Conventional Human Asset Accounting Treatment And Corporate Profitability Evaluation (Published)
The past few decades have witnessed a global transition from manufacturing to service based economies. The fundamental difference between the two lies in the very nature of their assets. In the former, the physical assets like plant, machinery, material etc are of utmost importance. In contrast, in the later, knowledge and attitudes of the employees assume greater significance. For instance, in hospitals, academic institutions, consulting firms etc, the total worth of the organization depends mainly on the skills of its employees and the service they render. Hence, the success of these organizations is contingent on the quality of their human asset – its knowledge, skills, competence, motivation and understanding of the organizational culture. In knowledge- driven economies therefore, it is imperative that the humans be recognized as an integral part of the total worth of an organization. This study therefore is an attempt to understand the impact of conventional human asset reporting methodology on corporate profitability. Our study revealed a positive and significant relationship between the conventional treatment of writing off human asset development expenses to profit and loss account and corporate profitability. On the contrary, there was a weak and insignificant positive relationship between the conventional treatment of non-reflection of human development asset value in the balance sheet and corporate profitability. The study therefore concluded that the main cause of discrepancy between book value and market value of corporate organization is the conventional financial accounting reporting methodology of human asset development expenses in profit and loss account and the balance sheet. This discrepancy could be reduced considerably by adopting a constructive methodology of excluding human asset value from the profit and loss account and including human development investment in the balance sheet of corporate organizations.
Keywords: Asset Development, Corporate profitability, Human Asset