Human Resource Accounting Practices Adopted in Indian Industries

Author:Seth, Neha

Human Resource Accounting (HRA) means accounting for people as original resources. It is the measurement of cost and value of people for an organisation. It is also a way of thinking about the management of people in formal organisations. Knowledge workers are important resources for the typical modern business firms. With the growing complexities of business organisations, the need and... (see full summary)



To ensure growth and development of any organisation, the efficiency of people must be augmented in the right perspective. Without human resources, the other resources cannot be operationally effective. The original health of the organisation is indicated by the human behavior variables, like group loyalty, skill, motivation and capacity for effective interaction, communication and decision making. Men, materials, machines, money and methods are the resources required for an organisation. These resources are broadly classified into two categories, viz., animate and inanimate (human and physical) resources. Men, otherwise known as the human resources, are considered to be animate resources. Others, namely, materials, machines, money and methods are considered to be inanimate or physical resources.

The success of an organisation depends on how best the scarce physical resources are utilised by the human resource. Therefore, the efficient and effective utilisation of inanimate resources depends largely on the quality, calibre, skills, perception and character of the people, that is, the human resources working in it. The term human resource at macro level indicates the sum of all the components such as skills, creative abilities, innovative thinking, intuition, imagination, knowledge and experience possessed by all the people. An organisation possessed with abundant physical resources may sometimes miserably fail unless it has right people, human resources, to manage its affairs. Thus, the importance of human resources cannot be ignored. Unfortunately, till now generally accepted system of accounting for this important asset, viz., the human resources has not been introduced in many big organisations.

The aim of human resource accounting is to depict the potential of human resources in monetary terms, while casting the organisation's financial statements. The expenditure incurred for recruiting, staffing and training and developing the human resource quality is the investment in human resource. The fruits of such investments are increased productivity and profit to the organisation. The key objective of human resource accounting is to facilitate the management to get information on the cost and value of human resources which will enhance the quantity and quality of goods and services. Human resources accounting brings to light the quantum of human resources and indicates the right control of conservation, depletion and appreciation of it in the right perspective. It provides data to the interested persons about the cost of human resources and correspondingly comparing it with the benefit obtained out of its utilisation. It is basically adopted to treat human resources as assets, to generate human data about human resources, to assign value to human resources and to present human assets in the balance sheet. The human resource accounting is used to furnish cost value information for making proper and effective management decisions about acquiring, allocating, developing and maintaining human resources in order to achieve cost effective organisational objectives. Further, it helps the organisation in decision making in the various areas like Direct Recruitment vs. Promotion, Transfer vs. Retention, Retrenchment vs. Retention, Impact on budgetary controls of human relations and organisational behaviour, decision on reallocation of plants, closing down existing units and developing overseas subsidiaries etc. It assists in evaluating the expenditure incurred for imparting further education and training in employees in terms of the benefits derived by the firm. It helps to identify the causes of high labour turnover at various levels and taking preventive measures to contain it. It also helps in locating the real cause for low return on investment, like improper or underutilisation of physical assets or human resource or both. Human resource accounting makes the employee understand that their contribution towards the betterment of the firm visà-vis the expenditure incurred by the firm on him. Moreover, it helps the financial analysts in understanding and assessing the inner strength of firm which depends on the physical assets owned and possessed by the firm as well as on the type of human resources available to the firm.

For a long period, the importance of human resource was not taken care of seriously by the top management of organisations. Therefore, at this juncture, it becomes imperative...

To continue reading