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Human Resource Accounting

Human Resource Accounting. By CA. Pramod Prabhu. S.H., B.Sc, P.G.D.B.A., A.C.A, C.I.S.A (U.S.A). HRA - Meaning.

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Human Resource Accounting

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  1. Human Resource Accounting By CA. Pramod Prabhu. S.H., B.Sc, P.G.D.B.A., A.C.A, C.I.S.A (U.S.A)

  2. HRA - Meaning • Can be defined as the process of accounting which identifies, quantifies & measures human resources for the use of management to cope up with the changes in its quantum & quality so that equilibrium could be achieved in between the required resources & the provided HR • Thus, basically it is an information system that tells the management the changes taking place over time to the HR in the organisation. it also involves measuring the cost & value of the people in the organisation • Some Indian PSUs using HRA: • BHEL, SAIL, ONGC, NTPC , Hindustan shipyard etc.

  3. HRA – Basic Premise • People are valuable resources of an organisation • Usefulness of manpower is determined by the manner in which they are managed • Info on investment & value of HR is useful for decision making for an enterprise

  4. HRA – Objectives • Provide info about earning potential of employees • Provide comparative info on costs & benefits associated with investment in human assets • Measure efficiency of employee by finding productivity & profitability • Assist management in taking decisions on investment in human resources

  5. HRA – Importance • Helps understand & assess inner strength of an organisation & helps management to steer the company through trying situations • Helps management in proper utilisation of HR • Helps employees in improving their performance & bargaining power, as they can assess their contribution against expense incurred on them • Helps decide on transfers, promotion, training & retrenchment of HR • Provides valuable info for persons interested in making LT investments in the firm • Provides a basis for planning of HR • Helps locate the real cause for low ROI, like improper/under utilisation of physical/human assets • Helps identify causes for high labour TO at various levels & take remedial measures • Assists evaluate training expenses against corresponding benefits obtained

  6. HRA Models • Historical cost method of valuation – Valuing at costs already incurred • Replacement cost method • Standard cost method • Opportunity cost method • NPV method: • a. Lev & Schwartz model • b. Morse model (Net benefit model) • c. Hermanson’s model • d. Flamholtz’s rewards valuation model • e. Pekin ogan model • f. Jaggi & Lau model

  7. HRA - Objections • There is a difference between Hr & other assets. HR cannot be valued like other assets • The different methods of valuation of HR vary & give varying results • Tax laws do not recognise HR asset. it remains only a theoretical concept • Factors for HR valuation are abstract & are not precisely measurable in monetary terms • Uncertainty about continuance of employees • Lack of perfect knowledge about future earnings of HR

  8. THANK YOU

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