Assignment on Financial and corporate accounting

Financial and corporate accounting 1
<University>
Financial and corporate accounting
By
<Your Name>
<Date>
<Lecturer’s Name and Course Number>

Financial and corporate accounting 2
August 16,2019
Senior Accountant
RP & Associates
ACT Spade Street, Dawes point ACT 2010
Tony Mount
The Australian
2 Holt Street
Surry Hills, NSW 2010
Dear Sir/Madam
Re: Should Human Capital be Recognised as an Asset?
In reference to the discussion we had earlier, the following is my well thought opinion on
whether " Should Human Capital be Recognized as an Asset or not." Human capital is
considered as a pivotal capital to an organization given that it directly contributes towards the
achievement of set goals and objectives over some time. Several individuals such as consultants,
human resource managers plus other stakeholders have always viewed humans as capital to an
organization but they do not always reflect them in its balance sheets. The aforementioned
individuals’ claim that costs incurred on employees is always reflected in exploitation accounts
of the organization due to the fact human capital is considered as a cost element to organizations.
Moreover, human capital is a composition of labourers, their skills, experience and knowledge
which is generally treated as an asset to an organization (Passard, McKenna & Krishnan 2012
p.61).
According to international financial reporting standards, human capital is considered as a
resource that is under the control of an organization because of its past events that act as a basis

Financial and corporate accounting 3
for deriving expectations of long term economic gains(Yuan, 2012). However, existing
traditional practices of accounting have failed to consider human capital as an asset in an
organization financial balance sheet. Even though society has experienced transitions from the
industrial era to an information era, accounting activities have not been able to adjust to such
transitions. More so, several accounting professionals have had distinct views on whether human
capital should be accounted for as an asset or not given that it offers a significant contribution
towards financial strengths of an organization (Passard, McKenna & Krishnan 2012 p.61).
Therefore, the following letter will explore views on whether human capital should be accounted
for as an asset in balance sheets of organizations or not.
Views on why human capital should not be accounted for as an asset on balance sheets
Human capital is an intangible asset that is generally considered as difficult to measure in
real money terms (Subrahmanyam, 2012 pp.80). As such, a company can only be able to identify
the number of employees but may not be able to physically measure the monetary value of
humans to reflect it as an asset in its balance sheet. Moreover, balance sheets deal with figures
that are represented in real money terms and not the total number of individuals. It is from the
above point of view that human capital should not be accounted for as an asset in the balance
sheet of organizations (Subrahmanyam, 2012 pp.81). Additionally, there existing difficulty in
maintaining consistency whilst valuing human capital which makes it inappropriate to account
for it as an asset on balance sheets. Moreover, consistency is one of the main prerequisites for
preparing balance sheets as specified by financial reporting standards (Subrahmanyam, 2012
pp.79). The above is attributed to the fact that the valuation of human capital cannot be
consistently done due to the occurrence of demographic changes particularly the age of
employees which greatly impacts their performance and output. For example, a youthful