a literature review on human resource accounting

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Published On: February 15, 2016

International Journal of Informative & Futuristic Research ISSN: 2347-1697

Volume 3 Issue 6 February 2016 Reviewed Paper

Abstract

Human resource accounting is of recent origin and is striving for acceptance. Human resources accounting is an accounting analysis system and in the last decade a large body of literature has been published for setting the various procedures for analysis. At the same time from academicians the theory and underlying concepts of accounting measurement have received sizeable attention and a considerable body of literature has developed. The conventional accountings of human resources are not perceived as physical or financial assets. This paper reviews the literature available on the perception of human resource accounting. In worth, previous study have shown and debated various magnitudes related to valuing human resource. For accounting human resources, different models have been developed which are helpful to identify and report investment made in the human resource of an organization that are not presently accounted

for under conventional accounting practice.

1. INTRODUCTION

Winds of change are exhaustive over the corporate landscape and there is an increasing

urgency to cope with the continually changing forces of competition, technological

development and new trend in the economy which has force to a growing awareness that

productive utilization of human resource which is the key to organizational success.

Human resource accounting is of recent origin and is striving for acceptance. Human

resources accounting is an accounting analysis system and in the last decade a large

body of literature has been published for setting the various procedures for analysis. At

the same time from academicians the theory and underlying concepts of accounting

A Literature Review On Human

Resource Accounting Paper ID IJIFR/ V3/ E6/ 009 Page No. 1867-1876 Subject Area Commerce

Keywords Literature, Valuation, Human Resource Accounting , HR decision,

Anjna Rani

Research Scholar,

Department Of Commerce

Kurukshetra University, Kurukshetra (Haryana)

http://www.ijifr.com/

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International Journal of Informative & Futuristic Research (IJIFR)

Volume - 3, Issue -6, February 2016

Continuous 30th Edition, Page No.:1867-1876

Dr. S. Nirmala, Deepthy. K:: A Study Of Cointegration Between Indian, American And Chinese Stock Markets

measurement have received sizeable attention and a considerable body of literature has

developed. The conventional accountings of human resources are not perceived as

physical or financial assets. HRA is a management tool which is designed to assist

senior management in understanding the long term cost and benefit implication of their

HR decision so that better business decision can be taken. If such accounting is not

there, then the management runs the risk of taking decision that may improve profit in

the short run but may also have severe results in future.

2. OBJECTIVE OF THE STUDY

The main objective of the present study is to explore the literature review related to

human resource accounting.

3. RESEARCH METHODOLOGY

This study is descriptive cum exploratory in nature. Secondary data is used for the

purpose of the study. To develop this study in depth literature review has been used

which is collected from websites, different books, previous research findings and from

different libraries.

4. REVIEW OF LITERATURE

1st. Elias (1976) attempted to provide framework for analyzing the behavioral

aspects of accounting methods. It was found that HRA due to its behavioral

impact had a distinct effect on decision making. It had a potential impact for both

functional and dysfunctional consequences which were different depending on

the circumstances and management philosophy. All expenditures related to HR

were considered to have been made for the acquisition and maintenance of

human assets and are therefore capitalized. It was suggested to consider sunk

cost in the various analysis of the company.

2nd. Fleming (1977) assessed the behavioral implications if a value for employee is

published as an asset on the balance-sheet. For the purpose of the study a survey

was done on faculty members and students, which was based on a questionnaire.

It was revealed that 43% of faculty and 38% of students were against the

statement that placing a dollar value on human being is an insult to their dignity

and an equal percentage of faculty felt that it was not only an insult but also a

way treating people as slaves or machines. 85% of students were against the

discloser of information publicly related with individual.

3rd. Tsay (1977) analyzed the relevance of internal and external reporting in an

organization. The mutual dependence of measurements & decisions was defined

by considering some examples and found that the internal reporting was relevant

of effective decision making. It was concluded that measurement can be

proposed after considering its purpose. HRA measures proposed for financial

reporting should be based on the general purpose of financial reporting.

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Historical cost measurement was suggested as an appropriate method of

measuring.

4th. Stephenson and Franklin (1982) gave a macro level perspective to human

resource accounting by analyzing different HRA models which reinforced the

practical implications of HRA in terms of real dollars and common sense for

management. It was found that many companies have recognized the need for

systematic assessment of the human element of the organization in quantitative

terms for internal management purposes. It was invented that in the near future

maximum corporations will be recording their human capital in the balance

sheet.

5th. Dawson (1994) studied the distinction between prescriptive and descriptive

approaches with regard to human resource accounting. It was found that both

approaches have a useful contribution to make but prescriptive approach should

not be confused with low quality descriptive approaches and that while the latter

are to be deplored the former have a valuable place in management research.

6th. Batra (1996) calculated the HRA and auditing practices in selected public

enterprises like BHEL, SAIL & CCI up to the period 1991-92. Primary and

secondary data were collected for the purpose of study. This study suggested a

model for measuring the value of human assets of these enterprises and found

that HR valuation and audit activity could be helpful in improving the efficiency

of human resources in the changing business scenario.

7th. Flamholtz et. al. (2002) explored the term HRA and implications of measuring

human capital for financial capital and managerial use. It was also studied about

the Swedish based HRA applications with respect to measuring human assets

and intellectual capital including the Skandia Navigator illustrates the intellectual

history and developments in business schools. It was revealed that HRA suggests

a vehicle for improvement of management as well as measurement of HR. If

HRA can demonstrate that improvement in HR management enhances profits,

then managers will integrate human capital implications in their decision making

to an enhanced degree.

8th. Dhade (2005) gave a macro level perspective to human resource accounting for

succeeding in highly knowledge driven economy. It was concluded that

companies should focus on intangible assets like human resources for future

growth.

9th. Theeke (2005) in a study presented the positions and conclusions of scholars to

support a proposition that the asset approach to human resource accounting has

failed. The paper offered an alternative liability approach to account for and

report human resources. The paper provided an argument and rationale to

demonstrate that a liability paradigm would be compatible with normal

accounting and reporting procedures.

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10th. Vedd and Kouhy (2005) analyzed the role of management accountants in

relation to strategic human resource management. The study was based on four

case studies by using a grounded theory approach. It was found that three of the

four cases, where there was particularly increased awareness of global

competition, the organizations were developing strategic team leadership to face

this challenge. The strategy for leadership and supervisory development

programmes for the Royal Mail, Canada Post and Weycan tried to give

employees the ability to understand cultural values and to develop organizational

excellence. Further, it was concluded that management accountants in these four

cases had several roles in relation to SHRM including contributing information

and analyses for strategic planning (including competitive analysis), setting

targets, decision-making, measuring performance (both financial and non-

financial) and reporting (including benchmarking).

11th. Theeke and Mitchell (2008) in a study made an attempt to explore the

implications of HR liability accounting paradigm including effects on financial

statements, ratios, risk and management behavior. It was found a relationship

between a firm value and the present value of HR expenses and recognizing HR

expenses will tend to depress asset turnover and return on assets while inflating

estimates of risk in the form of a higher debt ratio, lower cash flow coverage and

higher degree of operating leverage.

12th. Tracy (2008) directed at analyzing the types and adoption of HR policies,

practices and programs in the hospitality industry of Kenya that may be linked to

a firm’s overall business strategy & helps to drive performance in the hospitality industry of Kenya. It was proclaimed that there is a need to develop a clear and

strong alignment between the overall business plan and the HR function.

13th. Catasus et. al. (2009) conducted a study to measure the sensegiving cues

encapsulated in models of reporting for human resources by investigating

elements, arguments and formats of the model. The paper focused on the three

discourses’ of HR reporting. It was revealed that sensegiving process is affecting

by different sensegiving cues/models which have an ethical dimension.

14th. Mamun (2009) investigated the relationship between corporate characteristics

and Human Resource Disclosure level in fifty five companies of Bangladesh.

The relationships were determined using a HRAD Index under a number of

hypotheses and found that companies averagely disclosed 25% of the total

HRAD items. In this study, HRAD has been found significantly related with the

size of the company, category of the company and profitability. However,

HDAD was found in a condition not influencing the age of companies.

15th. Seth (2009) studied the concept of human resource accounting and various

human resource accounting models, which have been adopted by a number of

Indian enterprises to give information about human resource in their balance

sheets, steps involved in calculation of human value using Lev and Schwartz

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model and its critical aspects, and lastly, concludes with suggestions for

improvement in the field. It was revealed that the measurement and reporting of

HRA in Indian Industry were in growing trend. Further, it was found that most of

the Indian companies and corporations have followed Lev & Schwartz model for

determining the value of human resources & HRA should have been flourished

throughout the nation.

16th. Avazzadehfath (2011) checked the impact of human resource accounting

information on the investment decisions and explored the factors that could

interfere in the effect. Further, it was examined that which evaluation method of

human resource was the most appropriate method consistent with Iranian

companies in terms of qualitative characteristics of accounting information. It

was revealed that human resource accounting (HRA) information disclosures in

financial statements were relevant and affect on the optimal investment

decisions. Original cost method was found to be the most effective and

appropriate evaluating method of human resource consistent with current status

of Iranian companies and institutions.

17th. Compbell and Helleloid (2011) conducted a study to analyze the adoption of

IFRS in the organization and HRM practices by global accounting firms.

Theoretical framework was the base of the study. It was found that there is a

need to be part of the discourse surrounding the possible U.S adoption of IFRS.

It was suggested that if global accounting regulatory standards are adopted then

it would be much easier for staff to work trans-nationally, and much easier to

meet regulatory standards regarding supervision when audit work was performed

in different countries.

18th. Badiyani (2012) described the brief history and the popular models of assessing

the value of human resources in the organization. It was found essential for an

organization to consider its human resources as an asset. The gradual

developments have been observed in the field of human resource accounting and

new approaches and models were given. Different organizations were found

using various models according to their need and the nature.

19th. Hosseini (2012) in a research studied the concept of human resource accounting

and found that the promotion of human capital and its effect on different aspects

of organization operation and in more extended level on economic and social

development was not hidden for everybody. Promotion of this capital was found

including a collection of competences for Appling knowledge and skill for

achieving to results of programs. Creativity, flexibility, capability of conducting,

solving problem and making creative relation with others, job making and

complex skill such as knowledge of manner of learning were the features

embracing in the competences.

20th. Pandey (2012) analyzed HRA practices of fifty selected companies on the Nifty

based of three years of annual reports. Content analysis was used for the study. It

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was found that out of 50 leading companies of India only one (ONGC) company

follows the HRA practices. Due to increasing importance of intangibles

especially human resources, how to what extent these are reported is of utmost

interest to a large number of stakeholders.

21st. Ratti (2012) calculated the value of human resources at different levels of

organization and determined the human resource efficiency quotient taking the

sample of fifteen Companies for the measurement of human resources. Primary

data were used in the study. It was revealed that the value of human resources

did not depend upon the number of persons employed.

22nd. Cherian and Farouq (2013) examined the relationship among HRA and

organizational performance and a study was conducted on reviews in the field of

Human Resource Accounting. It was found that company management and in

addition to HR professionals were not willing to execute HRA. Further, it was

revealed that organization faced several challenges during the HRA

implementation but disclosures on human assets acted as evidence for wealth

creation and helped in calculating the human resources capital, worth of

management development and enhances the value of management accounting.

23rd. Kesavan and Dayana (2013) made an attempt to analyze the Human Resource

Accounting disclosure in selected Indian companies. 20 companies were

considered for the study, out of that only 6 companies (3 Public and 3 Private

sector companies) were following Human Resource Accounting and

Independent’t’ test was used to find the difference in the disclosure of Human Resource variables in selected Indian companies. A significant difference had

been found between human resource disclosers of public and private sector

banks.

24th. Bloom and Kamm (2014) conducted a study to aim at analyzing the human

resource costs incurred by organization under U.S generally accepted accounting

principles and reflect the impact of the Balanced Scorecard and recent literature

on the valuation of human capital. The study concluded that superior performing

companies recognized and reward their best employees to highlight the value of

human capital.

25th. Kaur et. al. (2014) attempted to evaluate extent of HRA measurement and

reporting practices of selected Indian companies. The study was aimed at

analyzing these companies and ranks the companies on the basis of the extent of

disclosure of HRA information in annual reports of companies. The study was

based on exploratory research design and secondary data were collected for this

purpose. It was revealed that measurements and reporting are highly subjective

and the companies are trying to fit available model for the valuation of HR as per

their own requirement.

26th. Madhumalathi et. al. (2014) identified the objectives of Human Resource

Accounting and various HRA models which are need to arrive at HR value. It

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also emphasized the application of HRA in various corporate sectors in India

with special reference to Infosys. It was concluded that HRA in Infosys helped in

identifying the right person for right job based on the person’s specialized skills, knowledge, capabilities experience etc. and proper initiation should be taken by

the govt. for the measurement and reporting of such valuable assets. It was

suggested to take proper initiatives by the government along with the other

professional and accounting bodies both at the national and international levels

for the measurement and reporting of such valuable assets.

27th. Sharma and Kumar (2014) compared the disclosers and practices adopted by

selected public and private sector banks and revealed that public sector banks

were disclosed more information related to the human resource practices than the

private sector banks. Public sector banks were found disclosing some quality

information of human capital related information.

28th. Sharma and Lama (2014) highlighted the growth and development made in the

field of human resource accounting taking the examples of some Indian

companies that made effort to value and account human resource in the financial

statements. Further, the validity of the misleading financial statements was

examined. The Indian companies were found conscious about various advantages

of the HRA and for encouraging the development and application of HRA the

Regulatory Bodies for Accounting Standards in both the National and

International level have to focus on the measurement and reporting aspect of

HRA and enforce sound standards for it.

29th. Stanko et. al. (2014) examined the history of human asset accounting and its

feasibility in current financial reporting environments. Additionally, the

importance of human asset accounting, different approaches toward human asset

accounting, and how beneficial an accurate method could prove to be in financial

reporting was demonstrated. It was revealed that as a foregoer to measurement

the development of general quantitative & qualitative human capital disclosures,

with real company examples, be included in a company’s sustainability reporting.

30th. Bullen and Eyler examined the international contributions made to the field of

HRA considering the human capital, human resource metrics, intellectual capital,

and organizational management. In results, a situation of growth was recorded in

the field of HRA Along with advances in HRA theory. It was concluded that

HRA gained positive effect overseas assignment on personal development. It

was suggested to follow the international trends emerging in intangible reporting,

capitalized human resource information, so that HRA can become more

prevalent.

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5. FINDINGS OF THE STUDY

i.) HRA termed as a vehicle for improvement of management as well as

measurement of HR.

ii.) The measurement and reporting of HRA in Indian Industry are in growing trend.

iii.) Human resource accounting (HRA) information disclosures in financial

statements were relevant and effect on the optimal investment decisions.

iv.) It was found that most of the Indian companies and corporations have followed

Lev & Schwartz model for determining the value of human resources.

v.) Some organization faced several challenges during the HRA implementation.

vi.) The companies are trying to fit available model for the valuation of HR as per

their own requirement.

6. CONCLUSION

In concise we perceived that a large body of theoretical and empirical research has been

done on human resource accounting disclosures, human resource accounting models and

measurement for assessing the human resources. Human Resource Accounting has

fewer acceptances by business world. But previous study have shown and debated

various magnitudes related to valuing human resource which defines that human

resource accounting is inevitable for every business and these businesses should valuing

their human resources . For accounting human resources, different models have been

developed which are helpful to identify and report investment made in the human

resource of an organization that are not presently accounted for under conventional

accounting practice. On the behalf of accounting bodies, government agencies and

regulatory bodies there is a need to come forward and issue guidelines of accounting in

relation to disclosures being more objective and user worthy. The scope of the further

study is in how the technology of HRA can be adapted and broadened to the measure of

different types of intellectual property.

7. REFERENCES

[1] Sharma, Dr. C. S., & Lama, Sameer. (2014). A Critical Evaluation of Measuring the

Immeasurable: Human Resource Accounting (HRA). The International Journal Of Business &

Management, 2 (3), 22-28.

[2] Madhumalathi, R., George, Lina., & Madhumathi, T. K. (2014). A STUDY ON HUMAN

RESOURCE ACCOUNTING IN CORPORATE SECTORS. International Journal of

Organizational Behaviour & Management Perspectives, 3 (1), 717-722.

[3] Bullen, Maria. L., & Eyler, Kel-Ann. Human resource accounting and international

developments: implications for measurement of human capital. Journal of International

Business and Cultural Studies, 1-16.

[4] Flamholtz, E. G., Bullen, M. L., & Hua, W. (2002). Human resource accounting: A historical

perspective and future implications. Management Decison, 40 (10), 947-954.

[5] Seth, Neha. (2009). Human Resource AccountingPractices Adopted in Indian Industries.

ASBM Journal of Management, II (2), 103-113.

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[6] Cherian, Jacob., & Farouq, Sherine. (2013). A Review of Human Resource Accounting and

Organizational Performance. International of Journal Economics and Finance, 5 (8), 74-83.

[7] Vedd, Rishma., & Kouhy, Reza. (2005). Interface between Management Accounting and

Strategic Human Resource Management: Four Grounded Theory Case Studies. The Journal of

Applied Accounting Research, 7 (iii), 117-153.

[8] Dawson, Chris. (1994). Human Resource Accounting: From Prescription to Description?.

MANAGEMENT DECISION, 32 (6), 35-40.

[9] Campbell, Katherine., & Helleloid, Duane. (2011). IMPLICATIONS OF IFRS

ADOPTATION ON THE ORGANIZATION AND HUMAN RESOURCE MANAGEMENT

PRACTICES OF GLOBAL ACCOUNTING FIRMS. Journal of International Business

Research, 10 (1), 109-116.

[10] Stephenson, Blair. Y., & Franklin, Stephen G. (1982). Human Resource Accounting:

Dollars and Sense for Management. Business and Society (pre-1986), 46.

[11] Tsay, Jeffrey J. (1977). Human Resource Accounting: A Need for Relevance. Management

Accounting (pre-1986), 58 (9), 33.

[12] Elias, Nabil. (1976). BEHAVIORAL IMPACT OF HUMAN RESOURCE

ACCOUNTING. Management Accounting (pre-1986), 57 (8), 43.

[13] Stanko, Brian. B., Zeller, Thomas. L., & Melena, Matthew. F. (2014). Human Asset

Accounting And Measurement: Moving Forward. Journal of Business & Economic Research, 12

(2), 93-104.

[14] Flaming, Mary. M. K. (1977). BEHAVIORAL IMPLICATIONS OF HUMAN

RESOURCE ACCOUNTING: A SURVEY OF POTENTIAL PROBLEMS. Human Resource

Management (pre-1986), 16 (2), 24.

[15] Kaur, Surinder., Raman, A. Venkat., & Singhania, Monica. (2014). Human Resource

Accounting Disclosure Practices in Indian Companies. Vision, 18 (3), 217-235.

[16] Dhade, Aruna. (2005). A HUMAN RESOURCE ACCOUNTING: A WAY TO SUCCEED

IN KNOWLEDGE-DRIVEN ECONOMY. MANAGEMENT & LABOUR STUDIES, 30 (4),

381-392.

[17] Tracey, Bruce. J. (2008). Accounting for Human Resource Flexibility. Cornell Hospitality

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[18] Pandey, N. N. (2012). Human Resources Its Valuation and Disclosure Practices in Nifty-

based Companies of India. Management and Labour Studies, 37 (4), 323-335.

[19] Bloom, Robert., & Kamm, Jacob. (2014). Human Resources: Assets That Should Be

Capitalized. Compensation & Benefits Review, 46(4), 219-222.

[20] Theeke, Herman. A. (2005). A human resource accounting transmission: shifting from

failure to a future. Journal of Human Resource Costing & Accounting , 9 (1), 40-59.

[21] Mamum, S. A. (2009). Human resource accounting (HRA) discloser of Bangladeshi

companies and its assocition with corporate characterstics. BRAC University Journal , VI (1),

35-43.

[22] Avazzadehfath, F., & Raiashekar, H. (2011). Decision making based on human resource

accounting information and its evaluation method. Asian Journal of Finance and Accounting , 3

(1: E14).

[23] Hosseini, M. G. (2012). Human resource accounting. IOSR Journal of Business and

Management , 2 (5), 06-10.

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[24] Badiyani, B. M. (2012). Human resource accounting: brief history and popular models.

Quest International Multidisciplinary Research Journal , I (II), 155-158.

[25] Ratti, M. (2012). An analytical study of human resource accounting practices- an Indian

experience. Integral Review- A Journal Of Management , 5 (2), 37-45.

[26] Sharma, N., & Kumar, M. (2014). A comparative study of human resource discloser and

reporting practices of selected public and private sector banks. Abhinav , III, 78-86.

[27] Kesavan, S., & Dyana, P. F. (2013). Disclosure of human resource accounting (HRA) in

selected Indian companies- An empirical analysis. Indian Streams Research Journal , 3 (5), 1-6.

[28] Theeke, Herman., & Mitchell, John. B. (2008). Financial imlications of accounting for

human resources using a liability model. Journal of Human Resource Costing & Accounting, 12

(2), 124-137.

[29] Batra, G. S. (1996). Human resource auditing as a tool of human resource valuation:

interface and emerging practices. Managerial Auditing Journal, 11 (8), 23-30.

[30] Catasus, Bino., Martensson, Maria., & Skoog, Matti. (2009). The communication of human

accounts: examining models of sensegiving. Journal of Human Resource Costing & Accounting,

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a literature review on human resource accounting

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