Human Resource Accounting -Conceptual Framework

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“Human Resource Accounting – an intangible asset : Comparative & Correlation analysis of disclosures in Annual Reports”

1. Introduction:

In present scenario, despite the global change, Human Resource Accounting is major issue for research & analysis in management. Human resource has always been taken as a ‘soft & light issue’ whose contribution generally can not be measured in monetary terms. There is no role of recording investments, benefits rendered by employees, valuation & accounting of human resource in conventional financial accounting. human resources is not considered in the different balance sheet models, and only in the profit and loss statement human resource costs / expenditure are taken in account, such as salaries and staff welfare expenses (including pensions). The number of employees classified in categories is mentioned only in the explanatory report, the same as the board of directors' payment. Recent literature has focused on a broader measurement, namely that of "intellectual capital." Despite those who consider intellectual capital a new approach, it is really an extension of HR accounting since without the underlying concept of HR investment there can be no intellectual capital development. As human resource is being taken as intellectual asset of the organization and worth three or four times the tangible book value. Human capital also provides expert services such as consulting, financial planning and assurance services, which are valuable, and very much in demand. As it is the combination of HR & Accounting, joint efforts of behavioral scientists, accountants and managements are needed for the working and development of HRA. Figure 1.1

There are two reasons for including human resources in accounting [Ripoll and Labatut, 1994]. First, people are a valuable resource to a firm so long as they perform services that can be quantified. Second, the value of a person as a resource depends on how he is employed. So management style will also influence the human resource value. Human Resource Accounting (HRA) is basically an information system that tells management what changes are occurring over time to the human resources of the business. HRA also involves accounting for investment in people and their replacement costs, and also the economic value of people in an organization. HRA has been defined by American Accounting Association's committee [1970] –"HRA is the process of identifying & measuring data about human resources & communicating this information to interested parties". Stephen knauf defined HRA as "The measurement & quantification of human organizational inputs such as recruiting, training, experience & commitment." According to Eric. G. flamholtz HRA represents "Accounting for people as an organizational resource. It is the measurement of the cost & value of people for the organization". Hence, it can be said that, it is the process of developing financial assessment for people within organization & society & monitoring of these assessment through time, it deals with benefits. 1.1 Interest area: HRA?

The interest in HRA originate from different perspectives, there are several issues which make the firm declined towards human resource accounting. Capitalizing humans would assist in restoring individual relationships between management and employees; the true value of human brings recognition, self actualization, & esteemed position to employee. If the manager realizes that there are future benefits, he or she may spend more time to develop employees. It realizes the maximum return on human investments and enhanced quality of work. HRA quantifies information about human resource and for evaluation of management’s utilization of human asset. If functioning of any organisation is ineffective & resulting high turnover rates, the major reason may be motivational problems. HRA practices of that organisation can find out the possibility and reason of dissatisfaction and leaving the...
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