THE SIGNIFICANCE OF HUMAN RESOURCE ACCOUNTING

One of the criticisms of human resource accounting in the literature is that it has no impact on the financial statement numbers. Human resource accounting numbers, it was felt, would be insignificant. Empirical studies by Elias, Hendricks, Schwan, and others emphasized the impacts human resource accounting had on decision making. This behavioral research contended that human resource accounting does have an impact on decision making. This study utilizes a sensitivity analysis on the human resource variables. This was done to determine the magnitude necessary for human resource adjusted net income to deviate significantly from conventional net income. Through this procedure, the human asset balance was also investigated to determine if the ultimate balance would differ from the presently assumed balance of zero. In so doing, if the amount of human resource variables necessary for significance is adequately small (in comparison to net income), the general conclusion that human resource accounting impacts the income statement and balance sheet can be made. The results were encouraging. With the exception of the short-term scenario with changing variables and net income, the magnitude of the human resource variables were small enough (generally less than ten percent of net income) for human resource accounting to be considered significant at least at the five percent level of confidence. It can be assumed, therefore, that human resource accounting does impact the financial statements, giving credence to the previous behavioral studies and the need for human resource accounting to be incorporated into the financial statements