human resource accounting-final

8/13/2019 Human Resource Accounting-final

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Human Resource Accounting is, theprocess of identifying and

measuring data about human

resource and communicating this

information to interested parties.

-American Accounting Association

Committee


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SATGEI(1960-66)

STAGE

II(1966-71)

STAGEIII(1971-76)

STAGEIV(1976-80)

STAGEV(1980onwards)


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Acc to Eric G Falmholtz

First stage (1960-1966)-

Beginning of academic interest in the area of

HRA

Second stage(1966-1971)-

The focus here was more on development and

validating deferent models


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Third stage(1971-1976)-

This period was marked by a widespread

interest in the field of HR R.G. Barryexperiments contributed substantially

during the stage

Fourth stage(1976-1980)-

This was the period of decline in the areas of

HRA

Fifth stage(1980 onwards)-

There was a sudden renewal of interest inthe field of HRA


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Provide cost value information about

acquiring, development ,allocating and

maintain HR

Enable management to effectively monitor

the use of HR

Find whether human asset is appreciating or

depreciating over a period of time


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Assist in the development of effective

management practices

To motivate individual persons in the

organization to increase their worth by

training

To provide qualitative information on human

resources. (HR)

To know whether the human resources havebeen properly utilized and allocated.


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Put in its simplest form, the main purpose

of an HR accounting is to find out how effecti

ve and efficient the organization's HR activit

ies are, to determine areas for improvementand identify changes.


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As a political tool, used to demonstratemismanagement of human resource

As a pedagogical instrument for analyzing

and structuring

As a decision making aid to ensure that

decision on hr are more rational from themanagement point of view


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Foresee the changes

Provides different methods of testing

Increase productivity

Brings high return

Helps individual employee to aspire

Provides scope for advancement

Throws light on the strength and weaknesses of theexisting workforce


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Not easy to value human asset

Results in dehumanizing human resource

No evidence

HR is full of measurement problem

Employees and unions may not like the ideas

Unrealistic

Lack of empirical evidence


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Peop le are valuable organizat ional

resource

Human resource value is inf luenced bymanagement sty le

HRA inform ation is needed


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Infosys was the first software company to value itshuman resources in 1995-96

The company valued its human resources to Rs 1.86billion.

HRA is very essential for any knowledge intensive

company.

Slowly the concept gained importance and companieslike satyam computers, and even manufacturingfirms like Reliance industries started adopting it.

The assets could be classified into tangibles andintangibles. Human resources was an intangibleasset which involved capabilities, knowledge, skills,and talents of the employees in the company.


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In HRA cost was assigned to every employee

when recruited and revenue generated by

him/her during the tenure in the company.

HRA measured the performance of all the

people in the organization and this

information was made available to all thestake holders to help them make critical

investment decisions.

The companies started realizing that humancapital was now an investment for future

earnings and not expenditure.


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A) Cost Based Model-

Historical Cost Model

Replacement Cost Model

Opportunity Cost Model Competitive

bidding model

Standard Cost Model- Standardizing cost for

class of employees.


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B) Economic Models

Goodwill Method HR Value= Goodwill * amtinvested in HR/ Total Investment

Behavioral Model

Lev & Schwartz Model

Jaggy & Lau Method

Myers & Flowers Method- Employees Value =

Employees Attitude index* wages payable to

employee


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Infosys HRA model was based on the present value ofemployees future earnings.

It had the following assumptions:

Employees salary package included all benefits, direct orindirect, earned both in India and foreign nations

The additional earnings on the basis of age and was alsotaken into account.

All the employees were divided into 5 groups based ontheir average age

Each group compensation was calculated (including the

compensation at retirement)

Total compensation of each group was calculated.

Sum of all values discounted at 27.36% ( cost of human

capital) came to Rs 1.86 billion.


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The employee costs remained almost the same.

Increase in value addition

Net profits increased by more than 150%.

Value of human resources per employee increased

significantly

Information on absenteeism and employee turnover rate

Compensation could be decided upon the worth of the

employee.

Provided vital information for strategic human resource

management Easier for share holders to make investment decisions

Helped to calculate the value of the organization whose

intangible assets are more than the tangible assets.


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The companies act 1956, did not have a provision

for inclusion of human assets in financialstatements. In what form and manner, their value to be

included in the financial statement is the questionyet to be classified on which there is no consensusin the accounting profession.

As human resources are not capable of beingowned, retained and utilized, unlike the physicalassets, there is problem for the management totreat them as assets in the strict sense.

There is constant fear of opposition from the

trade unions as placing a value on employeeswould make them claim rewards andcompensations based on such valuation.

There is no universally accepted method of humanasset valuation.


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human resource accounting-final

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