Are Accounting Metrics Applicable to Human Resources? the Case of Return on Investment in Valuing International Assignments

Article excerpt


The importance of accounting for human resources has long been recognised by the Accounting profession. Until recently, Human Resource Accounting (HRA) literature has been dominated by discussion as to whether humans fit the traditional definition of assets, and how to measure and report them. We investigate the concept of human capital and its measurement through a review of the HRA literature, as well as the literature in Human Resources (HR). This paper then draws on the findings of a small exploratory study into the measurement of Return on Investment (ROI) for international assignments. Interview data reveals that intangible costs and benefits are problematic when applying such a metric; that much of the outcome from the assignment is intellectual capital, in its broad sense, and therefore difficult to isolate and effectively measure.

Keywords: Accounting: Human Resources: Return on Investment

JEL Classification: M49, M50, M54, M59.


The importance of accounting for human resources has long been recognised by the Accounting profession (AAA 1973 as cited in Flamholtz 1999); in part to assist management in the control of human resources, and as a broader consideration of the human side of business - the "consequences of accounting systems in action" (Hopwood 1976, p.131). A strong motivation is to ensure the field of accounting stays in step with managerial requirements for accurate information to enhance decisionmaking. The quest to derive suitable metrics is further driven by the recent emphasis on corporate social responsibility and 'triple bottom line reporting'; accounting for intangibles such as intellectual property; and the contemporary view of people as a key source of competitive advantage (Verma & Dewe 2008).

One could argue that the sub-field of Human Resource Accounting (HRA) has been influenced by these general objectives. The aim of HRA is to contribute to the management of the organisation by optimising the value of its human assets. HRA literature centres on developing measures that can adequately capture and report, in a tangible form, the worth of people and their contribution to the organisation (Mayo 2005; Verma & Dewe 2008). The significance of this is noted by Flamholtz, Bullen and Hua (2002, p.947) when they propose that "although HRA has important implications for external financial reporting in the contemporary economic environment, HRA has even greater significance as a powerful managerial tool in internal human resource management decisions". According to Roslender, (1997, p.10), citing Flamholtz (1999) the leading figure in the field, HRA "was first and foremost a development in managerial accounting". He further notes that, while Flamholtz emphasises the managerial aspects of HRA, "its association with financial reporting remained more dominant" (ibid).

Until relatively recently, the HRA literature has been dominated by discussion as to whether humans fit the traditional definition of assets and how to measure and report them. Attempts lately have been made to apply a wider definition, acknowledging its usefulness to management and management accounting practice. Toulson and Dewe (2004) note the growing "acceptance in management and HR that people management is a key element in the strategic planning of organisations". They argue that HR needs to be able to identify and apply appropriate measurement techniques; and that practices should to be developed and disseminated. They note however, that this research has been overshadowed by the ongoing debate over measurement concerns such as whether to capitalise or expense investment in human resources and whether human resources qualify as assets in an accounting sense. In a similar vein, Cascio (1991) and Fitz-enz (1984, 1990) argue that human resources need to be measured in terms of their strategic management potential as expressed through concepts such as human value management (Fitz-enz 1990) and HR expense models (Cascio 1991). …