Human Capital Accounting As A Means Of Enhancing Information Disclosure In Financial Reports
This research work is aimed at providing the missing link through human capital accounting as a means of enhancing disclosure in financial reporting with particular reference to Dangote group of company, while carrying out this research work these are the areas that this research work concentrated. The first chapter is the introductory part of the research work. This chapter also contains the background of the study, statement of problems, research Question etc. Data for the study was sourced from two main sources. Which includes: Primary data: Questionnaires and oral interviews was used to collect information from the respondents. Secondary data : Journals, magazine and other relevant materials relating to the area of my investigation will be review. Extensive literature review was carried out on direct literature and indirect literature on books, journals and past works.
1.1 Background of the Study
The implementation of Human Capital Accounting (HCA) is an OECD-recommended means of improving the efficiency of human capital investment and utilization. The concept of HCA has been explored and developed by the OECD as a means to understand and implement the necessary adaptations individuals and nations must make to measure and utilize knowledge assets – knowledge resident in human beings – in relation to economic performance and prosperity. In 1996, the OECD concluded that public policy must focus on the development of better signals for competence validations, valuation, accounting and financial reporting. Firms had begun to think of employees as investments rather than costs, and as the cost-to-investment-based thinking evolved, the transition continued towards full accounting of human capital investments as assets that produce returns over an extended period of time. The OECD publications Measuring What People Know: Human Capital Accounting for the Knowledge Economy and Human Capital Investment: An International Comparison extend the treatment of physical capital to human capital in a discussion of knowledge production, diffusion and consumption in light of the disciplines of economics, accounting and education.
Human capital is defined as the knowledge that individuals acquire during their life and use to produce goods and services or ideas in market or non-market circumstances. According to the OECD, this definition of human capital is non-committal about the source, nature or validation of embodied competences; and helps to focus on two issues: (1) the productive capacity arising from knowledge; and (2) the utility of improving the methods for assessing the productive capacity of human capital. HCA is a method of systematically identifying, measuring and presenting information about the human resources of an organization. It is related to and sometimes confused with such other concepts as: intellectual capital, intellectual potential, knowledge management, Human Resources Accounting (HRA), Human Capital Management (HCM), intangible investments and/or intangible assets – which range from the intellectual property rights of patents, trademarks, copyright and registered design through contracts; through trade secrets and public knowledge such as scientific works; to the people-dependent or subjective resources of know-how, networks, organizational culture, and the reputation of product and company. It has been concluded that the concept of HCA is also directly related to human resources management in the knowledge economy, lifelong learning, PLA/PLAR, electronic LMI management, and the electronic learning record.
The basis for interest in the Portfolio, the assessment and recognition of non-formal and informal learning, and Knowledge Management is expediency. Expediency in the areas of human resources development and management, from the individual to the national level, is needed to address the challenges presented by the emerging Knowledge-based Economy, skills shortages, education/training reform, and structural unemployment. For example, in their analysis of the International Adult Literacy Survey (IALS) results, Human Resources Development Canada (HRDC) and Statistics Canada have concluded “that the ‘new’ economy requires workplace arrangements that empower employees to make workplace decisions and challenge them to use existing skills and develop new ones.”9 The Organization for Economic Co-operation and Development (OECD) has deemed it important that nations concern themselves with how and why they invest in and use human capital because a commitment to improving the skills of citizens is one of the principal means for dealing with economic uncertainty. The OECD has concluded that improvements to the systems of human capital acquisition, measurement, accounting and valuation are key factors in helping a nation’s firms to compete in the globalized economy. “Investment in education and training helps form the human capital – the skills and abilities – that is a vital element in assuring economic growth and individual advancement and reducing inequality. It is an important element in combating unemployment and social exclusion.
1.2 Statement of the Problem
HCA is a method of systematically identifying, measuring and presenting information about the human resources of an organization. It is related to and sometimes confused with such other concepts as: intellectual capital, intellectual potential, knowledge management, Human Resources Accounting (HRA), Human Capital Management (HCM), intangible investments and/or intangible assets which range from the intellectual property rights of patents, trademarks, copyright and registered design through contracts. On this background the researcher wants to investigate on the human capital accounting as a means of enhancing information disclosure in financial report
1.3 Objective of the Study
The objectives of the study are;
- To ascertain the relationship between human capital accounting and information disclosure in financial report
- To ascertain the effect of human capital in an organization
- To ascertain whether Human Resources Accounting (HRA), Human Capital Management (HCM) are intangible investments
1.4 Research Hypotheses
For the successful completion of the study, the following research hypotheses were formulated by the researcher;
- H0: there is no human capital accounting and information disclosure in financial report
H1: there is human capital accounting and information disclosure in financial report
- H02: there is no effect of human capital in an organization
H2: there is effect of human capital in an organization.
1.5 Significance of the Study
This study will give a clear insight on human capital accounting as a means enhancing information disclosure in financial report. The study will be beneficial to students and organizations. The study will serve as a reference to other researchers that want to embark on this topic
1.6 Scope and Limitation of the Study
The scope of the study covers human capital accounting as a means of enhancing information disclosure in financial report. The researcher encounters some constrain which limited the scope of the study;
a) Availability of Research Material:
The research material available to the researcher is insufficient, thereby limiting the study
The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
c) Organizational Privacy:
Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.
1.7 Definition of Terms
Human capital is the stock of knowledge, habits, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value.
Information is any entity or form that provides the answer to a question of some kind or resolves uncertainty. It is thus related to data and knowledge, as data represents values attributed to parameters, and knowledge signifies understanding of real things or abstract concepts.
Financial statements are a formal record of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form easy to understand
1.8 Organization of the Study
This research work is organized in five chapters, for easy understanding, as follows
- Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
- Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
- Chapter three deals on the research design and methodology adopted in the study.
- Chapter four concentrate on the data collection and analysis and presentation of finding.
- Chapter five gives summary, conclusion, and recommendations made of the study
Summary, Conclusion and Recommendation
It is important to ascertain that the objective of this study was to ascertain human capital accounting as a means of enhancing information disclosure in financial report.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of human capital accounting as a means of enhancing information disclosure in financial report.
This study was on human capital accounting as a means of enhancing information disclosure in financial report. Three objectives were raised which included: To ascertain the relationship between human capital accounting and information disclosure in financial report, to ascertain the effect of human capital in an organization, to ascertain whether Human Resources Accounting (HRA), Human Capital Management (HCM) are intangible investments. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of dangote group of company, Lagos. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up production managers,human resource managers,senior staffand junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies.
The economic importance of people is well recognized few organization attempt to account for their human resources conventional accounting systems treat expenditure made as investments in human resources as “expenses” rather than as “assets”. Thus human assets do not appear in financial statements. Similarly, organizational information systems typically do not measures and report on the value of human resources and changes in their value overtime. However, despite the recognition that human resources are the most important of all business inputs, there is little evidence of any serious attempt by accountants to evaluate human resources, more so the above obstacle are basic because of human resources accounting being a new concept. The opinion are still to be crystallized it is yet not less satisfying that the account out these days have realized that disclosure of human resources in the financial statements “is a must” if they have to show a true and fair view of the state of affairs of the business.
- Proper techniques should be developed for valuation of human resources and generally acceptable formats should also be evolve by the accountants for disclosure of this vital information in the financial statement of the firm.
- Employees should be considered as assets of the business and be seen as “the father of wealth” according to Petty (1691) and it must be included in any estimate of national wealth.
- The top managerial, commercial and technical skills in a company are assets, then it is vital, that the company should assess its needs for these skills, invest in their acquisition maintenance and development and allocate these limited resources to the divisions and projects where their contribution is highest in the business.
- Human resources should be taken out of profit and loss and shown or bring them into balance sheet if human resources are accepted as assets or valuation of human resources as an asset.
- There is a great need for evolving a system of accounting for human resources that is acceptable to professional accountants, managers and other decision makers-investors creditors and other stakeholders because the improvement of the management of human resources will enhance quantity and quality of aids and services.
- Finally in human organization whose employees are reported and accounted for using the value model employee’s effectiveness, efficiency and the organizations performance is high. Hence, the imperfect convention that is inadequate to measure and report the cost of human capital, should be replaced with a near perfect convention of time valuation, which accounts for and report human resource as asset in the book. This will enhance management efficiency and ensure shareholders’ value maximization.
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