Recognition of Human Capital as an Asset

Running head: RECOGNITION OF HUMAN CAPITAL AS AN ASSET
Recognition of Human Capital as an Asset
Name of the Student
Name of the University
Author’s note

RECOGNITION OF HUMAN CAPITAL AS AN ASSET1
Letter to the Journalist Tony Mount
To,
The Journalist,
Date – 12/08/2019
Subject – Recognition of human capital as an asset
Sir,
The purpose of this letter is to bring it to your notice about the recognition of human
capital as an asset. The above statement is being critically evaluated by highlighting both the
positive as well as negative impacts of such a recognition. Different case studies related to the
above statement have been provided validating the statements respectively. The arguments
provided in the letter, both in favour as well as against the statement are given following the
proper interpretation of the accounting standards of Australia. The interpretations of
Conceptual Framework are also taken into account for providing proper arguments followed
by relevant judgements.
According to the traditional recognition criteria provided by various organisations,
human capital has always been recognised as the intangible asset or a quality which is not
listed in the balance sheet of the company (Noe et al. 2017). This has been considered by the
organisations as an asset which has an economic value as it consists of the experiences and
skills of a worker. The concept broadly defines the investments made by the organisation
towards providing the necessary training to the employees (Marvel, Davis and Sproul 2016).
This should also include the abilities of the employees which provide an economic value to
the organisation as well as to the economy.

RECOGNITION OF HUMAN CAPITAL AS AN ASSET2
Some of the accountants, human resource management consultants and other
managers argue that human capital should be recognised as a part of the financial balance
sheet. They provide ideas regarding the ways by which human capital could be positioned
along with other investments of the organisation (Fischer and Marsh 2014). According to the
International Financial Reporting Standard (IFRS) and AASB recognition criteria, the term
intangible asset can be defined as the resource to be controlled by an entity, that occurs as a
result of past events and which would have the capability of providing the economic benefits
to the expected cash flows of the entity in future (Aasb.gov.au 2019). The managers suggest
that the above definition is supporting the original definition of human capital. Hence, human
capital could be regarded as an asset. Another report published by the Dutch Central Statistics
Institute also focusses on human capital as an investment as it requires the knowledge, skills
as well as competencies as the core components (Lin 2017). Transparency in the value of
human capital should exist.
The next argument that occurs in this case is about the position of human capital as an
asset in the balance sheet. The question is about positioning as a current or a fixed asset
(Onkelinx, Manolova and Edelman 2016). Another question that comes under this context is
whether human capital is liable to depreciable value. Considering the fixed assets, a certain
percentage of the depreciation is calculated annually and the book value gets reduced. It has
been seen that the human capital also changes annually. This occurs when the new employees
or the retiring employees retire or leave the company (Onkelinx, Manolova and Edelman
2016). Due to some other incidents such as takeover or closing of a business units by the
company which increases the human capital but reduces the balance sheet value. Another
example in this context is the large amount of money which are spent on the special skills of
the footballers and are considered as the beneficiary working capitals. These players are
traded with mutual consent.