Employees are not assets

iStock00056373166_Small
Share this content

Secretary of State for Business, Innovation and Skills Sajid Javid seems to have gotten the wrong end of the stick about balance sheets.

In the foreword of a new consultation document on the apprenticeship levy, Javid lamented the fact that on a balance sheet “each and every one of the company’s employees are listed as ‘liabilities’” while “the ‘assets’ column includes everything from money in the bank to stock in the warehouse”.

“It’s correct in accounting terms, but as a wider attitude it’s entirely wrong,” wrote Javid. “Far from being a liability, the greatest asset any business has is its workers. And like any asset, your people need to be invested in.”

But in accounting terms, Javid is wrong: Employees aren’t a liability or an asset on a balance sheet. “It strikes me as an odd statement,” said Steven Priscott, financial director of Sift and a CIMA member. “They have nothing to do with assets or liabilities on a balance sheet. On statutory accounts, you have to give the number of employees as an information disclosure, that’s it.”

Peter Hollis of Hollis & Co in Sheffield was less diplomatic, “It’s misleading and it’s untrue.”

Taxonomy aside, Javid’s sentiment is also misplaced. According to Rebecca Cave, employees not being seen as an asset on a balance sheet aren’t due to a “wider attitude” within business. Rather it’s because employees "are not owned by the business like cars or buildings,” said Cave.

Referring to employees as assets is a popular one within business. “Our employees are our greatest asset” is commonly doled out by many business people – but they’re not an asset at all.

As Douglas C Wood wrote in Quality Digest, “Assets and people are quite different on several levels. First of all, assets don’t walk out if they are dissatisfied… Assets don’t create; they modify or shape… assets don’t create something that was not there before. Creation is the territory of people.”

About Francois Badenhorst

Francois

I'm AccountingWEB's business editor. Feel free to get in touch with comments, tips, scoops or irreverent banter. 

Replies

Please login or register to join the discussion.

avatar
By ayjay3
26th Aug 2015 20:40

words

'Gotten' is not an English word.  Please do not let us use such a horrible American word!  At least in this context then.

Thanks (0)
avatar
26th Aug 2015 20:19

Undertakers...

...treat people in accounting terms - I see there's an accounting module for the profession where a feature is:-

"Work in Progress" listing

Thanks (0)
avatar
By mumpin
26th Aug 2015 20:30

What about...

...ill gotten gains?

Frequently used in my neck of the woods, by me, to particular clients.

Thanks (1)
avatar
By ayjay3
26th Aug 2015 20:41

true!

Thanks (0)
26th Aug 2015 22:50

Amen.

mumpin wrote:

...ill gotten gains?

Frequently used in my neck of the woods, by me, to particular clients.

Thanks, mumpin!

Now please chaps, stay on track. I've noted your collective dislike of 'gotten' and I'll refrain from using it. Now please stay on topic.

Thanks (1)
avatar
27th Aug 2015 08:23

Employees are liabilities
Of course they are liabilities.even if all holiday pay etc is accused and shown somewhere in creditors,what about any unfunded amounts for the pension scheme.also,if co stopped trading the next day,how muchwould be due for retrenchment etc.
Whilst these costs may not. Need. To be taken into account for a going concern they certainly will crystallise !hows that not a liability!

Thanks (0)
avatar
27th Aug 2015 15:55

Subject field is required

brownbuchanan wrote:
Of course they are liabilities.even if all holiday pay etc is accused and shown somewhere in creditors,what about any unfunded amounts for the pension scheme.also,if co stopped trading the next day,how muchwould be due for retrenchment etc. Whilst these costs may not. Need. To be taken into account for a going concern they certainly will crystallise !hows that not a liability!

It is not a liability because the normal approach for accounts is indeed to prepare them on a going concern basis.

How about you prepare a set of non-going concern accounts and hand them in to your prospering client for signing off.  No assets to speak of, loads of liabilities.  See what they say.  

 

 

Thanks (0)
By DJKL
27th Aug 2015 11:20

"To see a very graphic

"To see a very graphic example of one of the biggest issues facing British business, you don’t have to delve into weighty economic textbooks or digest the opinion pages of the financial press. It’s right there on the balance sheet of any employer.

While the “assets” column includes everything from money in the bank to stock in the warehouse, each and every one of the company’s employees are listed as “liabilities”. It’s correct in accounting terms, but as a wider attitude it’s entirely wrong. Far from being a liability, the greatest asset any business has is its workers. And like any asset, your people need to be invested in. They need to be nurtured and trained. Yet CEOs who wouldn’t hesitate to boost competitiveness and efficiency by investing in new equipment have often been far too reluctant to invest in skills"

All the faff about employees being an asset is beside the point, I doubt anyone has much of a problem with that as a figure of speech, we can all see what he was trying to say, he was just not being very accurate in how he said it. (What are these  called in politics, factual inexactitudes)

However the phrases I have placed in bold are nonsense and this is from the Business Secretary, pardon me for being worried but it is not impossible (well maybe it is now) that this could be a future Chancellor.

I presume the deal is become Business Secretary they teach you sub O Level standard  Business Studies ( I think it has a smidgen of accountancy in same) if Chancellor  presume they cover a few supply and demand curve ideas and send you bravely out to manage the economy .

Is it any wonder  we get the tax legislation we do from them when the calibre of the individuals, and their officials, is so clearly demonstrated. And re the officials, who are there to stop their Ministers looking like idiots, I am afraid, "Quis cusodiet ipsos custodes" appears apt..  

And just to be clear I think we should be more concerned about the fact that this is possibly not a solitary adverse negative within out testing, I do not think the Minister is a special case here, more worrying he is probably typical; I have a strong suspicion that the sampling could be extended to 100% of the Westminster population and we might have to conclude there is no internal control over the calibre of our elected representatives, they are all merely Sir Joseph Porter, with apologies to G & S,

I always voted at my party's call, 
And I never thought of thinking for myself at all. 

I thought so little, they rewarded me

By making me the Minister of xyz

 

 

Thanks (0)
avatar
By abaco
28th Aug 2015 09:35

Whenever someone tells me that they intend to invest in more people, I make a mental note that they will soon be going out of business.

Thanks (0)

Pages

Related content