Infosys Technologies Ltd: Accounting for Human Capital (A2)

Authors: Cohen, Jacob; Hawkins, David F.; Raver, Jenifer
Source: INSEAD
Year: 2007
Company Name: Infosys Technologies
Number of pages: 18

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Abstract:

This is the second of a two-case series (106-040-1 and 107-041-1). The case highlights the issue of human capital accounting. Corporations regularly argue that employees are their most valuable asset. However, when we look through the assets on the balance sheet, no amount is reported. Infosys Technologies believes that financial accounting does not do justice to corporations that heavily invest in people and as such started to provide supplemental financial disclosure that captures their best estimates of the value of their human capital. The case explores the methods for valuing this human capital asset and highlights arguments for and against the practice of capitalising it on companies' balance sheets. The teaching objectives are to: (1) discuss the arguments that financial accounting does not capture the most relevant assets in a service economy such as brand and human capital; and (2) highlight Infosys Technologies' decision to start providing its financial stakeholders information about the asset of human capital and an attempt at its valuation using various methods that could be analysed in class.