Employees are assets but not in the balance sheet!

Isn’t it one of the most cliched statements that you’ve come across? “Employees are our biggest assets…” booms the speaker.  And the bombastic claim is broadcast from every corner of the business world. From glitzy AGM podiums to polished hickory boardrooms, from canteen town halls to annual incentive gigs. OK. So if they really are, then why aren’t they considered worthy of the balance sheet damn it? Under some “asset” class? Any asset class? Some teeny-weeny special category? After all there are many. Current, tangible, intangible…

Personally I find this statement icky and hypocritical. We term employees as “assets” profess to “invest” in them, come up with neologisms like human “capital” and routinely post pontificating quotes on social media that “rich dividends” will accrue from this capital if we get it right. Yet we never question why employees never make it to the balance sheet. We meekly agree to the finance departments “technical foul” argument without even questioning the logic. And what makes it even more irritatingly supercilious is the ease with which the “manpower account head” slithers into the P&L account. And that too on the expense side! Why?!

I thought of putting to accounting test this “employee an asset” claim in my own small company. I inquired of my CA if I could technically manifest this in our final accounts by capitalizing (at least in part) the manpower cost. I really wanted to. Just to test the principle if nothing else. Even accounting wise it seemed to make sense from a depreciation & interest point of view. Ludicrous looks aside, I was brusquely told that the gods of accounting had ruled on the matter & I’d better tow the line & not try anything funny lest I dared to invite the wrath of the IT authorities (On a lighter note; is the CA institute Chitragupt and IT department Yamraj in matters like these? Oops. Politically incorrect! Fingers crossed for next assessment year J)

But getting back. I asked a few of my CA friends for a logical explanation. I got replies but none the most convincing. Samplers:

·      “We are busy. The filing deadline just got over. Will revert”:  Okay I am smart. Dismissiveness I can sense

·      “That's the institute guideline. Period”: And thou shalt bow to thee

·      “It's a recurring expense”: So? Same applies to software licenses. And they are intangible assets

·      “Advertising gives long term results” (when I asked about advertising being capitalized partly): And employees? What do they give in the long-term?

·      “You require an invoice” (this was funny): So why not treat them as consultants and ask them to raise a service tax invoice? Even rids you of payroll hassles

·      “But assets depreciate over time”: Well so do humans. We all do 

·      “But you own assets & you can sell them. You don't own employees and you surely can't sell them” (this I found held at least some water): But then how do leagues clubs treat sportsmen? May be there is some best practice there?

But the point is not about technical hairsplitting. My problem is with the hypocrisy of it all. I don't have a problem if the statement was “Employees are our most important expense”!

And finally, the best was from a close accountant friend. “Don't you have anything better to do than to bug me? Let me buy you a drink”

But come on HR guys. Time for your fraternity to take up the cudgels on behalf of the employees and at least wave it at the finance chaps. Even if only for the principle of it all…