Assessing the Impact of Human Resources Accounting Practices on the Performance of Manufacturing Industries in Nigeria

Chapter One of Assessing the Impact of Human Resources Accounting Practices on the Performance of Manufacturing Industries in Nigeria

INTRODUCTION

 BACKGROUND TO THE STUDY

Human Resource is a term which refers to the set of individuals who make up the workforce of an organization or a business entity. According to Syed (2009), it comprises the energies, skills, talents and knowledge of people which are, or which potentially can be applied to the production of goods or rendering useful services. The success of any organization depends on the ability of the human resources to effectively and efficiently optimize other resources such as land, equipment and money hence human resources are the greatest assets at the disposal of businesses. This is why the statement “our greatest assets are our people” is declared in most companies’ annual reports.

Human resource accounting is the process of identifying and measuring data about human resources and communicating this information to interested parties. Okpala & Chidi (2010), explain that human resource accounting relates to the quantification in monetary terms of human resources employed by an organization and assert that a well-developed system of human resource/capital accounting could contribute significantly to internal decisions by management and external decisions by investors.

Human resource is one of the intellectual assets of an organization. The new essence of human resource management is strategic. With rapid changes in the business environment, organizations are now increasingly looking at intellectual capital and by extension human resources as the unique asset that can drive superior performance. The strategic utilization of human resources can produce a constant stream of improvements in all aspects of customer value in terms of quality, functionality and timely delivery, while lowering cost at the same time, thereby achieving ‘continuous improvement’ for the organization. In strategic management accounting, the learning curve effecthelps reduce labour cost directly, while other costs connected to labour (e.g. material cost) are also incidentally reduced.

The effective and efficient use of the physical assets largely depends on the skills, ability, quality, perception and character of the employees (Knauf, 2011). America Accounting Association (2003) define Human Resource Accounting (HRA) as the process of identifying and measuring data concerning human resource and communicating this information to interest parties. Historically, human resource accounting was first proposed in the 2000’s in the attempt of including employees on the balance sheet and it became a known topic of research in the 2000s.

Flamholz (2009) states that HRA has main roles; to encourage decision makers to accept HRA and to provide firms with information concerning the cost of employees. In spite of research in this area, HRA is not widely accepted in practice due to some reasons. These include questions as to whether it is proper to measure employees, whether employee can be measure as an asset.

Training employees is part of human resources framework. Firms also has to leverage the capabilities and skills of its employees by encouraging individual learning and creating a helpful environment in which knowledge can be created shared and applied firms goals (Appah, Tebepah and Soreh, 2012). Performance of firm measure the percentage of turnover resulting from firm products, return on asset (ROA), return on equity (ROE) and earning per share (EPS).

The work of Bassey & Tapang (2012) points to the fact that human resources .have been identified as one of the main sources of competitive advantage by many organizations in today’s economy. Particularly, the private sector organization is widely diverse and has focused on human resources as having special strategic value for organization development. Abdullahi & Kirfi (2012) maintain that the quantification of the value of Human Resources helps the management to cope up with the changes in its quantum and quality so that equilibrium can be achieved in-between the required resources and the provided human resources. As a result, it becomes imperative to put measures in place to effectively manage people with their needs and expectations to enhance productivity. Therefore, proper appreciation of human resource accounting will enable managers take appropriate decisions regarding investment in human resources. It will also provide comparative informationregarding costs and benefits associated with investments in human assets.

Statement of Problems

Though the idea of accounting for human resources started many years back, the concept still lacks general acceptability (Bowers, 2003). Many authors and scholars have conducted researches on how humans within an organization can be valued and reported in the financial statements of such organization.(Schulz, 2001; Hermannson, 2004; Likert, 2007; Bowers, 2003; Flamholz, Bullen & Hua, 2002).

Human resource accounting and reporting by corporate organizations is still at the infant stage in Nigeria. Some of the companies that have invested heavily in human resources and have applied human resources accounting in one way or the other in Nigeria include Unilever Plc, Nigeria Breweries, Cadbury Nigeria Plc, Nestle Foods Nigeria Plc, Access Bank Plc, Zenith Bank Plc, amongst others. The investments by these companies in human capital development are normally not reflected in their balance sheets as assets but expensed in the profit and loss accounts. (Okapla & Chidi, 2010; Micah, Ofurun & Ihendinihu, 2012). The major challenges encountered in the recognition of human resources as an asset rest largely on its characteristics, quantification in monetary terms and the method of reporting.

Objectives of the study

The general objective of this research is to assess the impact of human resources accounting practices on the performance of manufacturing industries in Nigeriawith particular reference to Nigerian Brewery Plc 9th mile Conner Enugu, the specific objectives of this research work includes the following;

1.          To examine the effect of human resources accounting on the performance of manufacturing companies in Nigeria.

2.          To examine the extent at which human resources accounting contributes to the development of Nigerian industrial sector.

3.          To examine the relationship between human resource accounting and the financial performance of Nigerian manufacturing companies.

4.          To identify the challenges of human resource accounting disclosure in Nigerian manufacturing companies. And also proffer possible solutions to the problems identified.