Meaning of human resource accounting

Human Resources accounting, also known as Human Asset Accounting, involved identifying, measuring, capturing, tracking and analyzing the potential of the human resources of a company and communicating the resultant information to the stakeholders of the company. 

It was a method by which a cost was assigned to every employee when recruited, and the value that the employee would generate in the future. 

Human Resource accounting reflected the potential of the human resources of an organization in monetary terms, in its financial statements.

Definitions of Human Resource Accounting

AAA Definition:   “ The process of identifying and measuring data about human resources and communicating this information to the interested parties ”Stephen Knauf (1983):   “ The measurement and quantification of human organizational inputs such as recruiting, training, experience and commitment ”Eric Flamholtz   “ Accounting for people as organizational resources. It is the measurement of the cost and value of people for the organization ”  

 

Why HRA?

It furnishes cost/value information for making management decisions about acquiring, allocating, developing, and maintaining human resources in order to attain cost-effectiveness;

It allows management personnel to monitor effectively the use of human resources;

It provides a sound and effective basis of human asset control, that is, whether the asset is appreciated, depleted or conserved;

It helps in the development of management principles by classifying the financial consequences of various practices.

Need for hra

HR Accounting is very much needed to provide effective & efficient management within the organization.

If there is any change in the structure of manpower, it is HRA which provides information on it to the management.

HRA provides qualitative information & also assess the cost incurred in personnel.

It gives a platform to the management by providing factors for better decision-making for future investment.

The return on Investment on human capital is best evaluated through HRA.

HRA communicates to the organization & public about the worth of human resources & also its proper allocation within the organization.

HR helps the management in developing principles by classifying the financial consequences of the various practices.

Valuation Approaches of Human Resource

Measurement is arbitrary and there are mainly 2 approaches;Cost based approaches Present Value of Future Earning

Cost Based Approaches1. Historical Cost Approach2. Replacement Cost Approach3. Opportunity Cost Approach 

Historical Cost Approach The cost of recruitment, selection, development are all capitalized and amortized over the useful life time of the employee. This amortization may be dealt according to the situation.  Benefits: Easy to operate, Conforms with the matching principle, Similar to the treatment of other fixed assetsShortcomings: Estimation of the useful life time may not be easy, The value of humans are generally increasing over time - but this method gives a declining picture, This method doesn’t actually measure the value but undermines it

Replacement Cost Approach

The cost to replace the existing human resources are estimated. All costs incurred to attain the current level of competence of an existing employee. Created from scratch 

Benefits: Is present/ future orientedDisadvantage: Not always possible to obtain

such a measure (identical replacement), It is hence subjective  

   

Opportunity Cost Approach

Is based on economic concept which overcomes the deficiency in replacement cost app. Measured through a competitive bidding process within the entity.

  Steps: 1. The entity is divided in to investment

centers 2. The investment centre managers bid for scarce employees they need within the entity

  3. The maximum bid price may obtained by the capitalization of the excess profits generated by the employee  

Present Value of Future Earnings

Lev and Schwartz (1971) proposed an economic valuation of employees based on the present value of future earnings, adjusted for the probability of employees’ death/se

parathion/retirement. This method helps in determining what an employee’s

future contribution is worth today. According to this model, the value of human capital

embodied in a person who is ‘y’ years old, is the present value of his/her future earnings from employment and can be calculated by using the following formula:

E(Vy) = Σ Py(t+1) Σ I(T)/(I+R)t-y T=Y Y where E (Vy) = expected value of a ‘y’ year old person’s

human capital T = the person’s retirement age Py (t) = probability of the person leaving the organization I(t) = expected earnings of the person in period I r = discount rate

LimitationsThe measure is an objective one because it

uses widely based statistics such as census income return and mortality tables.

The measure assigns more weight to averages than to the value of any specific group or individual.

Investment pattern

The human resource investment usually consists of the following items:-

1)      Expenditure on advertisement for recruitment

2)      Cost of selection3)      Training cost4)      On the job training cost5)      Subsistence allowance6)      Contribution to provident Fund7)      Educational tour expenses8)      Medical expenses9)      Ex-gratia payments10) Employee’s Welfare FundAll these items influence directly or indirectly the

human resources and the productivity of the organization.

Hra in india Though Human Resources Accounting was

introduced way back in the 1980s, it started gaining popularity in India after it was adopted and popularized by NLC.  Even though the situation prevails, yet, a growing trend towards the measurement and reporting of human resources particularly in public sector is noticeable during the past few years.  BHEL, Cement Corporation of India, ONGC, Engineers India Ltd., National Thermal Corporation, Minerals and Metals Trading Corporation, Madras Refineries, Oil India Ltd., Associated Cement Companies, SPIC, Metallurgical and Engineering consultants India Limited, Cochin Refineries Ltd. Etc. are some of the organizations, which have started disclosing some valuable information regarding human resources in their financial statements. It is needless to mention here that, the importance of human resources in business organization as productive resources was by and large ignored by the accountants until two decades ago. 

Social Accounting

social accounting may be defined as identification and recording of business activities and social responsibilities.

social responsibilities concept is one of the important concept of management.

it is the duty of enterprise to do some social activities to completing their social responsibilities.

social accounting is very important tool to measures the performance of any company in a view of social responsibilities.

company has to make the social responsibilities income statement and balance sheet. But it is not compulsory to make these statement.

France , UK and USA are the top countries where social responsibility statements are made with other financial statements . In India social accounting is not so popular but some India companies are now focusing on social responsibility and also started to make social report for calculating to total cost and benefits for performing social responsibility .

objectives of social accounting

Main objectives of social accounting are to help society by providing different facilities by enterprise and to record them. We can write them in following points.

1. Effective utilization of natural resources

Main objectives of making social accounting is to determine whether company is properly utilize their natural resources or not .

2. Help to employees Company can help employees by providing

the facility of education to children of employees, providing transport free of cost and also providing good working environment conditions .

3.Help to society Because companies' factories spread the

pollution in natural society which is very harmful for society . So , enterprise can help to society by planting the trees , establishing new parks near factory area. and also opening new hospitals .

4. Help to customers In social accounting this the part of benefits given

by company to society , if company provides goods to customers at lower rate and with high quality .

5. Help to investors Company can help to investors by providing

transparent accounting information to investors .Because of many objectives are related to safeguarding of natural resources so this accounting is also known as Social and Environmental Accounting, Corporate Social Reporting, Corporate Social Responsibility Reporting, Non-Financial Reporting, Sustainability Accounting

Aditya Birla social projects

vision"To actively contribute to the social and economic development of the communities in which we operate. In so doing, build a better, sustainable way of life for the weaker sections of society and raise the country's human development index."

EducationBalwadis (pre-school)Adult education Non-formal education Continuing education Scholarships for girls, merit and technical education

Farmers developmentSelf-help groups SGSY - dairy, readymade garments, jute project, basket making, aggarbati making, bee keeping, durrie making. Check dam Irrigation Land development Soil and water conservation Pasture development Social forestry/ plantation activities/ nursery Horticulture Farmer training

Health and family welfare

Mobile clinics - doctors visit once a week Medical camps - general and issue-basedHealth training and awarenessSanitation - toilets, training, smokeless chullahs, biogasSafe drinking waterMother and child healthReproductive healthAwareness building

Infrastructure development

Roads Dams Community centersHouses Culverts Electricity Health centers Water channels Schools  

Social causes

Widow / dowry-less mass marriagesWomen empowermentAwareness drives on knowledge, attitude and practices

Social responsibility income statement

No. particular Amount(credit)

1.Opening of park expenses

- - - - - - - -

2.health free services

- - - - - - - -

3.plantation

- - - - - - - -

4.water free facility

- - - - - - -

5.employees

- - - - - - - -

Net (credit)balance - - - - - - - - -

No. particular Amount(debit)

1. Natural losses due to pollution - - - - - - -

2. Health defects - - - - - - -

3. other losses due to co. operations -- - - - - -

Net(debit )balance - - - - -- -

Net benefits given by co. to society(credit-debit)

- - - - - - -

Campus Overview

907/A Uvarshad, GandhinagarHighway, Ahmedabad – 382422.

Ahmedabad

Kolkata

Infinity Benchmark, 10th Floor, Plot G1,Block EP & GP, Sector V, Salt-Lake, Kolkata – 700091.

Mumbai

Goldline Business Centre Linkway Estate, Next to Chincholi Fire Brigade, Malad (West), Mumbai – 400 064.

Thank You