Human capital reports provides qualitative information on the employees, HR practices, trends in the company etc which can help the business grow. It covers aspects like organization structure, employee data, expertise & skills of the employees, salaries, policies etc. Human Capital Reporting is reporting of valuation of human resource inside company, which usually consists intangible values.
People inside organizations are becoming source of competitive advantage. As key talent become strategic advantage, human capital reporting is the way forward. Many companies have attempted to put valuation of human capital on their balance sheet. There is no framework to perform valuation of human capital. In such case, companies attempted their own methods for reporting in financial statements. This subjectivity creates lot of issues in the absence of no prescribe accounting standards.
Issues with Human Capital Reporting
1. No mechanism to verify correct valuation in terms of accounting
We know that all the financial reports published by the companies are audited. Financial Audit ensures correct accounting practices are followed and brings out any fraudulent activities in accounting. For HCR, there is no such audit. Hence HCR not subjected to verification.
2. Companies which initiated HCR as the good practice found themselves in financial trouble
Companies who reported their human capital could not maintain their own financial health. Because of this, HCR could not gain required attention to be followed as standard practice. HCR lost its value with sceptics of being used for accounting frauds. Human capital reporting needs to evolve through these issue to be best practice which would be aimed at highlighting the greater goal of potential of human resource the company has.