Human Resource Accounting (hrm): Saket Agrawal Gurbaksh Singh Chhabra

Human Resource Accounting (HRM) Presented By –

Saket Agrawal Gurbaksh Singh Chhabra

What is human resource accounting?  Human Resource Accounting is “the process of identifying and measuring data about human resources and communicating this information to interested parties”. HRA, thus, not only involves measurement of all the costs/ investments associated with the recruitment, placement, training and development of employees, but also the quantification of the economic value of the people in an organisation.

What is the value of human?  Human is priceless.  Human capital can be counted. – How do you calculate the value of an employee in the company? • Minimum value = The present value of her(his) salary in the future, by considering the possibility of early absence.

Why human resource accounting?  Human capital becomes the most important asset in the corporation to extract value  Present accounting system ignores the importance of human resource value  Managers lack information about the effectiveness and efficiency of human resource investment

Present accounting system ignores the importance of human resource value  Generally Accepted Accounting Principle(GAAP) treats most human capital related costs as expenses, instead of assets  The more the company invests in human capital, the less the current net income  Revenue-Expense(including HR)=Net Income

Reasons of Ignorance • Financial ratios, based on financial statements, provide little or bias human capital profitability information, for example – ROA: based on hard asset – Return on Investment(ROI): The “I” represents the investment on hard assets – Assets Turnover: Sales/Total “hard ”assets

Measurement  The biggest challenge in HRA is that of assigning monetary values to different dimensions of HR costs, investments and the worth of employees. The two main approaches usually employed for this are: 1. COST APPROACH 2. ECONOMIC VALUE APPROACH

Approaches of H.R.A. The cost approach which involves methods based on the costs incurred by the company, with regard to an employee.  The economic value approach which includes methods based on the economic value of the human resources and their contribution to the company’s gains. This approach looks at human resources as assets and tries to identify the stream of benefits flowing from the asset.

Summary  During the past decade, the concept of HRA has been tuned to the requirements of a knowledge economy by focusing on such intangible assets as intellectual capital, relationship capital, etc.  Whatever the tool or approach to HRA, much of the potential for developing human resource accounting capability and gaining its advantage depends upon the availability of and accessibility to the required data.