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Since the time of Adam Smith, economists have grappled with the concept of human capital whilst more recently attempts have been made to assess the rate of return made on the investment in education and training. In the last few years considerable interest has been aroused by attempts to include people in the assets of a company, applying to them accounting conventions and assigning some value to the organization's employees. In the United States, William Pyle and his associates at the University of Michigan, backed by a growing Human Resource Accounting Association, have pioneered a particular method. The publication of the joint working party of the ACMA and IPM favoured a different approach. It is the intention of this paper to review the two approaches, highlighting their similarities and differences and to examine the criticisms that have been levelled against both. Finally, a possible solution will be suggested to the identified shortcomings.

A firm's human resources can be split into two groups, internal (employees) and external (customers, major suppliers/distributors, stockholders). Viewing each area as an investment, it is useful to identify, measure and separate costs into expense and asset components; thus with customer assets it is necessary to define the appropriate customer resource classes; determine specific factors most likely to affect each group's buying behaviour; and determine cost areas most likely to affect each of the major factors identified.

The first question is why provide comfort air‐conditioning (AC) at all? In considerations of whether or not to adopt AC, a point to remember constantly is that only AC can provide effective cooling in the summer period in the UK, whereas, by contrast, the provision of ventilation, either by natural or mechanical means, and other palliative measures, such as the introduction of solar control glazing, blinds, etc, can do no more than relieve the degree of over‐heating, at best and if at all.

This paper seeks to present the positions and conclusions of scholars to support a proposition that the asset approach to human resource accounting has failed.

Reviews the history of human asset accounting.

The paper offers an alternative “liability approach” to account for and report human resources.

The paper provides an argument and rationale to demonstrate that a liability paradigm would be compatible with normal accounting and reporting procedures.

Accounting information is prepared and submitted to interested parties with the aim of influencing their behaviour and decisions. If an accounting system is to provide information which can be used to help interested parties, such as managers, to control the future activities of the organisation and make well‐informed decisions, the system should record in money terms every financial or economic fact which affects the income or financial position of the organisation. The functions of management can be described briefly as forecasting, planning, organising, co‐ordinating and controlling the use of resources with a view to achieving the stated objectives of an undertaking. The resources available to management include physical resources such as plant and machinery, financial resources, patents, trade marks, the reputation the company has with customers and creditors, and the human resources within the organisation. To the extent that an accounting system fails to record and present relevant information on any of these resources it can be regarded as inadequate as a source of information for control and decision‐making.

‘Human resource accounting’ (HRA) is a term of relatively recent origin: research on HRA only began during the 1960s. Initially, the objective was to improve corporate financial reporting by accounting for ‘human assets’ and, in turn, to increase the representational validity of income and asset numbers. A related purpose was to prevent prevailing accounting conventions from motivating suboptimal treatment of people — specifically, to reduce the likelihood that liquidation of human resources would not be revealed in financial reports because of the failure to account for investments in people as assets.

Accounting for the worth of employees continues to attract the attention of accounting scholars. After more than thirty years of interest in the topic, however, comparatively little progress has been made in responding to the challenge of taking humans into account. A major reason for this may be that accounting for the worth of employees has hitherto been too closely bound up with the problematics of financial accounting and financial reporting. This has resulted in the widespread practice of conceptualising employee worth in terms of the hard accounting numbers normally associated with the discipline. Drawing on recent developments in the fields of both accounting for strategic positioning and critical accounting, this paper explores the promise which the emergence of a concern with the provision of soft(er) accounting information holds for any future attempts to account for employee worth.

Suggests that most managers (other than those in marketing) take the view that too much money is spent on marketing. Adumbrates that the accountant may be able to contribute to improved decision making in marketing with regard to expenditure as an investment outlay rather than current expenses. Stresses, herein, that the concern for accounting is with marketing assets and their intangibility. Discusses further assets, valuation and investment and portrays these with the aid of tables and figures. Sums up by saying that a strong case can be made for recognizing many examples of marketing outlay as investments in assets rather than current operating expenses, showing new light on attitudes towards marketing decision‐making and financial reporting.

Since accounting for an enterprise's human resources was first discussed more than thirty years ago, it has encountered two main barriers to entry into mainstream accounting. These were: 1. that employees do not qualify as assets and 2. an inability to establish a meaningful system of measurement. In the context of current accounting concepts the first of these barriers is discussed establishing the legitimacy of the paradigm. Acceptable methods of measuring the value of assets are examined concluding that the present value, using added value as a base, is most useful for the majority of enterprises. Accepting that human resources are an asset, consideration should also be given to recognising the associated liabilities. The impact of accounting for human resources is examined by reference to a set of published financial statements. With an ever changing accounting environment, the opportunity to recognise human resource assets and liabilities in the financial statements should be taken.

Production systems can be: (1) functional layout‐based manufacture (sometimes referred to as batch production), (2) assembly lines and manufacturing lines, (3) plant dominated systems, (4) small groups in manufacturing (group technology), (5) small groups in assembly (group assembly), or various combinations of the above.