Accounting Project Topics

Human Resources Accounting and Financial Performance of Banks in Nigeria

Human Resources Accounting and Financial Performance of Banks in Nigeria

Human Resources Accounting and Financial Performance of Banks in Nigeria

Chapter One


The main objective of the study is to examine and investigate the impact of human resources accounting on the performance of banks in Nigeria. Other specific objectives are to:

  1. To determine the relationship between human resources accounting and the financial performance of banks in Nigeria.
  2. To determine the significant influence of human resources accounting in the banking industry.
  3. To proffer solutions to the problems affecting the system of human resources accounting and the financial performance of banks in Nigeria.
  4. To identify problems affecting the system of human resources accounting and financial performance of banks in Nigeria.
  5. To determine the effective system of human resources accounting for the financial performance of banks in Nigeria.




Human Resource Accounting (HRA)

Flamholtz (1971) defined human resource accounting as the measurement and reporting of the cost and value of people in organizational resources. In 1973, the American Accounting Association Committee on Human Resource Accounting defined human resource accounting as the process of identifying and measuring data about human resources and communicating this information to interested parties. HRA does not only involve measurement of all the costs/ investments associated with the recruitment, placement, training and development of employees, but also the quantification of the economic value of people in an organization.

Human Resource Accounting and Return on Asset

The performance of any firm not only plays the role to increase the market value of that specific firm but also leads towards the growth of the whole industry which ultimately leads towards the overall prosperity of the economy (Ahmed, Zeng, Sinha, Flavell & Massoumi 2011).

Return on assets (ROA) is an indicator of how profitable a company is relative to its to total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings.

Human Resource Accounting and Return on Equity

Human Resources (HR) are the energies, skills, talents and knowledge of people which are, or which potentially can be applied to the production of goods or rendering useful services. HRA is the process of identifying and measuring data about human resources and communicating this information to interested parties. Human resource accounting is not a new issue in economics (Micah, Ofurum & Ihendinihu 2012).

Return on equity tells what percentage of profit that company makes for every monetary unity of equity invested in the company. ROE does not specify how much cash will be returned to the shareholders, since that depends on company’s decision about dividend payments and on how much the stock price appreciates. However, it’s a good indication of generating a return that is worth whatever risk the investment may entail (Berman, Knight & Case 2013). ROE is usually calculated by dividing net profit by average shareholders equity.

Human Resource Accounting and Market-to-Book Value

Human Resource Accounting is the process of identifying and measuring data about human resources and communicating this information to interested parties.” In simple terms, it is an extension of the accounting principles of matching costs and revenues and of organizing data to communicate relevant information in financial terms.

Market book value or P/B ratio is a financial ratio used to compare a company’s current market price to its book value. It is also sometimes known as a Market-to-Book ratio. The calculation can be performed in two ways, but the result should be the same each way. In the first way, the company’s market capitalization can be divided by the company’s total book value from its balance sheet.

Financial Performance

Financial performance refers to a measure of the result of a firms policies and operations in monetary terms. These results are reflected in the firms return on investment (ROI), return on Asset (ROA), Shareholders value, accounting profitability and its components. Return on Asset is a measure of efficiency, it measures how effectively and efficiently a firm utilizes the resources (assets) at its disposal, in revenue generation.

Return on Asset (ROA)

The reason for choosing this variable is that the return on asset measure the effectiveness of the economic unity in using its assets to generate profit especially manufacturing, the higher this ratio, the better the economic unity of them as it indicates the management efficiency in using its assets to generate profit (Mahdi & Kumars, 2009) and also it represents the ratio of how much a has earned on its assets base, and the return on assets (ROA). Return on Asset ratio is= Net profit/Total Assets

Return of Equity (ROE)

According to Ward and Price (2006), Return on equity reveals how much profit a company earned in comparison to the total amount of share holder equity found on statement of financial position. A business that has a high return on equity is more likely to be one that is capable of generating cash internally.


The theoretical framework for this research is anchored on the following theories which have been propounded by some scholars such as Human Capital Theory, Transaction Cost Theory, and Resource-Based Theory.

Human Capital Theory

Human capital theory was initially well developed by Becker (1964) and it  has  grown in importance worldwide because  it focuses  on education  and  training  as  a  source of capital. It is now  widely  acknowledged  that one  of the  key  explanations  for  the rapid development of Asian countries in  the  1970s and 80s is high investment  in human capital (Robert, 1991; Psacharopoulos & Woodhall, 1997). Human capital theory changes the equation that training and development are ‘costs which the organization should try to minimize’ into training and development as ‘returnable investments’ which should be part of the organizational investment capital. The concept of human capital recognizes that not all labour is equal and that the quality of employees can be improved by investing in them; the education, experience and abilities of employees have economic value for employer’s and for the economy as a whole. Human  capital represent  the value  of the employees in an organization which are provided through the application of expertise, skills and know-how, thus human resources management proved that educations is an investment which enhance staff productivity and ensure firm performance. This theory explained that the competent, knowledge, abilities, capabilities and skills of a firm workforce contribute greatly to the firm performance and competitive advantage. Therefore, human resource training and development  decisions and evaluations have  to  be done based on clearly developed capital investment models. Human capital is the capabilities of people, staff or employees in an organization, firm can only be productive if there are enough human resources.





In this chapter, we would describe how the study was carried out.

Research design

It is a term used to describe a number of decisions which need to be taken regarding the collection of data before they are collected. (Nwana, 1981). It provides guidelines which direct the researcher towards solving the research problem and may vary depending on the nature of the problem being studied. According to Okaja ( 2003, p. 2),” research design means the structuring of investigation aimed at identifying variables and their relationship, it is used for the purpose of obtaining data to enable the investigator test hypothesis or answer research question by providing procedural outline for conducting research”. It is therefore, an outline or scheme that serves as a useful guide to the researcher in his efforts to generate data for his study.

This cross-sectional study used mixed methods (both quantitative and qualitative). It is used to obtain the peoples opinion through questionnaire.

Study Area

The study was carried out in Ogun State. The state was created in 1976 with the capital in Abeokuta. Ogun State is located in the South West of Nigeria with a population of Three million seven hundred and twenty eight thousand and ninety eight citizens (3,728,098), (National bureau of statistics 2006 national population census). This population is expected to have grown to (4,218,001) as at 2011, given the annual growth rate of twenty five percent (25%). The state has 20 Local Government Areas and is predominantly populated by the Yorubas with the Eguns in the minority. The state is broadly classified along four  ethnic/ dialect nationalities namely: The Egbas, Ijebus, Remos and Yewas.

Sources of Data

The data for this study were generated from two main sources; Primary sources and secondary sources. The primary sources include questionnaire, interviews and observation. The secondary sources include journals, bulletins, textbooks and the internet.

Population of the study

A study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitute of individuals or elements that are homogeneous in description (Prince Udoyen: 2019). In this study  The total population for this study consists of the forty eight (48) Micro Finance banks that are spread across the state. Ogun state one of the leading commercial centres in Nigeria was chosen for convenience because the researchers reside in Sango Ota, Ogun State. In order to achieve the research objective and ensures the collection of representative data, the state was divided into four, namely Egba, Ijebu Remo and Yewa Divisions..



The study employed both parametric and non-parametric technique. The parametric statistics enable the researcher to generalize the outcome of the research through the sample parameter. The Non-Parametric method include simple percentages, ratios and averages while the parametric statistic used the simple regression analysis for the purpose of generalizing the result obtained from the sixteen (16) Bankss used for the study.




The study has shown that firms should ensure proper accounting for investment in human assets while such expenditures should be capitalized rather than written off to profit and loss accounts. Human capital value development, contributes significantly to the overall performance and survival of Banks in Ogun State. The failure of professional accountants to treat human resources as assets just like physical and financial assets led to the emergence of Human Resources Accounting (HRA). (Eddie and Peter, 2002). Human Resources Accounting advocates the measurement and reporting of the cost and value of people and their capitalization in organization resources rather than writing them off to profit and loss account. The value of human resource component of all organizations are treated in the conventional financial statement by writing off expenditures on human capital development to the profit and loss account rather than being capitalized and shown in the balance sheet.


  • The study revealed that majority of employees, directors and shareholders 219(68.4%) have tertiary education and majority (51.2%) aged between 26 and 35 years. The majority 122 (38.13%) have annual salary of N200, 000 – N300, 000. Majority – 69 (66.83%) of the Banks workers and directors have attended one form of training or the other in recent time.
  • The study revealed that majority 315 (98.5%) confirmed human resource team is vital to the overall performance of Banks. It was also revealed 314 (98.4%) that human resources expenditures should be capitalized and treated as assets. 313 (98.4%) of the respondents revealed that the management of Banks is the major determinants of Banks performance in Ogun State. The Banks expended an average of N613, 636.28 per annum, per staff as salaries and wages. The average staff strength was eighteen.

(iii)While the Banks reported on their staff training activities, they have failed to reveal the amount expended on staff training and development.

(iv)The study also shows that human capital development has positive and significant impact on overall performance of Banks in Ogun State and answers the research question in section one of the study. Specifically, employees‟ compensation in terms of salaries, wages and staff training and development has positive and significant impact on the survival and overall performance of Banks in Ogun State.


(i)The accounting profession all over the globe should create a framework in the balance sheet  to recognize treatment of human resources and appropriate value to be attached based on the inherent qualities of human capital.

(ii)Recognizing human capital in financial statement would show accuracy in profit declaration.

(iii)The study recommends that firms can significantly improve on their performance by investing in their employees and seeing the payment of salaries and training cost as investment expenditures for the development of human asset towards enhancing the productivity of human asset. Human capital expenditures should be perceived as investment costs that can be capitalized and included in the balance sheet rather mere operational cost  to be written off to the profit and loss account.

This study recommends for domestication of Human Capital Accounting practice in Nigeria through legislation and ensuring complete participation of all stakeholders as this will help in strengthening investment and related decision, also international accounting standard (38) on accounting for intangible assets should be expanded to cover human resource or a new standard be develop to cater for Human resource practice in Micro finance banks and by extension enterprises in Nigeria.


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