OPTIMIZING THE EFFECTIVENESS OF FINANCIAL REPORTING THROUGH HUMAN RESOURCES ACCOUNTING

Abstract

In current era of technological change, human resources are increasingly important parts of an organization’s total wealth and should also be recorded as an asset in financial statements under the head of fixed assets. There are two major reasons for recognition of human capital as an asset; first, human resources are a valuable resource for a firm to sustain a long-term competitive advantage; as long as employees render services for organization, future economic benefits flow towards organization from the investment made on human resources. Secondly, the value of human resources is based on the knowledge, capabilities and skills developed in the organization through investment. The objective of the study therefore is to understand the needs and significance of human resources in the context of optimal financial reporting and also to provide suggestions for developing such accounting practices in our corporate environment. The study is exploratory in nature premised on extensive review of relevant literatures carried out earlier in the field of human resources accounting. The results of our study indicate that the majority opinion among scholars in the field of accounting in the papers reviewed hold the belief that human capital should be included in the statement of financial position. These opinions arise from the belief that capitalizing human asset in the statement of financial position will enable investors to make timely and efficient economic decisions. This would lead to optimality and opportunities to show the true value of a company’s assets.