Invaluable assets are assets that the value cannot be ascertained. Such assets are employees and consultants working for an entity. The value of the entity can only be fully ascertained when these assets are given a nominal value on the financial statement (or balance sheet as previously called). Most employees/consultants have a redundancy value, which is an agreed nominal value. Currently this figure is not included in the statement of financial position, which makes the current state of the statement of financial position incorrect and not reflecting the true position of the entity.
PROPOSAL:
I PROPOSE THAT EMPLOYEES AND CONSULTANTS SHOULD BE ADDED AT AN AGREED NOMINAL VALUE ON THE STATEMENT OF FINANCIAL POSITION FOR ENTITIES AS INVALUABLE ASSETS UNDER NON-CURRENT ASSETS. THE CURRENT REDUNDANCY COST OF EACH EMPLOYEE/CONSULTANT INCLUDED AS A LIABILITY BUT PAID OUT OF THE INVALUABLE ASSET AMOUNT. SO THEREFORE THE DOUBLE ENTRY FOR INVALUABLE ASSETS WILL BE REDUNDANCY PAYMENTS. FURTHERMORE, IAS 19 AMENDED TO REFLECT THIS CHANGE.
The share price of an entity is currently the only parameter to judge the value of the entity and this proposal (if accepted by the worldwide accounting bodies) will change the way employees and entities are been valued. This will not only change the valuation process but will also change the way employees and consultants are treated. This is because their invaluable value will be more appreciated if the entity or employer wants to keep their current value. As a reduction or increase in the value of the invaluable assets, will be permanently visible on the statement of financial position for everyone to see. This gives the true picture of the entity and in the event of a sale or liquidation the value of the entity can be easily ascertained.
The nominal value to be assigned on the statement of financial position will be based on a specific parameter agreed upon by the accounting bodies like redundancy payments. These parameters are listed below;
- Qualification of Employees.
- Experience of the Employees.
- Number of skilled and unskilled Employees.
- Industry parameters.
- Industry achievement of Employees.
- Current redundancy value.
- Employee Salary.
- Location.
- Number of years with the entity.
This value is not redeemable on the sale or disposal of the company, as it will be transferred to the new owner. Whereas in the case of the entity being closed down/ liquidated or employee leaves the entity the value will be paid to the employee/ consultant as redundancy payment/compensation for their invaluable value to the entity. Thus, knowledge and experience gained over the years will be carried to his or her new Employment.