VALUE OF HUMAN CAPITAL Essay Example | Topics and Well Written Essays - 750 words

VALUE OF HUMAN CAPITAL - Essay Example The accountants continue to ignore the value of human capital and stick to the age-old theory of ratio analysis and interpretation of financial statements. Ironically, these too are fraught with errors and can be easily manipulated to deceive the stakeholders. The happenings at Enron are well known when all they were concerned was with maximizing shareholder value and hence they hid debts and overemphasized profits (Gardner, 2006). Dubious accounts were passed and the account that was presented to the public was fraught with discrepancies. At WorldCom the company’s profits were artificially boosted and costs were considered as capital investment, on which they even claimed depreciation (Bhattacharya, 2004). All these helped the company to sustain its apparently smooth and rapid earning growth. The stock prices were artificially escalated and the company loan was used to buy personal properties. Several such instances can be found round the world and such manipulation is possible only with the connivance of the auditors or the accountants. Human capital has become important as it is the source of innovation and strategy. Human capital is the combination of genetic inheritance, education, experience and attitude towards life and business (Bontis and Fitz-enz, 2002). Tacit knowledge is acquired by interacting with others and is connected to life’s experiences. This tacit knowledge has to be converted and retained within the organization so that they can compete in the knowledge-based economy (Marwick, 2001). Human capital adds value, is not substitutable and leads to sustained competitive advantage. At Microsoft, human capital is the greatest asset, is demonstrated by the fact that they form teams to accelerate design and test new software modules. They invest in people and technology and they have learnt how to share knowledge rapidly through out the organization (Edmondson, 2003). They