HUMAN RESOURCE

ACCOUNTING

ACCOUNTING

Accounting is concerned with recording,

classification, summarization of transactions
which are financial in nature and finding out
results thereof.

process of accounting
RECORDING
CLASSIFICATION
SUMMARIZATION
PREPRATION OF FINANCIAL STATEMENTS

HUMAN RESOURCE
Human resources are the people and their
characteristics at work either at national
level or organizational level.
Knowledge,
skills,
attitude
or
other
attributes.

Human resource accounting

Human resource accounting is accounting

for people as an organizational resource. It
involves measuring the cost incurred by
business firms and other organizations to
recruit, select, hire, train, and develop
human assets. It also involves measuring
the economic value of people to the
organization.

OBJECTIVES

To provide cost value data for managerial

decisions regarding acquiring, developing,
allocating and maintaining human resource so
as to attain cost-effective organizational
objectives
To provide information to monitor the
effectiveness of human resource utilization.
To provide information for determining the
status of human asset whether it is conserved
properly; it is appreciating or depleting.

METHODS OF VALUATION OF
HUMAN CAPITAL
HISTORICAL COST: based on actual cost
incurred on human resource. Such a cost
may be of two type acquisition cost and
learning cost

ACQUISITION COST: expenses incurred on

recruitment, selection and placement.

LEARNING COST: expenses incurred on

training and development.

REPLACEMENT COST: takes into account

the notional cost that may be required to
acquire a new employee to replace the
present one.
Replacement cost is generally much higher
than the historical cost.
For example: Friedman has estimated that
the replacement cost of an executive in
middle management level is about 1.5 to 2
times the current salary paid in that
position

STANDARD
COST:
in
this
method,
employees
of
an
organization
are
categorised into different groups based on
their positions. Standard cost is fixed for
each category of employees and their value
is calculated.

PRESENT VALUE OF FUTURE EARNINGS: in

this method, the future earnings of various
groups of employees are estimated upto the
age of their retirement and are discounted
at a predetermined rate to obtain the
present value of such earnings.
This
method does not considered the
employees contribution to achieve the
organizational effectiveness.

EXPECTED REALISABLE VALUE: this method

is based on the assumption that there is no
direct relationship between cost incurred on
an individual and his value to the
organization at a particular point of time.

Continued

An individuals value can be defined as a

present worth of the set of future services
that he is expected to provide during the
period he remains in the organization.

ADVANTAGES OF HRA
Helps in providing valuable information to
the management for effective planning and
managing human resource.
Helps in the measurement of standard cost
of recruiting, selecting and developing
people and organization can select a person
with highest expected realisable value.

Continued

HRA can change the attitude of manager

completely. Thereby they would try to
maximize the expected value of human
resource and effective use of human
resources in the organization.

PROBLEMS IN HRA
There is no well set standard accounting
practice for measuring the value of human
resources.
The valuation of human capital is based on
the assumption that the employees may
remain the organization for certain specific
period this assumption may hold true in
todays context because of increased
human resource mobility.

Continued

There is a possibility that trade unions may

oppose the use of human resource
accounting. They may want parity of
wages/salaries and value of employee.

Various co. uses HRA

BHEL LTD
INFOSYS LTD
CADENCE SYSTEM LTD
HCL
NIIT
RELIANCE
HTML

BHEL CO.

BHEL CO. followed the discount rate at 12%

considering the weighted average cost of
capital. It categorise employees according to
their age, grade and category for the purpose
of valuation and reporting information related
to human resource accounting. It also
disclosed the ratios like HR/TOTAL
RESOURCES, HR/FIXED ASSET,
TURNOVER/HUMAN RESOURCE VALUE, VALUE
ADDED/TOTAL RESOURCE, PROFIT BEFORE
TAX/HR VALUE.

INFOSYS LTD.
All the employees of infosys ltd were
devided into five groups, based on their
average age. Each group average
compensation was calculated.
Infosys also calculated the compensation of
each employee at retirement by using an
average rate of increment.
Increment are based on industry standards
and the employees performance and
productivity.

Continued..

Finally the total compensation at each

group was calculated. The value was
discounted at the rate persent per annum
which was the cost of capital at infosys to
arrive at total human resource of infosys.

HUMAN RESOURCE ACCOUNTING: A

REVIEW OF THEORY AND
RESEARCH.
During the past decade, there has been a
growing interest in the idea of accounting
for people as organizational resources. This
interest has led to an emerging
interdisciplinary field of research known as
"Human Resource Accounting." This paper
reviews the current body of theory and
research in human resource accounting.
Eric Flamholtz

Current development in
human resource costing and
accounting: Reality present,
researchers absent?

Human resource costing and accounting (HRCA) is a complex and

poorly understood process of accounting. The behavioural impact
of HRCA, the many diverging internal forces of an organization, the
increasing need of information from the capital market and action
from organizations, such as the organization for the economic co
operation and development (OECD) and European commission
(EC), are all part of this accounting change process. With Sweden
as a starting point, forces stimulating and inhibiting the
development of HRCA are discussed. The main conclusion is that
the actual state of things (reality) provides more research
opportunities today than in the 1970s. But where are the
researchers?

Human resource accounting: a historical

perspective and future implications

The purpose of this paper is to provide an overview and

history of human resource accounting (HRA) with the
objective of promoting both continued academic research
and organizational applications. The history of HRA
illustrates how academic research can generate
improvement in management systems. The paper defines
HRA and suggests implications of measuring human
capital for financial reporting and managerial uses.
Recent Swedishbased HRA applications with respect to
measuring human assets and intellectual capital,
including the Skandia Navigator, illustrate how intellectual
history and developments in business schools can
influence business history.