People: Asset or Expense

Introduction

A common claim or statement made by many organisations is, “ Our greatest and most valuable asset is our people. “ Certainly organisations need people and their efforts in order to operate. This statement however could fall under the category of marketing or public relations. When viewed from a purely financial reporting or accounting perspective however, the statement would be considered as incorrect or misleading. When organisations produce their financial reports, people are not generally recognised as an asset, but rather as an expense. In order to understand this aspect of reporting people as an expense in financial reporting, defining the purpose and usage of the Statement of Financial Position needs to be understood. It will also be necessary to define what an asset and an expense is in terms of financial reporting. A major reason for defining a person as an expense rather than an asset is as a result of the difficulties involved in the measurability or estim...