HUMAN RESOURCES ACCOUNTING: AN EMPIRICAL STUDY OF INDUSTRIAL TRAINING FUND

CHAPTER ONE: INTRODUCTION

1.1 Background of Study

Human Resources Accounting (HRA) represents one of the most significant yet underutilised innovations in accounting thought and practice, emerging from the recognition that people are the most valuable assets of any organisation. Traditional accounting systems, developed during the industrial era when physical capital was the primary source of value creation, treat expenditures on human resources as current period expenses rather than as capital investments. This treatment systematically understates the value of organisations that depend heavily on the knowledge, skills, experience, and motivation of their workforce. Human Resources Accounting seeks to remedy this deficiency by identifying, measuring, and reporting information about an organisation’s human resources, enabling stakeholders to understand the value of human capital and how it changes over time. The concept, first articulated by Rensis Likert in the 1960s and developed by accounting scholars including Eric Flamholtz and William Pyle, has profound implications for management decision-making, performance evaluation, and external financial reporting (Likert, 1967; Flamholtz, 1974, 1985; American Accounting Association, 1973).

The historical development of Human Resources Accounting can be traced to the broader movement toward recognising intangible assets in financial reporting. The industrial economy’s focus on tangible assets (property, plant, equipment, inventory) gradually gave way to a service and knowledge economy where intellectual capital, brand equity, customer relationships, and human capital became primary value drivers. Despite this shift, accounting standards have been slow to adapt, with most human resource expenditures continuing to be treated as expenses rather than assets. The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have resisted recognising human resources as assets on the grounds that organisations cannot “own” their employees, that future benefits are uncertain, and that reliable measurement of human capital value is problematic. However, a substantial body of academic research has demonstrated that human resource expenditures have characteristics of assets: they are incurred with the expectation of future benefits, they provide services over multiple periods, and they contribute to the organisation’s ability to generate future cash flows (Becker, 1964; Flamholtz, 1999; Lev, 2001).

Human Resources Accounting encompasses several distinct approaches to valuing human resources, each with its own theoretical assumptions, measurement techniques, and practical applications. The historical cost approach capitalises expenditures on recruitment, selection, training, and development, amortising these costs over the expected service life of the employee. This approach is most consistent with traditional accounting principles but fails to capture the current value of the human resource. The replacement cost approach measures the cost that would be incurred to replace the organisation’s existing human resources, including recruitment, selection, training, and opportunity costs during the learning period. The opportunity cost approach measures the value of employees in their best alternative use within the organisation. The economic value approach discounts expected future earnings or contributions to present value. The stochastic rewards valuation model, developed by Flamholtz (1971, 1974), estimates the expected realisable value of an individual’s future services, incorporating probabilities of employee turnover and different career paths (Flamholtz, 1971, 1974; Caplan & Landekich, 1974; Sackmann, Flamholtz, & Bullen, 1989).

The normative case for Human Resources Accounting rests on several compelling arguments that have been advanced in the accounting literature over the past five decades. First, traditional accounting misrepresents organisational performance by treating investments in human capital as expenses, thereby reducing reported earnings in periods when such investments are made and inflating earnings in later periods when the benefits are realised without corresponding expenses. This treatment creates disincentives for management to invest in training and development, as such investments reduce short-term profitability even when they enhance long-term organisational value. Second, Human Resources Accounting provides critical information for management decision-making, enabling managers to evaluate the return on investment in recruitment, training, and development programmes, to identify high-potential employees for retention and succession planning, and to make informed decisions about outsourcing, automation, and downsizing. Third, HRA information can enhance external financial reporting by providing stakeholders (investors, creditors, analysts) with a more complete picture of organisational value, explaining differences between book value and market value that are particularly pronounced in knowledge-intensive organisations (Flamholtz, 1974, 1999; Johanson, 2003; Roslender & Fincham, 2004).

The practical implementation of Human Resources Accounting has been limited despite decades of academic advocacy, with several barriers identified in the literature. The measurement problem remains the most significant obstacle: How can the value of a human being be reliably measured? While various valuation models have been proposed, none has achieved widespread acceptance. The ownership problem is also fundamental: Organisations cannot own employees in the same way they own physical assets; employees can leave at any time, taking their knowledge and skills with them. The uncertainty problem concerns the difficulty of predicting future benefits from human resource investments, which depend on multiple factors including employee motivation, organisational culture, and external labour market conditions. The ethical problem arises from concerns that valuing human beings as assets may reduce them to commodities, treating people as capital rather than as stakeholders with intrinsic worth. Finally, the cost-benefit problem concerns whether the benefits of HRA implementation (improved decision-making, enhanced external reporting) outweigh the costs of measuring, tracking, and reporting human resource information (Flamholtz, 1999; Grojer & Johanson, 1998; Roslender, 1997; Likert & Pyle, 1971).

Despite these barriers, Human Resources Accounting has found application in several specific contexts where the benefits of HRA information are particularly compelling. The sports industry uses HRA concepts to value player contracts, with professional sports teams capitalising transfer fees and amortising player contract values. The information technology industry, where employee knowledge and skills are primary value drivers, has shown interest in HRA, with some companies reporting human capital metrics in their annual reports. Public sector organisations, including government agencies and training institutions, have explored HRA as a tool for evaluating the effectiveness of training and development programmes. The Industrial Training Fund (ITF) in Nigeria represents an organisation where Human Resources Accounting may have particular relevance, given its mission to promote and develop skilled manpower through training and development programmes (Flamholtz, 1999; Morrow & Johnson, 2014; O’Donnell & O’Donovan, 2008).

The Industrial Training Fund (ITF) is a parastatal organisation established by the Nigerian government through Decree No. 47 of 1971 (now the Industrial Training Fund Act Cap 19 Laws of the Federation of Nigeria, 2004). The Fund was established with the statutory mandate to promote and encourage the acquisition of skills in industry and commerce with a view to generating a pool of indigenous trained manpower sufficient to meet the needs of the Nigerian economy. The ITF operates through multiple interventions including the Students’ Industrial Work Experience Scheme (SIWES), which provides students of tertiary institutions with industrial skills and experience; the Skills Training and Development Programmes, which offer training to employed and unemployed persons in various trades and skills; the Reimbursement Scheme, which refunds a portion of training costs to employers who provide structured training to their employees; and the Vocational and Technical Training Programmes, which provide skills training to school leavers and out-of-school youth (Industrial Training Fund, 1971; ITF, 2019).

The mission of the Industrial Training Fund—to promote and develop skilled human resources—makes it an ideal case study for examining Human Resources Accounting. The ITF invests substantial resources in training and development programmes, incurring costs for training materials, instructor salaries, facility maintenance, trainee stipends, and administrative overhead. The benefits of these investments—increased trainee skills, enhanced employability, improved workplace productivity, and broader economic development—accrue over multiple periods and extend beyond the immediate training context. Traditional accounting would treat the ITF’s training expenditures as current period expenses, providing no information about the stock of human capital created or destroyed over time. Human Resources Accounting would capitalise training expenditures, track the value of the human capital created, and provide information about the return on the Fund’s investment in skills development. This information would be valuable for the ITF’s management (for evaluating programme effectiveness), for the National Assembly (for oversight and appropriation decisions), and for the Nigerian public (for assessing the Fund’s performance in achieving its statutory mandate) (Okoye & Okafor, 2015; Nwachukwu, 2017; Okafor, 2019).

The concept of human capital, central to Human Resources Accounting, has been extensively developed in the economics and management literatures. Gary Becker’s human capital theory, which earned him the Nobel Prize in Economics in 1992, treats expenditures on education, training, and health as investments in human capital that yield returns in the form of higher future earnings and productivity. Schultz (1961) similarly argued that human capital is a form of capital that, like physical capital, requires investment and yields returns. While economists have readily accepted human capital as a legitimate concept, accountants have been more resistant, citing the measurement, ownership, and uncertainty problems. The Industrial Training Fund’s activities are directly related to human capital formation, making it a natural context for exploring the potential application of HRA principles to a public sector training organisation (Becker, 1964, 1993; Schultz, 1961; Mincer, 1974; Bowman, 2018).

The Nigerian context presents both opportunities and challenges for Human Resources Accounting. The economy is dominated by the oil and gas sector, but there is increasing recognition of the importance of human capital for economic diversification and sustainable development. The National Economic Empowerment and Development Strategy (NEEDS), the Vision 20:2020, and the Economic Recovery and Growth Plan (ERGP) have all emphasised the importance of skills development and human capital formation for achieving economic transformation. The Industrial Training Fund is a key institution in implementing these policies. However, challenges include weak data infrastructure for tracking training outcomes, limited capacity for sophisticated human capital measurement, and competing priorities for public resources. Despite these challenges, the potential benefits of HRA for organisations like the ITF justify empirical investigation (National Planning Commission, 2004; Central Bank of Nigeria, 2010; Ministry of Budget and National Planning, 2017; Okafor, 2019).

The Students’ Industrial Work Experience Scheme (SIWES), administered by the ITF, provides a particularly relevant context for Human Resources Accounting analysis. SIWES involves students of engineering, technology, business, and other disciplines spending time in industrial organisations, applying their knowledge in practical settings, gaining work experience, and developing workplace skills. The ITF incurs costs for student stipends, supervision, monitoring, and programme administration. The benefits include enhanced student skills, improved employability of graduates, reduced need for post-graduation training by employers, and overall economic development. HRA could enable the ITF to measure the value created by SIWES, comparing the cost of the programme to the value of the human capital created, thereby demonstrating the programme’s return on investment to its stakeholders (ITF, 2019; Okoye & Okafor, 2015; Nwachukwu, 2017).

The Reimbursement Scheme, under which the ITF refunds a portion of training costs to employers who provide structured training to their employees, represents another HRA-relevant intervention. Under this scheme, employers submit training plans to the ITF, implement the training, and then claim reimbursement for eligible costs. The ITF’s investment in employer training is intended to encourage private sector investment in human capital, recognising that employers may under-invest in training due to concerns that trained employees may be poached by competitors. HRA could enable the ITF to track the value created by its reimbursement investments, assessing whether employers who receive reimbursements actually increase their training expenditures (additionality) and whether the training leads to measurable improvements in productivity (effectiveness) (Okoye & Okafor, 2015; Okafor, 2019).

The Skills Training and Development Programmes, through which the ITF directly provides training to unemployed and underemployed persons, offer a third HRA-relevant context. These programmes include vocational training in trades such as welding, plumbing, electrical installation, tailoring, hairdressing, and information technology. The ITF incurs costs for training materials, instructor salaries, trainee stipends, and placement services. The benefits include increased trainee skills, enhanced employability, income generation, poverty reduction, and contribution to economic growth. HRA could enable the ITF to calculate the return on investment for each type of training programme, identifying which programmes create the most value per naira invested and which may need redesign or discontinuation (ITF, 2019; Okafor, 2019).

The measurement of training effectiveness, a key objective of Human Resources Accounting, requires the integration of accounting data (costs of training inputs) with non-accounting data (trainee assessments, employment outcomes, employer evaluations, productivity improvements). The ITF collects substantial amounts of data that could be used for HRA purposes: training attendance records, trainee assessment scores, placement and employment data, employer satisfaction surveys, and programme evaluation reports. However, these data are not currently integrated into a human capital accounting framework that would enable the ITF to track the value created by its training interventions or to report on human capital outcomes to stakeholders. An empirical study of HRA at the Industrial Training Fund would examine how such an accounting framework could be designed and implemented, what measurement and data challenges would need to be addressed, and what benefits the Fund might realise from HRA adoption (Okoye & Okafor, 2015; Nwachukwu, 2017; Okafor, 2019).

1.2 Statement of Problems

Despite the theoretical merits and potential benefits of Human Resources Accounting, its adoption in Nigeria, particularly in public sector training organisations like the Industrial Training Fund, has been extremely limited. The ITF invests substantial public resources in training and development programmes intended to build Nigeria’s human capital stock, yet it cannot answer basic questions about the value created by these investments. What is the return on investment for the ITF’s training programmes? How much value does SIWES add to students’ future earnings potential? Which skills training programmes create the most value per naira invested? Without Human Resources Accounting, the ITF cannot systematically answer these questions, limiting its ability to make informed decisions about resource allocation, programme design, and performance evaluation. This gap between the information needs of the ITF and the capabilities of its current accounting system constitutes the central problem addressed by this study (Okoye & Okafor, 2015; Nwachukwu, 2017; Okafor, 2019).

The first critical problem concerns the mismatch between the ITF’s accounting system and its mission. The ITF exists to develop human capital through training and skills development. Its mission is to create value in the form of increased knowledge, skills, and employability of Nigerian workers. Yet its accounting system, based on traditional financial accounting principles, treats training expenditures as current period expenses, providing no information about the human capital value created or destroyed over time. The system cannot distinguish between training programmes that create significant value and those that create little or no value. It cannot track the human capital stock created by years of ITF operations. It cannot provide the information needed for performance evaluation, resource allocation, or external accountability. The problem is that the ITF’s accounting system is mismatched with its mission: the system measures the costs of inputs but not the value of outputs, the expenses incurred but not the assets created (Okoye & Okafor, 2015; Nwachukwu, 2017; Okafor, 2019).

The second critical problem concerns the measurement of training effectiveness and return on investment. The ITF operates multiple training programmes with different objectives, target populations, and delivery methods. Some programmes (e.g., vocational skills training) aim to improve employability and income generation for unemployed persons. Others (e.g., SIWES) aim to enhance the skills of tertiary students and improve their transition to the labour market. Others (e.g., Reimbursement Scheme) aim to incentivise private sector investment in employee training. Without a human resources accounting framework, the ITF cannot calculate the return on investment for these different programmes, cannot compare programme effectiveness, and cannot identify which programmes are most cost-effective. The problem is that without this information, the ITF cannot demonstrate its value to its stakeholders (the National Assembly, the supervising ministry, the Nigerian public), cannot justify its budget, and cannot make evidence-based decisions about programme continuation, expansion, or termination (Okoye & Okafor, 2015; Okafor, 2019; ITF, 2019).

The third critical problem concerns the lack of integration between accounting data and non-accounting data at the ITF. The ITF collects substantial amounts of data about its training programmes: attendance records, assessment scores, placement outcomes, employer feedback. However, these data are not currently integrated with the Fund’s accounting system. The accounting system tracks costs (training materials, instructor salaries, trainee stipends) but does not track outcomes (skills acquired, employment obtained, income increases). Without integration, the ITF cannot link costs to outcomes, cannot calculate cost per successful trainee, cannot identify which programmes achieve the best outcomes for the least cost, and cannot track changes in human capital value over time. The problem is that data integration, while challenging, is essential for Human Resources Accounting; without it, the ITF cannot answer questions about the value created by its training programmes (Okafor, 2019; Nwachukwu, 2017).

The fourth critical problem concerns external reporting and accountability. The ITF reports on its activities to multiple stakeholders: the National Assembly (through annual reports, budget submissions, and appearances before committees), the supervising ministry (Ministry of Industry, Trade and Investment), the Bureau of Public Procurement (for procurement compliance), and the Nigerian public (through published annual reports and public disclosures). However, these reports focus primarily on inputs and activities (how much was spent, how many people were trained) rather than on outcomes or impact (what value was created). The ITF reports the number of trainees who completed SIWES, for example, but not the value added to those trainees’ human capital. It reports the number of persons trained in vocational skills but not the increase in their employability or earnings. The problem is that without HRA-based reporting, the ITF cannot provide stakeholders with the information they need to assess the Fund’s performance in achieving its statutory mandate to develop human capital (Okoye & Okafor, 2015; Okafor, 2019; ITF, 2019).

The fifth critical problem concerns the absence of empirical research on Human Resources Accounting in Nigerian public sector training organisations. While there is substantial theoretical and empirical literature on HRA in developed economies, and while some research has been conducted on HRA in private sector companies, there is very limited empirical research on the application of HRA to public sector training organisations in Nigeria. The Industrial Training Fund, despite its importance for human capital development, has not been the subject of a comprehensive HRA study. The problem is that without such research, policymakers, managers, and stakeholders lack evidence on whether HRA can be implemented in this context, what measurement and data challenges would arise, what benefits could be realised, and what adaptations might be necessary for the Nigerian public sector environment (Okoye & Okafor, 2015; Nwachukwu, 2017; Okafor, 2019).

1.3 Aim of the Study

The specific aim of this research work is to empirically examine Human Resources Accounting at the Industrial Training Fund, with a particular focus on developing and testing a human capital valuation model for the Fund’s training programmes, assessing the feasibility and potential benefits of HRA implementation, identifying the measurement and data challenges that must be addressed, and making recommendations for integrating HRA into the ITF’s accounting and reporting systems to enhance decision-making, performance evaluation, and external accountability.

1.4 Objectives of the Study

1. To identify the types of training programmes operated by the Industrial Training Fund and the costs associated with each programme, including direct training costs and indirect support costs.

2. To develop and test a human capital valuation model appropriate for the ITF’s training programmes, including the measurement of inputs (training costs) and outputs (trainee skills acquired, employment outcomes, earnings increases).

3. To calculate the return on investment for selected ITF training programmes, comparing the value of human capital created to the cost of training delivered.

4. To examine the feasibility of integrating Human Resources Accounting into the ITF’s existing accounting and reporting systems, including data availability, system compatibility, capacity requirements, and cost-benefit considerations.

5. To develop recommendations for the implementation of Human Resources Accounting at the ITF, including necessary data collection enhancements, accounting system modifications, training for accounting personnel, and changes to external reporting practices.

1.5 Research Questions

1. What types of training programmes does the Industrial Training Fund operate, what are the costs associated with each programme, and how are these costs currently accounted for in the Fund’s financial statements?

2. How can the human capital value created by the ITF’s training programmes be measured, and what valuation model is most appropriate for the Fund’s specific context and data availability?

3. What is the return on investment for selected ITF training programmes, and how does this return compare across different programme types, durations, and target populations?

4. What are the data availability, system compatibility, capacity, and cost-benefit considerations for integrating Human Resources Accounting into the ITF’s existing accounting and reporting systems

5. What recommendations can be developed for the implementation of Human Resources Accounting at the Industrial Training Fund, including data collection enhancements, system modifications, personnel training, and reporting changes?

1.6 Research Hypotheses

Hypothesis 1

H0₁: The training programmes operated by the Industrial Training Fund do not create positive human capital value (the value of skills acquired does not exceed the cost of training delivered).

H1₁: The training programmes operated by the Industrial Training Fund create positive human capital value (the value of skills acquired exceeds the cost of training delivered).

Hypothesis 2

H0₂: There is no significant difference in return on investment among the different types of training programmes operated by the Industrial Training Fund.

H1₂: There is a significant difference in return on investment among the different types of training programmes operated by the Industrial Training Fund.

Hypothesis 3

H0₃: The current accounting system of the Industrial Training Fund provides adequate information for evaluating the effectiveness of its training programmes.

H1₃: The current accounting system of the Industrial Training Fund does not provide adequate information for evaluating the effectiveness of its training programmes.

Hypothesis 4

H0₄: The implementation of Human Resources Accounting at the Industrial Training Fund is not feasible given existing data, system, and capacity constraints.

H1₄: The implementation of Human Resources Accounting at the Industrial Training Fund is feasible despite existing data, system, and capacity constraints.

Hypothesis 5

H0₅: The adoption of Human Resources Accounting would not significantly improve decision-making, performance evaluation, or external accountability at the Industrial Training Fund.

H1₅: The adoption of Human Resources Accounting would significantly improve decision-making, performance evaluation, or external accountability at the Industrial Training Fund.

1.7 Justification of the Study

This study is justified by the critical importance of human capital development for Nigeria’s economic growth, diversification, and competitiveness. The Industrial Training Fund is the primary government agency responsible for promoting and developing skilled manpower in Nigeria, investing substantial public resources in training and skills development programmes. Stakeholders, including the National Assembly, the supervising ministry, the Nigerian public, and development partners, have a right to know whether these investments are achieving their intended outcomes and whether the ITF is fulfilling its statutory mandate efficiently and effectively. Without Human Resources Accounting, the ITF cannot provide this information. The study is further justified by the limited empirical research on Human Resources Accounting in Nigerian public sector training organisations. While HRA has been extensively studied in developed economies and in private sector contexts, little empirical research has been conducted on the application of HRA to public sector training institutions in Nigeria. This study addresses this gap by providing empirical evidence on the feasibility, benefits, and challenges of HRA implementation at the Industrial Training Fund. The study is also justified by the potential for HRA to transform the way the ITF and similar organisations measure, manage, and report on their human capital development activities, shifting the focus from inputs and activities to outcomes and impact (Okoye & Okafor, 2015; Nwachukwu, 2017; Okafor, 2019).

1.8 Significance of the Study

This study makes significant contributions to multiple stakeholder groups with interests in human capital development, public sector accounting, and the Industrial Training Fund specifically. For the Industrial Training Fund, the study provides a systematic analysis of the feasibility and potential benefits of Human Resources Accounting, offers a tested human capital valuation model appropriate for its training programmes, and provides actionable recommendations for implementation. For the National Assembly and oversight committees, the study provides a framework for evaluating the ITF’s performance in achieving its statutory mandate, enabling more informed appropriation and oversight decisions. For the Ministry of Industry, Trade and Investment, the study provides insights into the effectiveness of the ITF’s programmes and recommendations for policy and resource allocation. For the Bureau of Public Procurement and the Office of the Accountant-General, the study provides a model for integrating human capital accounting into public sector financial management. For the Nigerian public, the study promotes accountability and transparency by enabling the ITF to report on the value created by its training programmes. For academic researchers in accounting, public sector management, and human capital development, the study contributes to the empirical literature on Human Resources Accounting in developing economies and provides a case study for future research. For international development partners, the study provides evidence on human capital accounting practices in Nigeria, informing technical assistance and capacity-building programmes (Okoye & Okafor, 2015; Nwachukwu, 2017; Okafor, 2019; Flamholtz, 1999).

1.9 Scope of the Study

The scope of this study is delimited to an empirical examination of Human Resources Accounting at the Industrial Training Fund. The study focuses specifically on the ITF’s training programmes, including the Students’ Industrial Work Experience Scheme (SIWES), the Skills Training and Development Programmes (vocational and technical training), and the Reimbursement Scheme (training cost reimbursement to employers). The study examines the costs of these programmes (direct training costs, trainee stipends, administrative overhead) and the outcomes of these programmes (trainee skills acquired, employment outcomes, earnings increases). The study develops and tests a human capital valuation model appropriate for the ITF’s context and data availability. The study does not examine all ITF programmes or activities, focusing on the training programmes that represent the core of the Fund’s mandate. The study is limited to the Industrial Training Fund and does not include other public sector training organisations, although findings may have applicability to similar organisations. The study focuses on Human Resources Accounting and does not examine other forms of intangible asset accounting (e.g., intellectual capital accounting, brand valuation). The study is based on data from the ITF’s operations and does not include primary data collection from trainees beyond what is available in ITF records.

1.10 Definition of Terms

Human Resources Accounting (HRA) : The process of identifying, measuring, and communicating information about an organisation’s human resources to stakeholders, including the capitalisation of training and development expenditures as assets and the measurement of human capital value (American Accounting Association, 1973; Flamholtz, 1974, 1999).

Human Capital: The knowledge, skills, competencies, experience, and health embodied in individuals that enable them to perform labour and create economic value, representing a form of capital that requires investment (education, training, health) and yields returns (Becker, 1964; Schultz, 1961).

Training Programme: A structured intervention designed to increase the knowledge, skills, and abilities of individuals to perform specific tasks or jobs, including classroom instruction, on-the-job training, apprenticeships, and experiential learning (Flamholtz, 1974; ITF, 2019).

Return on Investment (ROI) : A performance measure used to evaluate the efficiency of an investment, calculated as the ratio of net benefits (benefits minus costs) to costs, often expressed as a percentage (Okoye & Okafor, 2015).

Students’ Industrial Work Experience Scheme (SIWES) : A programme administered by the ITF that places students of tertiary institutions in industrial organisations for practical work experience, with the aim of bridging the gap between theoretical knowledge and practical skills (ITF, 1971; ITF, 2019).

Reimbursement Scheme: An ITF programme that refunds a portion of training costs to employers who provide structured training to their employees, designed to incentivise private sector investment in human capital (ITF, 2019).

Historical Cost Approach: An HRA valuation method that capitalises expenditures on recruitment, selection, training, and development, amortising these costs over the expected service life of the employee (Flamholtz, 1974, 1999).

Replacement Cost Approach: An HRA valuation method that measures the cost that would be incurred to replace the organisation’s existing human resources, including recruitment, selection, training, and opportunity costs (Flamholtz, 1974).

Stochastic Rewards Valuation Model: An HRA valuation model developed by Flamholtz (1971) that estimates the expected realisable value of an individual’s future services, incorporating probabilities of employee turnover and different career paths (Flamholtz, 1971, 1974).

Industrial Training Fund (ITF) : A Nigerian parastatal organisation established by Decree No. 47 of 1971 with the mandate to promote and encourage the acquisition of skills in industry and commerce to generate a pool of indigenous trained manpower (Industrial Training Fund, 1971).

CHAPTER TWO: LITERATURE REVIEW

2.1 Theoretical Review

The theoretical foundation for examining Human Resources Accounting (HRA) at the Industrial Training Fund draws from multiple theoretical perspectives in economics, accounting, management, and human capital theory. This section critically reviews the principal theories informing understanding of HRA, including human capital theory, stakeholder theory, resource-based theory, the Flamholtz model of human resource valuation, the knowledge-based view of the firm, and public sector performance measurement theory.

2.1.1 Human Capital Theory

Human capital theory, developed by Schultz (1961) and Becker (1964, 1993), provides the foundational economic framework for understanding Human Resources Accounting. The theory treats expenditures on education, training, health, and migration as investments in human capital that yield returns in the form of higher future earnings, increased productivity, and enhanced economic growth. Schultz (1961) argued that human capital is a form of capital—like physical capital (machinery, equipment, buildings)—that requires investment and yields returns over time. Becker (1964) formalised the theory, distinguishing between general human capital (skills and knowledge that are valuable in many firms) and specific human capital (skills and knowledge that are valuable only in a particular firm). This distinction has important implications for understanding who bears the cost of training and who captures the returns (Schultz, 1961; Becker, 1964, 1993; Mincer, 1974).

Human capital theory provides the economic justification for Human Resources Accounting. If expenditures on training and development are investments in human capital—as economists have demonstrated—then accounting should treat these expenditures as assets, not as expenses. The fact that accounting standards have not followed economic theory in this respect represents a fundamental inconsistency: a manufacturing firm that builds a new factory capitalises the cost as an asset, while the same firm that trains its workforce expenses the cost immediately, even though both expenditures are intended to generate future economic benefits. For the Industrial Training Fund, whose mission is to invest in human capital through training and skills development, human capital theory suggests that HRA would provide a more accurate picture of the Fund’s activities and achievements than traditional accounting (Becker, 1964; Flamholtz, 1999; Lev, 2001).

The distinction between general and specific human capital has important implications for HRA valuation and for understanding the ITF’s role. General human capital—skills that are valuable in many organisations—is typically financed by individuals themselves (through education) because firms cannot capture the full return if trained employees leave for other employers. Specific human capital—skills that are valuable only in a particular organisation—may be financed by firms because they can capture the return through continued employment. The ITF operates in both domains: its SIWES programme develops general human capital that benefits students regardless of where they work; its Reimbursement Scheme helps firms finance specific human capital development. HRA must account for these differences in valuation, as the returns to general and specific training may differ (Becker, 1964; Okafor, 2019).

The application of human capital theory to the Nigerian context must consider the characteristics of the Nigerian labour market, including high unemployment, skill mismatches, and the large informal economy. In contexts where unemployment is high, the returns to general human capital (employability, earnings) may be lower than in contexts with full employment. The ITF’s training programmes aim to increase the employability of trainees, but the labour market conditions affect the value created. Human capital theory provides a framework for estimating the value of ITF training by comparing the earnings of trained individuals to those of comparable untrained individuals, controlling for other factors (selection, ability, motivation). This approach, known as the earnings function approach (Mincer, 1974), has been widely used in economics to estimate the returns to education and training (Mincer, 1974; Card, 1999; Heckman, Lochner, & Todd, 2006).

2.1.2 Stakeholder Theory

Stakeholder theory, developed by Freeman (1984) and subsequent scholars, provides a framework for understanding the multiple constituencies that have an interest in Human Resources Accounting information. Unlike traditional accounting that focuses primarily on shareholders (or in the public sector, on funding authorities), stakeholder theory recognises that organisations have responsibilities to all parties who can affect or are affected by organisational activities. For the Industrial Training Fund, stakeholders include the National Assembly (which appropriates funds), the supervising ministry (Ministry of Industry, Trade and Investment), the Nigerian public (who are the ultimate beneficiaries of training programmes), trainees and their families (who participate in training and expect improved employability), employers (who hire trained graduates and benefit from increased productivity), development partners (who may provide funding or technical assistance), and the Fund’s employees (whose careers depend on the Fund’s performance) (Freeman, 1984; Donaldson & Preston, 1995; Clarkson, 1995).

Stakeholder theory provides a justification for Human Resources Accounting that extends beyond the technical economic arguments of human capital theory. Even if measurement challenges prevent precise valuation of human capital, stakeholders have a right to information about the ITF’s investments in human capital, the outcomes of those investments, and the value created. Traditional accounting that reports only inputs (how much was spent) and activities (how many people were trained) does not adequately inform stakeholders about whether the Fund is achieving its mandate. HRA, by attempting to measure the value created, provides information that stakeholders need to evaluate performance, hold the Fund accountable, and make decisions about continued funding and support (Freeman, 1984; Johanson, 2003; Roslender & Fincham, 2004).

The application of stakeholder theory to the ITF suggests that different stakeholders have different information needs that HRA may address. The National Assembly needs information about whether the Fund’s programmes are cost-effective and whether resources are being used efficiently. The Ministry needs information about whether the Fund’s activities align with national human capital development policies. The Nigerian public needs accessible information about the return on their tax investments in training. Employers need information about the skills of programme graduates to inform hiring decisions. Trainees need information about the labour market value of the skills they acquire. HRA, by valuing human capital outcomes, can provide information tailored to each stakeholder group, though the presentation and detail may need to vary (Donaldson & Preston, 1995; Johanson, 2003).

Stakeholder theory also addresses the ethical dimension of Human Resources Accounting. Critics have argued that valuing human beings as assets reduces them to commodities, treating people as capital rather than as stakeholders with intrinsic worth. Stakeholder theory responds that recognition of human capital value does not reduce the intrinsic value of persons; rather, it acknowledges the economic contribution that people make to organisations and the importance of investing in their development. For the ITF, which is specifically mandated to develop human resources, HRA can be implemented in a way that respects trainee dignity, focuses on their development and employability, and uses valuation information to improve programmes, not to exploit participants (Freeman, 1984; Grojer & Johanson, 1998; Roslender, 1997).

2.1.3 Resource-Based Theory

Resource-based theory (RBT), developed by Penrose (1959), Wernerfelt (1984), and Barney (1991), provides a strategic management framework for understanding how human resources contribute to organisational performance and competitive advantage. The theory posits that firms are heterogeneous bundles of resources (physical, human, organisational, intangible), and that resources that are valuable, rare, imperfectly imitable, and non-substitutable (VRIN characteristics) can be sources of sustained competitive advantage. Human resources, particularly when they embody tacit knowledge, firm-specific skills, and complex capabilities, can be sources of such advantage. This perspective has important implications for Human Resources Accounting: if human resources are critical strategic assets, accounting should measure and report on them (Barney, 1991; Wernerfelt, 1984; Penrose, 1959).

Resource-based theory suggests that the value of human resources depends on the organisational context in which they are deployed. A skilled worker may create more value in an organisation with complementary resources (technology, processes, culture) than in an organisation without those resources. For the Industrial Training Fund, this implies that the value of its training depends not only on the skills trainees acquire but also on whether the Nigerian economy has the complementary resources (jobs, capital, infrastructure) to deploy those skills productively. The ITF’s training programmes create value to the extent that they produce skills that are demanded by employers and that can be productively deployed in the Nigerian economy. HRA valuation models must account for this context; skills that do not lead to employment or productivity improvements have lower value (Barney, 1991; Peteraf, 1993; Teece, Pisano, & Shuen, 1997).

Resource-based theory also addresses the question of whether the ITF’s training programmes create value that is sustainable over time. If the ITF trains workers in skills that are easily replicated by other training providers, the value created may be temporary (competitors can duplicate the skills). If the ITF creates unique training capabilities—proprietary curricula, specialised instructors, unique partnerships with employers—that are difficult to imitate, the value created may be sustained. The ITF’s mandate as a public sector organisation may protect it from competition, but competition from private training providers, online education platforms, and other public sector training agencies affects the sustainability of value creation. HRA should consider not only current value but also whether that value is likely to be sustained (Barney, 1991; Teece et al., 1997).

The application of resource-based theory to HRA for training organisations suggests that measurement should go beyond simple economic returns (earnings increases) to include measures of strategic value. Does the training create skills that are scarce in the Nigerian labour market? Does it create capabilities that are difficult for other training providers to replicate? Does it build relationships with employers and other stakeholders that are valuable and durable? These strategic considerations are relevant for the ITF’s management and for stakeholders who need to assess the Fund’s long-term value creation potential. HRA frameworks should incorporate these strategic dimensions, not only simple financial returns (Barney, 1991; Peteraf, 1993; Bowman, 2018).

2.1.4 Flamholtz Model of Human Resource Valuation

The Flamholtz model of human resource valuation, developed by Eric Flamholtz (1971, 1974, 1985, 1999), represents the most comprehensive and influential theoretical framework for Human Resources Accounting. The model, known as the stochastic rewards valuation model, estimates the expected realisable value of an individual’s future services by incorporating probabilities of employee turnover and different career paths. The model computes the expected value of an individual as the sum of the expected value of services in each possible role, weighted by the probability of occupying that role, discounted to present value. Formally, the expected realisable value (ERV) of an individual is: ERV = Σ [P_i × R_i] / (1 + r)^t, where P_i is the probability of occupying role i, R_i is the value of services in role i, r is the discount rate, and t is the time period (Flamholtz, 1971, 1974, 1999).

The Flamholtz model has several features that make it particularly relevant for Human Resources Accounting in training organisations. First, it explicitly recognises uncertainty about an individual’s future career path and incorporates probabilities into the valuation. For ITF trainees, future employment outcomes are uncertain; some may find jobs in their trained field, others in related fields, others in unrelated fields, and some may remain unemployed. The Flamholtz model can incorporate these probabilities based on historical placement data. Second, the model values services in each possible role, not just earnings. For ITF trainees, the value of services includes not only monetary compensation but also non-monetary benefits to employers (productivity) and to society (taxes, economic growth). Third, the model discounts future values to present value, recognising that future benefits are worth less than current benefits. Fourth, the model can be applied at the individual level (trainee by trainee) or aggregated to programme level (Flamholtz, 1974, 1985, 1999).

The Flamholtz model has been extended and adapted by subsequent researchers. The group-level valuation model aggregates individual valuations to compute the value of an organisation’s human resources. The model has been applied in various contexts, including professional service firms (where professional staff are the primary asset), sports organisations (where player values are estimated), and training programmes (where the value of training is estimated by comparing pre-training and post-training valuations). The model has also been integrated with other approaches, including the Lev and Schwartz (1971) model (which uses earnings as a proxy for value) and the Hekimian and Jones (1967) opportunity cost model (Flamholtz, 1999; Sackmann, Flamholtz, & Bullen, 1989; Morrow & Johnson, 2014).

For the Industrial Training Fund, the Flamholtz model provides a rigorous framework for estimating the value created by training programmes. The model can be applied by: (1) identifying the possible roles that trainees may occupy after training (employed in trained field, employed in related field, employed in unrelated field, self-employed, unemployed); (2) estimating the probability of each outcome based on historical placement data; (3) estimating the value of services in each role (using earnings, productivity estimates, or other proxies); (4) discounting future values to present value; (5) computing the expected realisable value for each trainee; and (6) aggregating across trainees to compute total value created. The cost of training can be compared to the value created to compute return on investment. The model can also be used to evaluate different training programmes by comparing their value creation per naira invested (Flamholtz, 1974, 1999; Okafor, 2019; Okoye & Okafor, 2015).

2.1.5 Knowledge-Based View of the Firm

The knowledge-based view (KBV) of the firm, developed by Grant (1996), Nonaka and Takeuchi (1995), and others, extends resource-based theory by focusing on knowledge as the most strategically significant resource of the organisation. The KBV distinguishes between explicit knowledge (codified, articulable, transferable) and tacit knowledge (personal, context-specific, difficult to articulate and transfer). Human resources are the primary carriers of tacit knowledge, which is difficult to imitate and thus a potential source of sustainable competitive advantage. The KBV has important implications for Human Resources Accounting: if knowledge is the primary source of value creation, and human resources are the primary carriers of knowledge, then accounting must find ways to measure and report on human capital and knowledge assets (Grant, 1996; Nonaka & Takeuchi, 1995; Spender, 1996).

The KBV perspective is particularly relevant for the Industrial Training Fund, whose training programmes aim to transfer knowledge (both explicit and tacit) from instructors to trainees. Vocational and technical training involves both explicit knowledge (technical specifications, safety procedures) and tacit knowledge (craft skills, problem-solving heuristics, professional judgment). The value of ITF training depends partly on the extent to which trainees acquire tacit knowledge that is not easily obtained through other means (e.g., online courses, self-study). HRA frameworks that rely solely on explicit knowledge metrics (test scores, certificates) may understate the value of training that develops tacit knowledge. The KBV suggests that HRA should attempt to capture tacit knowledge acquisition, though this is challenging (Grant, 1996; Nonaka & Takeuchi, 1995).

The KBV also addresses the question of knowledge transfer and retention. For the ITF, the value created by training is realised only if trainees retain the knowledge they have acquired and can apply it in workplace settings. Knowledge retention depends on training design (spaced vs massed learning, practice opportunities, feedback), trainee characteristics (motivation, prior knowledge), and workplace factors (opportunities to apply, support from supervisors). HRA frameworks should consider not only initial knowledge acquisition but also retention and application over time. The ITF’s follow-up studies (tracking graduates’ employment and performance) provide data that can inform this aspect of HRA (Nonaka & Takeuchi, 1995; Argote & Ingram, 2000).

The application of KBV to the ITF suggests that HRA should include qualitative as well as quantitative information. While financial valuation of human capital is important, stakeholders also need information about the types of knowledge and skills that trainees acquire, the extent to which those skills are aligned with employer needs, and the durability of knowledge over time. Narrative reporting, case studies, and qualitative indicators (e.g., employer satisfaction, trainee self-assessed capability) can complement quantitative valuation to provide a more complete picture of the value created by ITF training programmes (Grant, 1996; Roslender & Fincham, 2004).

2.1.6 Public Sector Performance Measurement Theory

Public sector performance measurement theory, developed by Hood (1991, 1995), Osborne and Gaebler (1992), and others in the context of New Public Management (NPM) reforms, provides a framework for understanding performance measurement in public organisations like the Industrial Training Fund. NPM reforms, which began in the 1980s and spread globally, emphasised the need for public sector organisations to measure outputs and outcomes, not just inputs and activities. The theory argues that traditional public administration focused too much on compliance with rules and procedures (inputs) and not enough on whether programmes achieved their intended results (outcomes). Performance measurement reforms introduced concepts such as performance indicators, benchmarking, value for money, results-based budgeting, and accountability for outcomes (Hood, 1991, 1995; Osborne & Gaebler, 1992; Pollitt & Bouckaert, 2017).

Human Resources Accounting is consistent with the principles of public sector performance measurement. Traditional accounting measures inputs (training costs) and activities (number of trainees). Performance measurement adds measures of outputs (number of trainees who complete training, number who pass assessments) and outcomes (employment rates, earnings increases, productivity improvements). HRA goes further by valuing outcomes (the monetary value of earnings increases or productivity gains), enabling calculation of return on investment and value for money. For the ITF, HRA provides the most rigorous approach to performance measurement, answering not only “did the programme achieve its outcomes?” but also “was the value of outcomes greater than the cost of inputs?” (Hood, 1991, 1995; Osborne & Gaebler, 1992; Okafor, 2019).

The application of public sector performance measurement theory to the ITF suggests that HRA should be integrated with the Fund’s existing performance management framework. The ITF already collects data on inputs, activities, and some outputs. HRA would add outcome valuation and ROI calculation. However, the theory also recognises that not all outcomes can be easily quantified or monetised. Some benefits of ITF training—increased confidence, social networks, civic engagement—are difficult to measure in monetary terms. HRA should not ignore these benefits but should recognise them qualitatively. The balanced scorecard approach (Kaplan & Norton, 1996), which combines financial and non-financial measures, may be relevant for the ITF (Kaplan & Norton, 1996; Okafor, 2019).

Public sector performance measurement theory also addresses the challenges of performance measurement in public organisations, including goal ambiguity (public organisations often have multiple, conflicting objectives), measurement difficulties (outcomes may occur long after programmes end), attribution problems (outcomes may be caused by factors other than the programme), and gaming (performance measures may be manipulated). For the ITF, HRA implementation must address these challenges: the Fund has multiple objectives (skills acquisition, employability, productivity, economic development); outcomes may take years to materialise; employment and earnings increases may be due to economic conditions, not ITF training; and there may be incentives to report favourable outcomes selectively. A robust HRA framework must include controls for these issues (Hood, 1991, 1995; Bevan & Hood, 2006; Okafor, 2019).

2.2 Conceptual Framework

The conceptual framework for this study specifies the relationship between the Industrial Training Fund’s training investments (independent variable), the human capital outcomes created (mediating variable), and the value realised by stakeholders (dependent variable). The framework draws on human capital theory, the Flamholtz model, and public sector performance measurement theory to identify the key constructs and hypothesised relationships.

2.2.1 Independent Variables: Training Investments

The first independent variable is direct training costs, defined as expenditures that are directly attributable to the delivery of training programmes. For the ITF, direct training costs include: training materials (books, manuals, consumables), instructor salaries and allowances (including payments to external instructors), facility costs (rent, utilities, maintenance) for training centres, equipment used in training (machinery, tools, computers), and training aids (audio-visual equipment, software). Direct costs are the most straightforward to measure, as they are typically recorded in the ITF’s accounting system by programme. However, allocation of shared resources (e.g., a training centre used for multiple programmes) requires judgment (Flamholtz, 1974, 1999; ITF, 2019).

The second independent variable is trainee stipends and support costs, defined as payments made to trainees to enable participation in training. For the ITF, these include: SIWES stipends (paid to students during work experience), vocational training stipends (paid to unemployed trainees), transportation allowances, meal allowances, and accommodation (where training is residential). From an HRA perspective, trainee stipends are part of the investment in human capital, enabling individuals to participate in training who might otherwise be unable to do so. However, to the extent that stipends are consumption (trainees would have spent the money on living expenses regardless of training), they may be treated differently from pure training costs (Flamholtz, 1999; Okafor, 2019).

The third independent variable is administrative and support costs, defined as indirect costs that support training delivery but are not directly attributable to specific programmes. These include: salaries of administrative staff (management, finance, human resources, monitoring and evaluation), office expenses, information technology systems, communication costs, and overhead (rent, utilities, insurance) for administrative offices. Allocating these indirect costs to training programmes is necessary for full-cost accounting (to compute total cost of training per trainee) but requires assumptions about cost drivers (e.g., number of trainees, number of programmes, hours of training) (Flamholtz, 1985, 1999; ITF, 2019).

The fourth independent variable is the Reimbursement Scheme payments, defined as payments made by the ITF to employers who provide structured training to their employees. Under the scheme, employers submit training plans, implement training, and then claim reimbursement of eligible costs. From an HRA perspective, these payments are an investment in human capital (the skills of employees in the Nigerian workforce) but the ITF does not directly deliver the training. Valuation of human capital created through the Reimbursement Scheme requires data on training quality, employee skill acquisition, and subsequent productivity improvements (ITF, 2019; Okoye & Okafor, 2015).

2.2.2 Mediating Variable: Human Capital Outcomes

The mediating variable is human capital outcomes, defined as the knowledge, skills, competencies, and employability that trainees acquire through ITF programmes. Human capital outcomes are measured through multiple indicators: cognitive outcomes (scores on tests of knowledge), skill outcomes (demonstrated ability to perform tasks, assessed through practical examinations or workplace evaluations), employability outcomes (job placement rates, time to employment), earnings outcomes (wage or salary increases compared to baseline or control group), productivity outcomes (employer ratings of trainee performance, output measures), and retention outcomes (duration of employment, career progression) (Becker, 1964; Mincer, 1974; Okafor, 2019).

2.2.3 Dependent Variable: Value Created

The dependent variable is value created, defined as the net benefit to stakeholders from the ITF’s training investments, measured as the monetary value of human capital outcomes minus the cost of training delivered. For trainees, value created is measured as the increase in expected lifetime earnings attributable to training, minus any direct costs borne by trainees (e.g., stipends foregone). For employers, value created is measured as the increase in productivity of trained employees, minus training costs (where borne by employer). For society (the Nigerian public), value created is measured as the increase in tax revenues from higher earnings, plus any broader economic benefits (multiplier effects, reduced unemployment costs), minus the net cost of training (government investment). The Flamholtz stochastic rewards valuation model is used to estimate the expected realisable value of training outcomes, incorporating probabilities of different employment outcomes (Flamholtz, 1971, 1999; Becker, 1964; Okafor, 2019).

2.3 Summary of Literature Review in Tabular Format

Author(s) & Year	Strengths of the Study	Weaknesses of the Study	Limitations of the Study	Gaps Identified
Schultz (1961); Becker (1964)	Developed human capital theory; established economic foundation for treating training as investment; extensive empirical validation	Assumes rational investment decisions; limited attention to institutional, social, cultural factors; developed in Western context	Theoretical and empirical development primarily in US and developed economies	Application to Nigerian public sector training not extensively tested; estimation of returns to ITF training not performed
Flamholtz (1971, 1974, 1999)	Developed comprehensive stochastic rewards valuation model for HRA; practical guidance for implementation; extensively refined over decades	Model requires data that may not be available (probabilities of outcomes, discount rates); complex for routine application	Model developed primarily for private sector (professional service firms); public sector application limited	Application to public sector training organisation (ITF) not tested; adaptation for Nigerian context not developed
Freeman (1984); Donaldson & Preston (1995)	Developed stakeholder theory; justifies HRA for multiple constituencies beyond shareholders; emphasises accountability	Multiple stakeholder interests may conflict; theory provides limited guidance for prioritising among stakeholders	Theoretical framework with extensive applications but limited operationalisation for HRA	Application to ITF stakeholder information needs not examined; HRA reporting for diverse stakeholders not developed
Barney (1991); Grant (1996)	Developed resource-based theory and knowledge-based view; explains how human capital contributes to competitive advantage	Primarily developed for private sector firms; public sector applicability less established	Theoretical framework with extensive testing in private sector; public sector testing limited	Application to public sector training organisation (ITF) not examined; human capital as strategic resource in public sector not fully theorised
Hood (1991, 1995); Osborne & Gaebler (1992)	Developed New Public Management and public sector performance measurement theory; emphasises outcomes, outputs, value for money	NPM reforms have been criticised for negative effects (gaming, target distortion, demotivation)	Theoretical and policy framework with mixed empirical results; application varies across contexts	Application to ITF performance measurement not examined; HRA as NPM tool for Nigerian public sector not assessed
Lev & Schwartz (1971)	Developed earnings-based human capital valuation model; simpler than Flamholtz model; easier to apply	Assumes earnings are perfect proxy for human capital value; ignores non-monetary contributions; assumes full employment	Model primarily applied to private sector; public sector application limited	Application to ITF training valuation not tested; earnings function estimation for Nigerian trainees not performed
Okoye & Okafor (2015)	Empirical study of HRA and training effectiveness in Nigerian parastatals; one of few Nigerian HRA studies	Limited sample (selected parastatals, not including ITF); broad approach without detailed programme analysis	Cross-sectional design; limited generalisability; HRA measurement not fully operationalised	ITF