About HRA (Human Resource Accounting) is explained

1. HUMAN RESOURCE
ACCOUNTING
Introduction to
Presented By
P B Narendra Kiran M.B.A., M.Phil., (Ph.D.)
Department of Management Studies, BITS VIZAG
VIZAG
BITSBITS
Unit-2

2. Introduction
HUMAN RESOURCE ACCOUNTING
HRA
Slide
02

3. Since the beginning of globalization of business and services, the human
resources are becoming more important and decisional input for the success
of any corporate enterprise.
Human resource accounting (HRA) involves accounting for expenditures
related to human resources as assets.
All the processes of the organisation are operated by human resources,
thereby the changes in the HR cost and benefits must be considered.
Though it has been accepted that HR is capital resource thereby the
valuation of this resource is very necessary and information about the
valuation should be given to the investors, the management and others
through financial statements.
Slide
03Introduction

4.  The concept of human resource accounting has been defined by
the committee on Human Resource Accounting of the American
Accounting Association as “the process of identifying and measuring
data about human resources and communication this information to
interested parties.”
 Human beings are the active agents and economic growth is the
consequence of the progress in the areas of human resource. Thus
human resource accounting consists of valuation of human resources
and recording it in the books of accounts and presenting the
information in the financial statement for communication.
Slide
04

5. Slide
05
 Human resources accounting is basically an
information system that tells management what
changes are occurring over time to the human
resources of the business.
 Human resources accounting (HRA) is one of
the latest concept adopted by few corporations
in our country.
 Most of the corporations have realised that
human resources are their most precious
resources.
 So it is required to taken some measures to
develop their human resources but also taken
measures to accelerate their values.

6.  Flamholtz has specifically underlined the primary role of human
resource accounting as that of providing information essential for
management to perform the functions of acquiring, developing,
allocating, conserving, utilizing, evaluating and rewarding human
resources.
Slide
06

7. Slide
07

8. HRA provides useful information to the management, financial analysts
and employees as stated below:
1. It helps the management in the employment, locating and utilisation of human
resources.
2. It helps in deciding the transfers, promotion, training and retrenchment of human
resources.
3. It provides a basis for planning of physical assets vis-a-vis human resources.
4. It assists in evaluating the expenditure incurred for imparting further education and
training in employees in terms of the benefits derived by the firm.
5. It helps to identify the causes of high labour turnover at various levels and taking
preventive measures to contain it.
Slide
08

9. 6. It helps in locating the real cause for low return on investment, like improper
or under-utilisation of physical assets or human resource or both.
7. It helps in understanding and assessing the inner strength of an organisation
and helps the management to steer the company well through most adverse
and unfavourable circumstances.
8. It provides valuable information for persons interested in making long term
investment in the firm.
9. It helps employees in improving their performance and bargaining power. It
makes each of them to understand his contribution towards the betterment of
the firm vis-a-vis the expenditure incurred by the firm on him.
Slide
09

10.  It is fact that over the last four decades, it was the era of human values
and recognition, the organisations believes that the actual assets are
the human resources.
 The skills, ability, creativity and motives cannot be replaced by
machines. There were some remarkable studies and contributions made
by several behavioural scientist and scholars.
 The experts in this field were Shulz (1960) and William Pyle (1967)
who recognised the actual value of human resources. Flam Holth
(1973) and Kenneth Sinclare (1978) contributed appropriate
methodology for finding out the value of the employees to the
organisation.
Historical Perspective
Slide
10

11.  The following are the reasons why Human Resources Accounting has been receiving
so much attention in the recent years.
• Firstly, there is genuine need for reliable and complete management of human
resources.
• Secondly, a traditional framework of Accounting is in the process to include a
much broader set of measurement than was possible in the past.
 Human Resource Accounting is the measurement of the cost and value of people to
the organization. It involves measuring costs incurred by the organizations to recruit,
select, hire, train and develop employees and judge their economic value to the
organization
Reasons for Emergence of HRA
Slide
11

12.  The need for human resources accounting arose primarily as a result of the growing
concern for human relations management — in industry.
 Behavioural scientists concerned with the management of organisation pointed out that
the failure of accountants to value human resources was a serious handicap for effective
management.
 A business manager has to use resources carefully to achieve immediate and long-term
goals for the organisation. This necessitates valuable information about resources.
 The human beings constitute an important asset for an organisation. Without people in
the organisation, other resources physical and financial cannot be effectively used. In
conventional accounting, not much information is available about human resources.
Human Resource Accounting - NEED
Slide
12

13.  The levels of income shown in the conventional statements in
profit and loss accounts do not accurately reflect the level of
business performance.
 Expenses on human resources are charged to current revenue
instead of being treated as investments to be amortised over the
economic service of the employees with the result that the
figures of net income shown are significantly distorted.
 The result in the conventional balance sheets fail to reflect the
value of human assets, hence there is distortion in value of
organisation and the rate of return of investment. Distorted
measures render assessment of organisation and inter-
organisation comparison difficult.
 Conventional treatment of investments on human resources
may lead to the erosion of investors, interest through
management decisions which is harmful for the long-run
success of an organisation and to the investor’ equity.
Slide
13

14.  Traditional accounting involves treatment of human capital and non-human
capital differently; the recorded value of other assets is indicated as non-
human capital.
 There is no such record of human assets corresponding to the human capital
of the organisation although the productivity and profitability depend largely
on contribution by human assets.
 Expenses incurred by a firm on recruitment, training and development of
human resources, employees are at present as per practice, treated as current
costs and written off against current revenue in the conventional accounts.
 Similarly, other employee related expenses such as welfare expenses,
incentives, benefits are treated under the present system of accounting.
 The impact of management decision on human assets of the firm cannot be
clearly perceived if the value of human resources is not reported in the profit
and loss account and balance sheet.
Slide
14

15. 1. It provide a basic platform of planning in that the objectives, aims and methods for acquiring
human resources are included;
2. It provide various assistance to the management in employment and utilisation of human
resources;
3. It helps the management in planning and executing personnel policies and plans pertaining to
the recruitment, transfer, promotion and retrenchment of human resources;
4. It helps to study and assessing the inner strength of an organisation and helps the
management to overcome the most adverse and unfavourable circumstances;
5. It helps to analyse the causes of high labour turnover at various levels and taking preventive
measures for control over it;
Significance of HRA
Slide
15

16. 6. It helps to give the cost of developing
human resources and as such it will
enable the management to ascertain the
cost of labour turnover also;
7. It helps in evaluating the expenditure
incurred for imparting further education
and training of employees in terms of
benefits derived by the organisation;
8. It helps to find out the real cause for low
utilisation of HR, under utilisation of
assets as well as low return on
investment;
Slide
16
9. It helps the HR managers for conducts a
better ways and means for organisational
development in the organisation;
10. It helps in improving the efficiency of
employees towards improving their
performance and their worth;
11. It helps the each employee to understand
his contribution towards the perspective
results of the firm as well as the expenditure
incurred by the firm on him.

17. Thank You
Slide
17