough when such a major change is desired.

Conclusion

Accounting remains a very important function in human resource management. Conventionally, the aspects of the business operations that are accounted for have always been clear. The assets and liabilities of a company have always formed the basic elements of the balance sheet and other financial statements. However, there has been increased interest in the possibility of including the human side of the company in the accounting process. Accounting for people is the concept that relates to the inclusion of human capital in the accounting functions of the business. There are major benefits of incorporating the human capital in the financial statements, including greater motivation for the employees and increased productivity for the company. However, there are still important questions relating to the exact practical way of achieving this. More research should be done on the best practice to be adopted when including human resource in accounting. The evidence will unravel the challenges in using accounting for people in practice.

 

Calculate your order
Pages (275 words)
Standard price: $0.00
Client Reviews
4.9
Sitejabber
4.6
Trustpilot
4.8
Our Guarantees
100% Confidentiality
Information about customers is confidential and never disclosed to third parties.
Original Writing
We complete all papers from scratch. You can get a plagiarism report.
Timely Delivery
No missed deadlines – 97% of assignments are completed in time.
Money Back
If you're confident that a writer didn't follow your order details, ask for a refund.

Calculate the price of your order

You will get a personal manager and a discount.
We'll send you the first draft for approval by at
Total price:
$0.00
Power up Your Academic Success with the
Team of Professionals. We’ve Got Your Back.
Power up Your Study Success with Experts We’ve Got Your Back.
error: Content is protected !!
Open chat
1
Order through WhatsApp!
nursingesssayswritings.com
Hello!
You Can Now Place your Order through WhatsApp

Order your essay today and save 15% with the discount code ESSAYHELP23