HUMAN RESOURCE ACCOUNTING || ACCOUNTANCY &AUDITING|L-17|

Human Resource Accounting (HRA) is the process of identifying and reporting investments made in the human resources of an organisation that are presently unaccounted for in the conventional accounting practice. It is an extension of standard accounting principles. Measuring the value of the human resources can assist organisations in accurately documenting their assets. In other words, human resource accounting is a process of measuring the cost incurred by the organisation to recruit, select, train, and develop human assets.

Objectives

The human resource process was established to fulfill a number of objectives within the organization. These include:

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 organizational objectives.

To monitor effectively the use of human resources by the management.

To have an analysis of the Human Asset, i.e. whether such assets are conserved, depleted, or appreciated.

To aid in the development of management principles and proper decision making for the future, by classifying the financial consequences of various practices.

Methods

Approaches to human development accounting were first developed in 1691. The next approach was developed from 1691 to 1960, and the third phase was post-1960.

There are two approaches to HRA. Under the cost approach, also called the “human resource cost accounting method” or model, there is an acquisition cost model and a replacement cost model. Under the value approach, there is a present value of future earnings method, a discounted future wage model, and a competitive bidding model.

Considering the pros and cons of various models, Chennai-based CA Lakshminarayanan Ramanujam has worked out a simple to use and easy to adopt, unique model titled GiveGET, for the Human Resource Valuation and Accounting, while accounting for PEACE.