HUMAN RESOURCE ACCOUNTING

ANITHA N PRIYA S

Definition of H.R.A
Human Resource Accounting is, the process of identifying and measuring data about human resource and communicating this information to interested parties. -American Accounting Association Committee

HISTORICAL DEVELOPMENT OF

HRA

STAGE II(196671)

STAGE III(197176)

STAGE IV(197680)

STAGE V(1980 onwards)

STAGE I(196066)

Historical Development Of H.R. Accounting

Acc to Eric G Falmholtz First stage (1960-1966)Beginning of academic interest in the area of HRA Second stage(1966-1971)The focus here was more on development and validating deferent models

Third stage(1971-1976)This period was marked by a widespread interest in the field of HR R.G. Barry experiments contributed substantially during the stage Fourth stage(1976-1980)This was the period of decline in the areas of HRA Fifth stage(1980 onwards)There was a sudden renewal of interest in the field of HRA

OBJECTIVES OF HRA
Provide cost value information about acquiring,

development ,allocating and maintain HR

Enable management to effectively monitor the

use of HR
Find whether human asset is appreciating or

depreciating over a period of time

 Assist in the development of effective

management practices
To motivate individual persons in the organization

to increase their worth by training

In planning physical resource vice-versa hr by

giving valuable information

Purpose of HRA
Use of resources to achieve the immediate and

long run goals of the organization

Traditional accounting involves treatment of

human capital and non-human capital differently

Conventional treatment on human resource

Uses of HRA
Acc to Grojer and Johanson
As a political tool, used to demonstrate

mismanagement of human resource

As a pedagogical instrument for analyzing and

structuring
As a decision making aid to ensure that decision

on hr are more rational from the management point of view

Advantages of HRA

Foresee the changes

Provides different methods of testing

Increase productivity

Brings high return

Helps individual employee to aspire Provides scope for advancement Throws light on the strength and weaknesses of the existing workforce

Methods Of HRA

Cost approach

Economic value approach

COST APPROACH IN HRA

HISTORICAL COST

The historical cost of human resources is the sacrifice that was made to acquire and develop the resource a calculation of what would have been the returns if the money spent on HR was spent on something else the cost that would have to be incurred if present employees are to be replaced.

OPPORTUNITY COST

REPLACEMENT

COST

ECONOMIC VALUE APPROACH

PRESENT VALUE OF FUTURE EARNINGS COMPETITIVE BIDDING MODEL

value of an individual is the present worth of the services that he is likely to render to the organization in future an internal market for labor is developed and the value of the employees is determined by the managers. Managers bid against each other for human resources already available within the organization. The highest bidder wins the resource.

IND.VALUE TO ORGANIZATIO N

This method helps in determining what an employees future contribution is worth today.

Monetary value based approaches:

i) The Lev and Schwartz Model
ii) The Eric Flamholtz Model iii) Morse Model

The Lev and Schwartz Model(1971)

According to this model, the value of human resources is ascertained as follows

1. All employees are classified in specific groups according to their age and skill.
2. Average annual earnings are determined for various ranges of age. 3. The total earnings which each group will get upto retirement age are calculated. 4. The total earnings calculated as above are discounted at the rate of cost of capital. The value thus arrived at will be the value of human resources/assets. 5. The following formula has been suggested for calculating the value of an employee according to this model

Flamholtz Model (Reward Valuation method) (1971).

This is an improvement on present value of future earnings model since it takes into consideration the possibility or probability of an employees movement

from one role to another in his career and also of his

leaving the firm earlier, that his death or retirement.

MORSE MODEL (1973)

Under it the value of human resources is equivalent to the present value of the net benefits derived by the enterprise from the service of its employees. The following steps are involved under this approach: 1. The gross value of the services to be rendered in future by the employees in their individual and collective capacity.

2. The value of direct and indirect future payments to the employees is determined.
3. The excess of the value of future human resources (as per (1) above) over the value of future payments (as per (2) above) is ascertained. This represents the net benefit to the enterprise because of human resources.

Non- monetary value -based approaches:

i) Likert Model ii) Ogan Model

LIKERTS MODEL (1960)

Rensis Likert in the 1960s was the first to research in HR and emphasized the importance of strong pressures on the HR's qualitative variables and on its benefits in the long-run. According to Likert's model, human variable scan be divided into three categories:
(i) causal variables;

(ii) intervening variables; and

(iii) end-result variables.

The interaction between the causal and intervening

variables affect the end-result variables by way of job satisfaction,costs, productivity and earnings

OGANS MODEL
Pekin Ogan (1976) has given Net benefit model. This, as a matter of fact, is an extension of net benefit approach as suggested by Morse. According to this approach, the certainty with which the net benefits in future will accrue should also be taken into account, while determining the value of human resources. The approach requires determination of the following:
Net benefit from each employee.

Certainty factor at which the benefits will be available. The net benefits from all employees multiplied by their certainty

factor will give certainty-equivalent net benefits. This will be the

value of human resources of the organization.

Limitations

Not easy to value human asset

Results in dehumanizing human resource

No evidence

Hr is full of measurement problem

Employees and unions may not like the ideas

Unrealistic
Lack of empirical evidence

Assumptions Underlying HR Accounting

People are valuable organizational resource Human resource value is influenced by management

style
HRA information is needed

THANK YOU