Financial Implications of Accounting for Human Resources Using a Liability Model

Journal of Human Resource Costing & Accounting, Vol. 12 No. 2, pp. 124-137, 2008

32 Pages Posted: 21 Apr 2016 Last revised: 9 May 2016

See all articles by Herman Theeke

Herman Theeke

Central Michigan University

John B. Mitchell

Central Michigan University - Department of Finance and Law

Date Written: June 1, 2008

Abstract

Purpose – The purpose of this paper is to: discuss how reporting under a human resource liability paradigm fits into the traditional accounting framework of contingent liabilities; examine the financial effects of such reporting on market valuation and internal planning; and explore measurement of human resource liabilities.

Design/methodology/approach – From reviews of financial effects of human resource liability reporting the paper logically extends those results to support the proposed paradigm.

Findings – Accountants already recognize some liabilities resulting from future expenses for past labor. A fuller treatment of expected costs from human resource polices would provide external and internal financial analyst with different and useful information. Recognizing these future expenses will depress asset turnover and return on asset calculations, while increasing estimates of risk such as higher debt ratio, lower cash flow coverage and higher degrees of operating leverage.

Originality/value – The paper provides support for the feasibility and need to adopt a human resource liability paradigm for valuing, reporting and managing human resources.

Keywords: human resources, human resource liabilities, contingent liabilities, financial ratios

JEL Classification: E2, J3, M4

Suggested Citation

Theeke, Herman and Mitchell, John B., Financial Implications of Accounting for Human Resources Using a Liability Model (June 1, 2008). Journal of Human Resource Costing & Accounting, Vol. 12 No. 2, pp. 124-137, 2008. Available at SSRN: https://ssrn.com/abstract=2767865 or http://dx.doi.org/10.2139/ssrn.2767865

Herman Theeke

Central Michigan University ( email )

Mt. Pleasant, MI 48858
United States

John B. Mitchell (Contact Author)

Central Michigan University - Department of Finance and Law ( email )

328 Sloan Hall
Mount Pleasant, MI 48859
989-774-3651 (Phone)

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