Human resource accounting is concerned with the development of theory and methods of measuring the cost and value of people to formal organizations. Its ultimate objectives are (1) to develop a theory of the nature and determinants of the value of people to formal organizations and (2) to develop valid and reliable methods of measuring the cost and value of people to organizations. The need for measures of human resource cost and value has been discussed extensively during the past few years (Likert, 1961, 1967; Hermanson, 1964; Hekimian and Jones, 1967; Brummet, Flamholtz, and Pyle, 1968, 1969; Flamholtz, 1969, 1971a; and Lev and Schwartz, 1971). The need for a theory of human resource value has received less attention (Flamholtz, 1969, 1971a).

This article presents criticisms of aspects of the major concepts, methods, and implications of human capital measurement and reporting proposed by Baruch Lev and Ada Schwartz. Although Lev and Schwartz do not formally define the concept of human capital, they do state that it is a source of income embodied in a person. Neither the set of services an individual can potentially provide nor the value of those services to an organization are "embodied" or inherent in the person. Rather, an individual's service potential is a function of the interaction between the person's skills and the role or set of tasks he performs in a given situation. A major limitation of the valuation model proposed by Lev and Schwartz is that it ignores the possibility and probability that the individual will exit from the organization for reasons other than death or retirement. Thus the application of the model may very significantly overstate an individual's expected service life, and, in turn, overstate or inflate the value of human capital.