Historical Cost Method in Human Resource Accounting

An Evaluation

Abstract

This study investigated historical cost method in human resource accounting: An evaluation. Human resources, a crucial asset for any organization, play a significant role in business and the economy. Human resource accounting is a relatively new concept that has grown in prominence in financial statement preparation around the world. The historical cost technique is one of the most popular methods because, like standard accounting procedures, it calculates an employee's worth using the whole historical expenditures associated with hiring an individual. This strategy necessitates accounting for the cost of the staff investment. One of the drawbacks of this strategy is that it requires decisions on which costs to expense and which to capitalize. The objective of this study is to examine historical cost method in human resource accounting.  The methodology adopted for this study is library approach which focuses on the review of the extant literature on historical cost method in human resource accounting. It was observed in the literature that human resources are critical assets to the organization and significant in the generation of value. To this end, the human resources should be capitalized rather than expensed on the financial statements. The study concludes that human resources are the most valuable asset that an organization may have. Such critical resources, which require significant capital to generate future streams of income, should be recognized as an intangible asset rather than expensed on the statement of comprehensive income. Because human resources are critical to the value creation process and a source of long-term competitive advantage, accounting bodies should create a generally accepted basis for valuing, recording, and disclosing human resources accounting information in an organization's financial statements. The study recommends that historical cost method in human resource accounting should be adopted by organizations as this is already used in the statement of profit or loss and is easy and aligns the historical cost nature of the financial reports.