The role of human capital cost in accounting
| Pages | 116-130 |
| Published date | 01 March 2004 |
| Date | 01 March 2004 |
| DOI | https://doi.org/10.1108/14691930410512950 |
| Author | Hai Ming Chen,Ku Jun Lin |
| Subject Matter | Accounting & finance,HR & organizational behaviour,Information & knowledge management |
The role of human capital cost
in accounting
Hai Ming Chen and Ku Jun Lin
Graduate Institute of Management Sciences, Tam Kang University,
Taipei, Taiwan, ROC
Keywords Competitive advantage, Human capital, Expenditure
Abstract The purpose of this research is to deal with the human capital disclosure issue of present
accounting systems. Many companies nowadays derive their competitive advantages mainly from
human capital. However, under generally accepted accounting principles, all human-related
expenditures are treated as expenses, which are deductions of revenues, thus misleading
decision-makers into inappropriate judgments. This paper provides an alternative way of
measurement and disclosure of human capital items in financial statements. The paper defines and
classifies the human capital of a company in line with a theoretical framework provided by the
authors, sorts out company’s human capital investments according to cost development stages in
human resources, isolates human capital from expenses and finally suggests disclosure in financial
statements.
Foreword
Today, it is knowledge that brings forth wealth. Human brains contribute to
the value-added of products. Such development has confounded traditional
accounting methods of measuring company performance, i.e. posing the
question of the disclosure of human capital. Human capital and knowledge
create value-added and even competitive advantages to modern businesses
(Ulrich, 1998). Over five years, the semiconductor sector ranked first with an
average return on equity of 45 percent, the software and information
processing sector featured an average return on equity of 39.8 percent, and the
financial sector recorded an average return on equity of 36.3 percent (Dorfman,
1996). These sectors share a common trait: they provide products or services
developed by human intelligence instead of commodities manufactured by
machinery equipment. In other words, the value-added created by human
capital has prevailed over that created by tangible assets, such as machines.
There is much research on the contribution of intangible assets or capital on
the value of companies being carried out. Elements contributing to the value of
companies are numerous, including organizational capital, customer (relations)
capital and human capital (Dzinkowski, 2000). All these factors centered on
humans as a foundation for all sorts of capital. However, current accounting
research on the definition, forms and categories of human capital has been
limited. It is hard to obtain statistical data of human capital from the current
accounting system, let alone apply the data to managing human capital, which
has become increasingly important to companies’ value creation. Against this
backdrop, this paper aims to present an in-depth discussion on human capital.
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.emeraldinsight.com/researchregister www.emeraldinsight.com/1469-1930.htm
JIC
5,1
116
Journal of Intellectual Capital
Vol. 5 No. 1,
pp. 116-130
qEmerald Group Publishing Limited
1469-1930
DOI 10.1108/14691930410512950
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