: "Should Human Capital be Recognised as an Asset?"

You will hear the most firms say: "people are our greatest asset". However, they are rarely recorded as such in the balance sheet, and in times of financial difficulty employee expenses are often amongst the first to be minimised. Human capital is always seen as a cost rather than a benefit by traditional accounting practices. Whilst it is generally accepted that human capital is not treated as an asset, this accounting treatment is not consistent across all industries. For example, Manchester United lists in their 2015 annual report under Note 16 "Players' registrations and other intangible assets" as having a net book value of 204,572,000.

Evidence shows that certain individuals, and/or the companies they represent, do consider their personal (and often highly specialised) skills and attributes to be assets. For example, football (soccer) players David Beckham and Cristiano Ronaldo have reportedly insured their legs for $70m and $144m respectively, whilst dancer Michael Flatley insured his for $60m. Prior research also reveal that the appointment of a new CEO who "talks the talk" can drive share prices up by on average 12.6% (or $6.6b on the US market).

Whilst human capital is not commonly recognised as an asset, clearly there are some economic benefits to be obtained from the skills and attributes of certain individuals. Prior literature shows that human capital has become a significant factor determining the success of an organization and superior human capital is associated with better firm performance (Crook et al., 2011).

You have been approached by a journalist by the name of Tony Mount, from the local newspaper. This journalist would like to publish a piece on whether human capital should be accounted for as an asset, and would like your expert opinion, as an accountant, on your interpretation of the Accounting Standards and Conceptual Framework regarding this issue.