Question

Some accountants have advocated that a company’s human assets be measured and included directly in the financial statements. For example, the costs of hiring and training an employee would be recorded as an asset that is amortized over the employee’s expected term of service. Do you agree or disagree? Why?

How would you respond to the treasurer of a small charity who tells you that the organization does not use a separate checking account for payroll because the benefits are not worth the extra monthly service fee?

Answer 1

1. This question can generate some debate. The issue is the trade-off between "subjectivity" in measuring the value of a company's investment in the knowledge and skills of its employees with the usefulness of at least attempting to explicitly measure those assets.

In the "information era" the value of a company's employee knowledge base is increasingly important. Attempting to measure it should facilitate more effective management of this resource by focusing more attention on it.

Some companies, such as Dow Chemical and Skandia, have attempted to formally provide stockholders with information about the company's intellectual capital, but such efforts have not become mainstream because of the inherent subjectivity.

2. A separate payroll account limits the organization's exposure to only the amount of cash deposited into the payroll account.

A separate account is also easier to reconcile and to detect any errors or irregularities.

Please up vote. Thanks!