The British Accounting Review 36 (2004) 251–268 www.elsevier.com/locate/bar Human capital reporting in a developing nation
Indra Abeysekeraa,*, James Guthrieb a Department of Accounting and Finance, Macquarie University, Sydney, NSW 2109, Australia b Macquarie Graduate School of Management, Sydney, NSW 2109, Australia
Received 2 May 2003; revised 21 September 2003; accepted 4 March 2004

Abstract
In recent years, a trend in management has been the introduction of human capital (HC) management and accounting. As a result of this trend, there has been a demand from external stakeholders for a different sort of information, and many firms have, in an attempt to meet this demand, become more involved in the creation, measurement and reporting of information other than ‘financial’ data. Using the method of content analysis, this paper reports on human capital reporting (HCR) practices taken from a sample of firms in Sri Lanka, a developing nation. The paper aims first to examine the disclosure patterns of HCR observed in the Sri Lankan sample, and second to speculate upon the differences in disclosure patterns between Sri Lanka and developed nations. q 2004 Elsevier Ltd. All rights reserved.
Keywords: Human capital; Human capital reporting; Sri Lanka; Knowledge economy; Annual reports; Content analysis; Intellectual capital; Developing nation

1. Introduction
Traditionally, firms have relied heavily on tangible assets to determine value. More recently, in the emerging ‘knowledge economy’, value can be increasingly seen to reside in intellectual capital (IC) such as knowledge and information—assets that are generally embodied in people. Many conceptual frameworks have been created in order to understand, codify and examine IC. For IC the definition is taken from Petty and Guthrie
(2000, p. 158), that is, IC is the economic value of two categories of intangible assets of a company: (a) organisational (structural) capital; and (b) human capital (HC). Structural capital refers to elements like business processes, software systems, supply chains and HC
* Corresponding author. Address: Dynamic Accounting, P.O. Box 5, Eastwood, NSW 2122, Australia.
Tel.: þ 61-417-405-399.
E-mail address: iabeysek@efs.mq.edu.au (I. Abeysekera).
0890-8389/$ - see front matter q 2004 Elsevier Ltd. All rights reserved. doi:10.1016/j.bar.2004.03.004 252

I. Abeysekera, J. Guthrie / The British Accounting Review 36 (2004) 251–268

refers to staff competencies and the competencies of external stakeholder human resources available to the firm. An early attempt at creating a model to measure and report on IC was developed by Brooking (1996). Subsequent authors have modified and expanded upon
Brooking’s original framework. One such recent framework (Guthrie et al., 2004) describes IC as being made up of the following three components: internal (structural/ organisational) capital; external (relational/customer) capital; and HC. It is increasingly being understood that HC and IC are, in general, invaluable assets in contemporary knowledge-driven economies (Edvinsson and Sullivan, 1996; Graham and Pizzo, 1998;
Backhuijs et al., 1999; Bontis, 2003). For instance, Edvinsson and Sullivan (1996) argue that managing IC is about managing knowledge and leveraging HC. HC is a component of
IC, for a firm’s knowledge is stored within its employees, and organisational assets flowon from the firm’s ability to utilise its employees. HC is vital as it is the component of IC that gets transformed into value through the medium of structural capital (Backhuijs et al.,
1999; Edvinsson and Sullivan, 1996).
This development has important implications for the workforce, indicating that the management of HC will continue to grow in importance. The recognition that employees are valuable assets will mean that different assumptions will have to be made regarding the methods of managing people. A necessary foundation for this change will