Improving Human Resource Accounting through International Financial Reporting Standards

Abstract

Human Resource is the most valuable asset an organization can possess. Investment in it ultimately brings about growth in the future earnings of an entity. Today, in accounting parlance, it is treated in financial statements as an expense item rather than as an intangible asset which has capacity to generate future stream of incomes. Non-treatment of human resource as an asset obviously distorts the value of economic information presented in financial statements to internal and external decision makers on the real and potential value of the organization most valuable asset. This study focuses on the usefulness of Human Resource Accounting and the need to promote its wide acceptance through International Financial Reporting Standards.

This study using First Bank Nigeria Ltd as a case study adopted the Flamholtz’s Historical Cost of Hiring Human Capital model to determine the value of human resources. Secondary data obtained from the annual reports and accounts of First Bank Nigeria Ltd from 2012-2013 was used.

It was discovered that the Gearing, Earnings per Share and Return on Assets of the bank showed better results when human resource value was inputted in the financial report than when human resource value was not inputted in the financial report from 2012 to 2013.It was recommended that the International Accounting Standard Board should develop and issue an International Financial Reporting Standard on treatment of human resources as an asset.

Keywords: Accounting, Asset, Human Resource, Human Resource Accounting, International Accounting Standard Board, International Financial Reporting Standards, Investment, Organization