BFA605 Semester 2, 2020 Assessment Item – Case Study Part 1 – Discussion Due 5pm Wednesday 12 August You will hear the most firms say: “people are our greatest asset”. However, they are rarely...

Expansion of Commonwealth Bank in Asia
Finance: Financial Accounting
Should the human capital is to be included in the financials like balance sheet?
INTRODUCTION:
The financial statement demonstrates an actual condition associated with a /firm/family etc. at an instant of time. Let us take a very fine example from the family prospective only why would parents raise their children if they only consider them as a liability, if they consider them only a expense undermining their potential to generate the future cash flows based upon the investments done on their health, education & personal well-being. Similarly, taking the case of a dentist who has made an important investment from himself in his education in the form of both time and money, as per the conventional criteria of recording the balance sheet goes will assigns this investment a value of worth zero. Similarly, taking the case of a physician’s income statement it will clearly show his/her ability to earn a good handsome salary. Any financial institution would consider likely to lend him money based on his potential for future earnings. We will try & argue today putting strong and evident reasoning and will try to come up with the best possible results of whether to include human capital in Balance Sheet or not.
SPEAKING FOR THE SUPPORT OF THE MOTION:
There has been a significant drift towards the integrated reporting practices which may switch the psychology of companies to think towards considering human capital can be intervened as a part of Balance sheet. Let’s take an example suppose if Lionel Messi leaves Barcelona will there value be the same? Jeff Bezos leaves Amazon? Business leaders often come &say that “people are a business' greatest assets”. In English HRM Manual they follow: “the employees of any organization, and their knowledge, skills and experience are considered as dominantly one of the organization’s assets” so they could be taken as a piece of tangible assets, knowledge & experience can be analogous as working capital or simply said as asset. The IFRS in its edition of International Accounting Standard IAS 38 speaks about intangible assets.
‘A resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity’.
The Dutch Central Statistics Institute focuses on human capital and keeps their viewpoint in concu
ence with the OECD definition by considering them as an investment and derives GDP from them. They came up with the theory called replacement value:
 “Replacement value which is defined in terms of as the total cost incu
ed for a business to regain or to replace the staff with the exact same value. This fundamentally includes their recruitment and cost incu
ed in their appointment, training & development costs and other cost like costs for their dismissal (payroll salary, legal procedures).”
REALTIME PRACTICAL EXAMPLES:
Infosys, the Indian big giant for IT services & business consulting firm...