ABSTRACT
This research work is aimed at human capital
accounting in financial reporting with particular reference to Annamco, while
carrying out this research work these are the areas that this research work
concentrated. The first chapter is the introductory part of the research work.
This chapter also contains the background of the study, statement of problems,
research Question etc. Data for the study was sourced from two main sources.
Which includes Primary data: Questionnaires and oral interviews were used to
collect information from the respondents. Secondary data: Journals, magazine
and other relevant materials relating to the area of my investigation will be
review. Extensive literature review was carried out on direct literature and
indirect literature on books, journals and past works. The research instrument
used in this study includes oral interview and questionnaire. The questionnaire is structural as to contain
both close and open ended question. Simple tables, pie-charts and percentages
were used in treatment of data while chi-square was used in the research work.
Based on the findings, conclusions were drawn and recommendations were also in
the last chapter of this work which is the fifth chapter.
TABLE OF
CONTENTS
Title page …
… … …
… … …
… i
Certification page …
… … …
… … …
ii
Approval page …
… … …
… … …
iii
Dedication …
… … …
… … …
… iv
Acknowledgement …
… … …
… … …
v
Abstract …
… … …
… … …
… vii
Table of contents…… …
… … …
… … viii
CHAPTER ONE
Introduction
1.1
Background of the study…
… … …
… … 1
1.2 Statement of problem …
… … …
… … 5
1.3 Objective of the study …
… … …
… … 10
1.4 Research question …
… … …
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11
1.5 Research hypothesis … …
… … …
… … 12
1.6Significance of the study … …
… … …
… 13
1.7
Limitation of the study … …
… … …
… 14
1.8
Definition of Terms… … …
… … …
… 15
References …
… … …
… … …
… 16
CHAPTER TWO
Review of Related Literature
2.1
Human Resource Business & Stock Valuation… …
26
2.2
Investment Pattern in Human Resources …
… … 32
2.3
Human Resource Cost Coefficient
… … …
… 34
2.4
Criticism and Challenges of Human
Capital Accounting …
… … …
… … …
36
2.5
Creating an Analysis Data set for Human
Capital Accounting …
… … …
… … …
40
2.6
Net Investment in the Human Capital Stock …
… 43
2.7
Strategies for Building Human Capital … …
… … 45
2.8
Imperatives of Effective Management of Human Capital for Optimum
Performance … …
… … …
… 46
References …
… … …
… … …
… 53 CHAPTER THREE
Research design and methodology
3.1
Research design … …
… … …
… … 54
3.2
Description of respondents ……
… … …
… 55
3.3
sources of data … …
… … …
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56
3.4
Population and Sample Size Determination …
… 58
3.5
Methods of investigation…
… … …
… … 59
CHAPTER FOUR
Presentation and analysis of data
4.1
Analysis of data …… …
… … …
… … 61
4.2
Test of hypotheses… … …
… … …
… 64
CHAPTER FIVE
Summary of Findings, Conclusion and
Recommendations
5.1 Summary of findings …
… … …
… … …
80
5.2 Conclusion… …
… … …
… … …
… 81
5.3 Recommendation …
… … …
… … …
83
Bibliography …
… … …
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… 86
Appendix I …
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… 89
Appendix II …
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… 90
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY:
There is a popular maxim that human resources
are the greatest assets at the disposal of organizations.
In mission statements, annual reports and
annual general meetings, organizations declare that “our greatest assets are
our people”. Mayo (2006) posits that people are often spoken of as assets, but
are generally treated as cost because there is no credible system of valuing
them.
Fajana (2002) asserts that current accounting
procedures deal with human resources as expense rather than as investment. This
is perhaps the essence of human resource accounting otherwise referred to as
human capital accounting or human asset accounting. According to Fajana (2002)
under conventional accounting system, utilization of money and materials are
reported whereas, the value of human resources is seldom incorporated in
financial statements. Human capital accounting relates to the quantification in
monetary terms (e.g. by calculating a capital value) of human resources
employed by an organisation.
A well-developed system of human resource
accounting could contribute significantly to internal decisions by management
and external decisions by investors (Fajana, 2002). Rao (2005) opines that
human capital accounting helps potential investors judge a company better on
the strength of human assets utilized. Thus, if two companies offer the same
rate of return on capital employed, information on human resources can help
investors decide which company to choose for investment. Until recently, the
value of an enterprise as measured by the traditional balance sheet was viewed
as sufficient reflection of the enterprise’s assets. However, with the
emergence of the knowledge-based economy the traditional valuation has been
called to question, due to the recognition that human capital is an
increasingly important part of an enterprise total value (Bhargava, 1991).
Perhaps it was the realization of the short comings of the traditional balance
sheet as a basis of business performance evaluation that led Kaplan and Norton
(1992) to develop a framework that incorporates all qualitative and abstract
measures of true importance of a firm, called the balanced scorecard. By
focusing not only on financial outcomes but also on the human issues, the
balanced scorecard helps provide a more comprehensive view of a business. This
in turn helps organization to act in their best long-term interest. The
financial objectives are therefore balanced with customer, process and employee
perspectives.
Marshal (1961) had also said that the most
valuable of capital is that invested in human beings.
However, unlike capital invested in other
assets, the balance sheet does not exhibit this most vital asset.
For a long time, Accountants have not given
due consideration to the “employee value” in the enterprise. The heavy amounts
incurred on recruitment, selection, placement, training and development of
personnel were generally treated as revenue expenditures and debited to Profit
and Loss Account of the period they were incurred. Proper appreciation of human
capital accounting will help management take suitable decisions regarding
investment in human resources. It will also provide comparative information regarding
costs and benefits associated with investments in human assets. External users
of accounting information, particularly investors will find the study very
useful as it will reveal how critical the quality of human assets is to the
earning potential of a firm. The study may also help human resource managers to
develop management principles by classifying the financial consequences of
various human resource practices and monitoring effectively the use of human
resources.
In Nigeria for instance, in 2006 Unilever
invested over N40million in training its employees, besides in-house programmes
to develop staff, and mutual expatiation of employees in sister companies
abroad (Annual Report 2008). As far back as 1988, Nigerian Breweries Plc
invested more than N88million in local and overseas training of staff. Access
Bank Plc in 2007 commenced construction of an Access Bank Campus otherwise
called Access University of Banking Excellence.
Wema Bank Plc has a policy of sending each
staff to relevant training for at least 80 hours in each financial year. These
heavy investments to train and retain quality staff are not reflected in the
balance sheet of these various organisations. Indeed, they are charged against
revenue for the period to reduce income and by extension the value of the
business, when “everything is viewed in terms of the bottom line”. In the light
of the above, many are wondering whether capital markets obsession with
profitability as almost the sole indicator of corporate performance does not
encourage management to take actions which focus on the short term at the
expense of the long term.
1.2 STATEMENT OF PROBLEM
One shortcoming of human capital accounting
is the measurement of the contribution of education to human capital as net
investment that includes the effects of the aging of the enrolled rather than
gross investment that excludes the effects of aging. The account does not
present measures of gross investment because of its sensitivity to assumptions
about how persons who did enroll in school would have behaved in future years
had they not enrolled in school. Gross investment in education in a given year
is equal to the effect of school enrollment on the stock of human capital the
difference between actual human capital and what the stock of human capital
would have been had no one enrolled in school that year. The latter depends
substantially on what assumptions are made about the school enrollment
decisions that people who actually did enroll in school would have made in
future years had they not enrolled in school.
To illustrate this sensitivity, consider two
different scenarios. The first scenario is similar to that of traditional human
capital accounts. In this scenario, it is assumed that people who enrolled in
school in real life would, in the counterfactual case of no enrollment for 1
year, become like people who did not enroll in school in real life. This has
dramatic implications. Most persons who are enrolled in school are making
normal progress in school enrollment with age and are “on track” to earn their
high school diplomas at around age 18 or their bachelor’s degrees at around
People who are behind normal progress by a
year or two are in a sense “off track,” which has serious implications for
eventual educational attainment. For example, in 1994, the probability that an
“on track” 17-yearold male with an 11th grade education enrolls in 12th grade
and finishes high school is 94 percent. If he misses a year of education and
falls “off track” by 1 year, that probability drops to 79 percent; fall another
year “off track,” and it drops further to 30 percent. If we assume that persons
who are “on track” would behave like persons who fall “off track” if they
missed a year of education, the cost of missing a year of education is very large.
Consequently, gross investment in education is extremely high.
In contrast, consider an alternative
scenario. In this scenario, we assume that people who attended school in real
life would not fall “off track” in the counterfactual of no enrollment for 1
year. Their likelihood of further enrollment would not drop; instead, they
would enroll in further schooling at a rate equal to the enrollment rate of
persons of the same education level who are 1 year younger. So, for example,
consider again the 17-year-old male with an 11th grade education, whose
probability of enrollment in 12th grade is 94 percent. If he did enroll in
school, then we assume that had he not enrolled in school, his likelihood of
enrollment in 12th grade as an 18 year old would still be 94 percent—and not 79
percent, which is the enrollment rate in 12th grade of actual 18 year olds with
11thgrade educations. Consequently, the student stays “on track” toward
finishing his diploma or degree when he misses a year of education; we assume in
the counterfactual that his likelihood of enrollment in 12th grade is not
affected by having missed a year. In this scenario, the cost of missing a year
of education is much smaller, and as a result, gross investment in education is
much smaller.
Under the assumption that persons who did
enroll in school would have fallen “off track” had they not enrolled, the
market component of gross investment in education in 2005 equals $16 trillion,
greater than the entire gross domestic product (GDP) of the United States. In
contrast, under the assumption that persons who did enroll in school would have
stayed “on track” with a year’s delay, the market component of gross investment
in education in 2005 equals $3.1 trillion. Under this assumption, the market
component of gross investment in education is still nearly four times greater
than the measured output of education in traditional GDP accounts, which was
$807 billion in 2005.7 Substituting this measure of gross investment in
education into GDP as a measure of the output of the education sector would
increase total GDP by 18 percent (from $12.4 trillion to $14.7 trillion) and
the share of education output in GDP from 6 percent to 21 percent—quite an
impact for what is probably a conservative measure of human capital investment
from education. There has been a lot of problems since the adoption of human
capital accounting in Nigeria which includes the following:
ØThe extent of development of Human Resource
Accounting in Nigeria.
ØThe extent to which Human Resource factors
influence investment in Nigeria.
ØThe desirability of incorporating value of
Human Assets in financial reporting in Nigeria.
ØThe relevance of Human Capital Accounting to
investors in the Nigerian accounting system.
1.3
OBJECTIVE OF THE STUDY
This research work focuses on providing the
missing link through human capital accounting in corporate or financial
reporting, This study aims at:
• Assessing the extent of development of
Human capital accounting in Nigeria.
• Determining the extent to which Human
capital factors influence investment in Nigeria.
• Evaluating the desirability of
incorporating value of Human Assets in financial reporting in Nigeria.
• Ascertaining the relevance of Human Capital
Accounting to investors in the Nigerian.
1.4
RESEARCH QUESTION
Ikeagwu (1998:77-78) sees Research question
as the platform through which the researcher looks for facts in the fi