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Financial Reporting Theory
Presented by
Casey Lau
Gloria Ho
Hayley Cheng
Hon Pok Man
Debate I
Human Resources should be
on the Balance Sheet
NOT
Highlight
Definition of Human Resources Definition & Classification of
Intangible Assets Reasons of Exclusion Conclusion
Definition of
Human Resources
Human Resources
Skills Technicalknow-how Experience
e.g. Communication
e.g. Programming
Expertise
e.g. Surveying
e.g. Merchandising
Definition & Recognition
of Intangible Assets
Intangible Assets
Definition:A resource:
1. Controlled by an enterprise as a result of the past event or transaction2. From which future economic benefits are expected to flow to the enterprise3. Identifiable, non-monetary & non-physical
(quoted from HKSSAP 29)
Control:
Intangible Assets
The enterprise has the power to obtain the future economic benefit flowing from the underlying resources and can also restrict the access of others to those benefits.
(quoted from HKSSAP 29)
1. It is probable that future economic benefit will flow to the enterprise
2. The cost of an asset can be measured reliably
(quoted from HKSSAP 29)
Intangible Assets
Recognition:
Reasons of Exclusion
Non-Assets’ Item
IntangibleAssets
FutureEconomicBenefits?
Controlled?
Non-Monetary?
Non-Physical?
Non-Identifiable?
?
?
Non-identifiable
Not separable from whole business operation
Could not rent, sell, exchange or distribute the specific future economic benefits attributable to the human resources without also disposing of future economic benefits that flow from other assets used in the same revenue earning activity.
Example:
The company could not sell itsbusiness/operations without sellingall or part of its people and human resources.
Non-identifiable
Those remained …
SAFE …... ?
Controlled
by the entity?
Uncontrollable
Controlled
by the entity?
Uncontrollable
Actual ownership of employee?
SUBSTANCE OVER FORM
Public opinion, labour union exert powerful restriction
PCCW unable to control whatever employee did e.g. strike, resign …...
Uncontrollable
Valuation
Subjective Judgement !
Subjective Value ?
True Economic Value ?
Cost ?
Amortization ?
Present Value ?
Market Value ?
Value to Users ?
Value to Business ?
XYZ Night Club
Measurability ……
Valuation
Non-monetary !!!
If value cannot be determined not be recorded
…… Exchangeability
No separate disposal value !
Direct Cost: Included all employee? Different skills, abilities & experiences High turnover & new hire Materiality Appointing external verifiers (social auditors) Potential “reporting risk” cost of upsetting
investors
Cost & Benefits
Cost & Benefits
Indirect Cost Potential loss of investors?
Due to potential “reporting risk”??
Potential to get into legal cases? Potential loss of employees?
By poaching??
Benefits No demand of this info Information overload
The info does not directly affect financial decision-making;
Cost & Benefits
Privacy
If disclosed …... Employees’ names Job title Number of years of experience Education levels Comment by the company Salary Description of the work
Commercial privacy information known by the competitors
Personal privacy at risk in working at that company
Privacy
Human Resources should be
on the Balance Sheet
NOT
It is NOT FEASIBLE
to do so!!!
Conclusion
Given the problem discussed, ‘human resources’ should not be denoted in
‘numerical values’ or figures
in the balance sheet.
Management decision making
Future prospect of the firm
Conclusion To help assess impact of the company’s
people on the future firm’s value Management Profile
(in other parts of annual report e.g. ‘Directors and
Organisation’, ‘Directors’ Biographical Information’, etc.)
Sufficient !
Human Resources should be
on the Balance Sheet
NOT
