Human capital expenditure pre- and post-IFRSs: its value relevance and intellectual capital productivity modelling
Creators: name: Kim, Sang Ho
Publisher: name: RMIT University
Year: 2024

description: There is still on-going controversy over the impacts of IFRS adoption; some support the superiority of IFRSs compared with local GAAPs, but others are sceptical about it. Human resource accounting is also expected to be affected by IFRS adoption. Typically, accounting standards treat investment in human capital as expenses. The capitalisation of expenditure related to human resources has been largely prohibited due to its uncontrollability and measurement difficulty. Moreover, there has formerly been no specific requirement for disclosure of total human capital expenditure (HCE) or the sum of its parts in most countries’ GAAPs including US GAAP. As a result, HCE information has been subsumed in ‘cost of sales’ or ‘administration expenses’ in most cases. This accounting practice has created a serious barrier for human resource accounting and intellectual capital studies due to the limited accessibility of HCE information at the firm level. IFRSs have made a difference to this problem. By imposing a mandatory disclosure classification in the income statement based on the ‘nature of expenses’, IFRSs have opened a new avenue for researchers to access HCE data. Although some researchers anticipated the consequences of this change, no study in the post-IFRS era has so far documented this change. Hence, this study is the first to investigate the impacts of IFRS adoption on the disclosure of HCE. It uses the Australian setting.<br><br>In research question 1, this study identifies the specific changes in disclosure practices with respect to HCE information driven by IFRS adoption in Australia. Whereas around 60% of sampled firms continuously disclosed total HCE both before and after IFRS adoption in 2005, there were 26% of firms that newly began to provide HCE information after the adoption of IFRSs. Research question 2 focuses on the value relevance of newly available HCE amount. Overall, disclosure of total HCE is found to be value relevant, but the statistical significance in these value relevance tests varies between different groups of companies, depending on the extent of their human capital intensity (i.e. dependence of the firm on its labour force), and their type of industry (i.e. low or high-tech, and manufacturing or services). The third research question suggests an application of newly disclosed HCE data to the intellectual capital (IC) research area. By employing a productivity concept, this study documents the usefulness of newly available HCE information in terms of the IC valuation research. The productivity of balance-sheet-reported total assets and tangible assets is found to be insignificantly related to share price. In contrast, the three IC components of productivity (namely, human capital, structural capital, and intellectual capital productivity) are each found to be significantly positively related to share price.<br><br>The availability of standardized and audited data on total HCE in the numerous countries that have adopted IFRSs, enables this study to be replicated and extended into an international study. This can invigorate or re-invigorate emerging research in the fields of human resource accounting and intellectual capital.