HUMAN RESOURCE ACCOUNTING

INTRODUCTION
Meaning: HRA is concerned with measurement and valuation of HR and communicating to the management and external users. Definition: The measurement and quantification of human organizational inputs such as recruiting, training, experience and commitment. -Stephen Knauf

Need for HRA

To achieve the immediate and longrun goals of the organization Conventional Balance Sheets fail to reflect the value of human assets Expenses on current human resources are treated as current costs and written off against current revenues Impact of management decisions on human assets cannot be clearly perceived if the value of human resources is not reported in the P/L account & Balance Sheet

Aims/objectives of HRA

Increased managerial awareness of the value of human resources Better decisions about people, based on improved information systems Greater accountability on the part of management for its human resources Developing new measures of effective man-power utilization Enabling a longer time horizon for planning and budgeting Better human resource planning.

Objections Against Treatment Of People As Assets

HR is not owned by the employer No assurance of future benefits Not recognized by tax laws

Methods of Valuation of HR
1. 2. 3. 4. 5. 6. 7.

Historical Cost Method Replacement Cost Method Standard Cost Method Present Value Method Current Purchase Power Method Opportunity Cost Method Economic Value Method

Valuation Models
The basis of valuation is quite complicated. Use of assumptions regarding probable STAY of the employee. 3 important models have been developed a) Lev & Schwartz Model b) Eric Flamholtz Model c) Jaggi-Laus Model

Benefits of HRA

Discloses the value of human resources Decisions regarding internal human resources improves
1. 2.

3.

Recruitment Vs promotions Transfers Vs retention Retrenchment Vs retention

Prevents misuse of human resources Increases productivity, loyalty, initiative & morale when monetary value is attached to human resources.

HRA in India

No scope to show information on HRA in Companies Act It only requires the number of employees and amount of remuneration paid to employees There also exists no prohibition to attach such information BHEL is the pioneer in this direction. But MMTC, ONGC, SPIC are also adopting this concept.

HRA at MMTC

(Minerals and Metals Trading Corporation)

All categories of employees are included HR value is worked out on the Lev & Schwartz model A 12% discount rate is adopted Employees are classified according to age and pay scales under 6 categories: Executives, Supervisors, Supporting technical staff, Skilled artisans, Unskilled and semi-skilled workers and clerical staff. Weighted average is calculated for each group Future number of employees is worked out on the basis of general promotion policy. Employee benefits include direct and indirect benefits.

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