Strategic Accounting

By Carnevale, Anthony P.; Schultz, Eric R. | Training & Development Journal, July 1990 | Go to article overview

Strategic Accounting

Carnevale, Anthony P., Schultz, Eric R., Training & Development Journal

Strategic Accounting

Human resources are an increasingly important factor in the economy. Investments in human capital are already key to improvements in productivity, wages, and national income. And the role of human capital will continue to expand as the economy becomes dominated by service-oriented jobs requiring extensive knowledge and training. At the same time, jobs in manufacturing will be highly skilled and vital for maintaining the operating efficiency of manufacturing technology.

HRD's heightened importance must be viewed in light of the labor pool preparing to enter the workforce: millions of potential employees are unequipped with basic workplace skills. For these people to be constructively assimilated in the economy, employers will have to intervene and provide training. What's more, the current workforce will require continual skills upgrading to keep pace with technological advances. But, partly because of traditional tax incentives and managerial accounting systems, organizational expenditures for human capital lag behind investments in physical and equipment capital.

a strategic element that today's managerial accounting statements lack, but that decision makers need, is financial information about human resources. Conventional accounting systems don't provide adequate data for decision making and planning about human resource use. And they don't provide feedback to permit evaluation of organizational effectiveness in using human resources. Yet accounting information is what's reported to upper management about an organization's overall performance.

An organization's management accounting system acts as a two-way communications device for upper and middle management because it lists important organizational and departmental goals. Economic indicators measured by the accounting system also serve as the basis for promotion of middle managers. So information that appears on management accounting reports has a strong influence on management behavior.

When accounting systems don't feature performance reports on effectiveness in managing people, it's only to be expected that managers will concentrate on the aspects of their jobs for which they are held accountable. This encourages managers to reduce or eliminate training expenditures and sacrifice long-term profit gains in favor short-term cost cutting. Under current management accounting standards, the economic impact of such mismanagement is not assessed.

An economy based largely on the knowledge and skills of human capital has important implications for the role of HRD professionals in organizations. They have come under pressure to become full business partners who make money for their organizations. This new role requires HRD professionals to think, speak, and operate more in economic and financial terms.

At present, training activities typically are evaluated in other terms--such as participants' reactions to training or supervisors' observation of participants' post-training, on-the-job behavior. But it has become necessary to account for and evaluate training activities in terms that assess the value of investment in employees.

Most American organizations have published statements that extol the importance of human resources. But where managerial accounting systems fail to look at the tradeoffs of training costs and benefits, HRD is likely to be treated as a secondary activity.

Antiquation of management accounting


Corporate management accounting systems are antiquated for the modern work environment. Despite the evolution of product and process technologies, management accounting systems have remained essentially unchanged for more than 50 years.

In part, this stagnation results from the integration of organizational balance sheets and income statements. A balance sheet represents the organization's total assets, debts, and net worth. …

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