It is becoming harder and harder to find talent with key skills, while redundancies and severance expenses are mounting. Investment in internal training can help tackle these issues, but companies often do not prioritise such initiatives owing to cost, time, the unclear return on investment, and the risk that employees will leave.
United States Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) do not allow businesses to estimate the value that human capital investments have on the company or recoup any expected returns. If training can only be listed as a cost, businesses wishing to appease shareholders lack incentives to invest in the long term.
Alternative reporting frameworks, which show the connection between intangible value investments – such as human capital – and profit, are gaining ground with companies and stakeholders. Yet these do not yet sway corporate decisions.
Alternative accounting and investment models can help change how expenses for human capital investments are capitalised over time. Three models are discussed in our report Bridging the skills gap: Rethinking workforce investment to inform and inspire change, including considerations around implementation, with the recommendation that the Employability Account represents the greatest potential benefit. However, making a change to official accounting standards – which extends to rethinking related tax incentives – is a laborious affair, and is best driven by political and business action.