Employee as an asset Balance sheet lists out the assets of an organization which should be equal to the liabilities and owner’s equity of the firm. Mostly the assets listed in the balance sheets are land, cash, building, inventory and intangible assets. Intangible assets would typically include patents, copy rights, goodwill etc. Looking at one of the big software company which has work force of over 400K employees worldwide in software and hardware consulting with the revenue of over $100 Bn. They have been on top in filing the patents for many years. Now let’s look at the software consulting arm of the company. The net revenue that the company can make is directly proportional to the strength of the consultant work force. This implies that year on year to increase revenue the company has to increase the work force and skills as well. Continuing on the above example there is an overall work force of 400K employees. However these are not accounted as an asset other than patents, IT etc. Thus the balance sheet does not seem to reflect the true value of the company’s assets. It is difficult to include the employee as an asset for the following reasons. 1) How can one calculate the value of an employee to be added to balance sheet precisely? 2) Most of the assets are purchased by a firm but in case of consulting company employees are salary based and can be only shown as expense in liability. 3) How could we account for employee turnover? One of the Indian IT company has already taken a step in this direction by assigning value to their employees. Company adopted the Levi Schwartz human resources accounting model to calculate employee’s worth. Even Tata another industry giant has valued its human capital. Even though there are benefits of including the employee the value as assets in balance sheet, most companies refrains from as it is not mandatory as per GAAP or FASB.
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Finance, Accounting, Asset, Employee, Human Capital,
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