2. Financial Reporting Theory Presented by Casey Lau Gloria Ho Hayley Cheng Hon Pok Man

3. Debate I Human Resources should be on the Balance Sheet NOT

4. Highlight Definition of Human Resources Definition & Classification of Intangible Assets Reasons of Exclusion Conclusion

5. Definition of Human Resources

6. Human Resources Skills Technical know-how Experience e.g. Communication e.g. Programming Expertise e.g. Surveying e.g. Merchandising

7. Definition & Recognition of Intangible Assets

8. Intangible Assets Definition: A resource: 1. Controlled by an enterprise as a result of the past event or transaction 2. From which future economic benefits are expected to flow to the enterprise 3. Identifiable, non-monetary & non-physical (quoted from HKSSAP 29)

9. Control: Intangible Assets The enterprise has the power to obtain the future economic benefit flowing from the underlying resources and can also restrict the access of others to those benefits. (quoted from HKSSAP 29)

10. 1. It is probable that future economic benefit will flow to the enterprise 2. The cost of an asset can be measured reliably (quoted from HKSSAP 29) Intangible Assets Recognition:

11. Reasons of Exclusion

12. Non-Assets Item Intangible Assets Future Economic Benefits? Controlled? Non- Monetary? Non- Physical? Non- Identifiable? ? ?

13. Non-identifiable Not separable from whole business operation Could not rent, sell, exchange or distribute the specific future economic benefits attributable to the human resources without also disposing of future economic benefits that flow from other assets used in the same revenue earning activity.

14. Example: The company could not sell its business/operations without selling all or part of its people and human resources. Non-identifiable

15. Those remained … SAFE …... ? Controlled by the entity? Uncontrollable

16. Controlled by the entity? Uncontrollable

17. Actual ownership of employee? SUBSTANCE OVER FORM Public opinion, labour union exert powerful restriction PCCW unable to control whatever employee did e.g. strike, resign …... Uncontrollable

18. Valuation Subjective Judgement !

19. Subjective Value ? True Economic Value ? Cost ? Amortization ? Present Value ? Market Value ? Value to Users ? Value to Business ? XYZ Night Club

20. Measurability …… Valuation Non-monetary !!! If value cannot be determined not be recorded …… Exchangeability No separate disposal value !

21. Direct Cost: Included all employee? Different skills, abilities & experiences High turnover & new hire Materiality Appointing external verifiers (social auditors) Potential reporting risk cost of upsetting investors Cost & Benefits

22. Indirect Cost Potential loss of investors? Due to potential reporting risk?? Potential to get into legal cases? Potential loss of employees? By poaching??

23. Benefits No demand of this info Information overload The info does not directly affect financial decision-making; Cost & Benefits

24. Privacy If disclosed …... Employees names Job title Number of years of experience Education levels Comment by the company Salary Description of the work

25. Commercial privacy information known by the competitors Personal privacy at risk in working at that company Privacy

26. Human Resources should be on the Balance Sheet NOT It is NOT FEASIBLE to do so!!!

27. Conclusion Given the problem discussed, human resources should not be denoted in numerical values or figures in the balance sheet.

28. Management decision making Future prospect of the firm Conclusion To help assess impact of the companys people on the future firms value Management Profile (in other parts of annual report e.g. Directors and Organisation, Directors Biographical Information, etc.) Sufficient !

29. Human Resources should be on the Balance Sheet NOT