His find out the cost of hiring, training
His managerial ability made the company successful in a short span of time. Human resource has never been properly valued.
Infect, it was not treated as an asset. The amounts paid as wages and salaries were treated as revenue expenditure and no effort was made to find out the cost of hiring, training and development of human beings.
An effort is now being made by progressive organisations to treat expenditure on human resources as an asset.
The success of any organisation depends upon the material, machinery, money, men and management that are available to it.
Out of the above items, the two key items men and management relate to the caliber and character of the people working in it. Hence in any organisation, the most important input is the human element.
A successful manager can turn the fate of loss making company into the most successful company making use of his skills.
But no balance sheet prepared by an accountant shows the human resources as an asset. No efforts were made in the olden days to assign monetary value to such human resources in the balance sheet of the organisation.
In the conventional accounting system, the following failures in respect of human resources are worth noting:
1. The amount spent on the human resources like salaries, wages, training expenses are treated as revenue expenditure which is not correct.
The amount spent on recruitment, training etc., is in the nature of enduring long-term benefit and hence ought to be treated as a capital expenditure.
2. Management did not have any information about total investment made in the human resources.
3. The failure of conventional accounting to recognise the talents, capabilities and potential of the human resources results in high labour turnover, frustration and despondency among the workers.
The thinkers who refuse to treat human resources as an asset argue that since it cannot be disposed of or converted into cash it, cannot be termed as an asset. However, this is a technical ground.
The organisation will be able to derive economic benefit from its staff strength and that is the basic feature of an asset – its ability to yield service or benefit. Hence there should not be any theoretical objection for valuation of human resources.
A typical balance sheet does not disclose “human assets”. According to Rensis Likert, expenses incurred on human resources are fixed costs which do not render immediate return.
Instead the return is spread over the time the employee stays with the firm. Therefore, these costs should be capitalised and amortised over the entire period.
By not capitalising these expenses, accountants are concealing assets and net worth to that extent. The current practice tends to create secret reserves.
This is a blatant negation of the cardinal principle of “True and Fair Disclosure” in published accounts.
The first attempt to value the human being in monetary terms was made by Sir William Petty as early as in 1691.
He was of the opinion that labour was “the father of wealth” and it must be included in any estimate of the national wealth.
However, since efforts in this direction were made during last three decades only, as a result of which many accountants and economists all over the world became conscious of the fact that appropriate methodology and procedures have to be developed for finding the cost and value of the people of an organisation.