CHAPTER 5: Assessing The Importance of Human Capital Cost in Organisation

Abstract

Accounting is aimed at streamlining financial processes and elements. However, the principal asset, which undertakes this essential element, is Human Capital (HC), which has not been given proper importance or scope in the accounting framework in the 19th century. Though individual firms are now aware and include Human capital cost to their annual reports (human capital as assets both from investment and expenditure perspective), still, it was not well accepted either by organizations, employees, and employee unions. Human capital accounting, also known as human asset accounting, are information systems that involve the process of identifying, capturing, measuring, and analyzing the potential and the value of human capital in the firm and communicating the resultant information to the stakeholders of the firm. Human Capital cost is the method by which a cost is assigned to every employee when recruited and the value that the employee would generate in the future. It reflects the potential of the human capital of an organization in monetary terms, in its financial statements. Human Capital cost can also be explained as the measurement, which helps to recognize the costs and the value of employees as an organizational resource. This definition explains the knowledge and intellectual capabilities of employees which is becoming significant in firm decision making and firm performance.