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RESEARCH ANALYSIS AND EVALUATION 43

International Referred Research Journal, December, 2011, ISSN- 0975-3486, RNI : RAJBIL 2009/30097, VOL- III * ISSUE 27

Research PaperCommerce

December, 2011

IntroductionOf late the problem of unemployment has hit

the globe like never before.With the global downturn& economic slowdown two major sectors generatingfunds mostly were affected. Suddenly within a coupleof months the organizations throughout the worldstarted looking at their employees as liabilities & notassets. In this context, the concept of HR Accountinghas greater applicability to thevarious problems whichare arising as a result of economic recession.

With economic bubble bursting out the worldis in the cauldron of economic crisis. Globally, $500billion has been lost in this way so far. The events ofSeptember 15 were unprecedented in recent memory& there will be much uncertainty to come. Hence, thetime has come for the organizations to realize that theknowledge of the workforce/human capital is theirprime assets & not liabilities.

The present scenario is that, despite the glo-bal change, human resource has always been consid-ered as a soft issue whose contribution could not bemeasured in tangible monetary terms. It was thus butnatural that conventional method of financial account-

ing neither formally recorded investment in employ-ees, nor did they deal with issues relating to measure-ment, valuation & accounting of HR. of late there hasbeen advancement in this area with many models be-ing developed tocarryout HR Accounting (HRA).Meaning

HRA seeks to measure the abilities of allemployees in a company at all levels to produce valueby way of knowledge & capability. As recession forcesconsumers to stop investment, producers are forced togo for employee curtailment. Hence, it is a time for thecompanies to go for innovative methods to deal witheconomization of staff costs rather than downright

downsizing. HRA also involves accounting for invest-ment in people & their replacement costs. Informationgenerated by HRA can be used for a host of managerial& Strategic decisions like recruitment, turnover, per-sonnel advancement analysis, training and capitalbudgeting.Objectives of HR Accounting* It furnishes cost/value information for making man-agement decisions about acquiring, allocating, devel-

Importance of Human Resource Accounting in theEra of Economic Recession

* Dr. H. M. Korant

* HOD & Assot, Prof, Depat. of Commerce, Shree Mahila Arts and Commerce College, Joshipura

oping & maintaining human resources in order to attaincost effectiveness.* It allows management personnel to monitor effec-tively the use of human resources.* It provides a sound & effective basis for human assetcontrol, that is, whether the asset is appreciated, de-pleted or conserved.* It helps in the development of management prin-ciples by classifying the financial consequences of

various practices.HRA Approaches

Assigning money values to different dimen-sions of HR costs, investments & the worth of employ-ees is the biggest challenge that the HRA is facing. HRAccounting basically has two approaches.* The Cost Approach involves methods based on thecosts incurred by the company with regard to an em-ployee. Two types of costs are of special importance inHRA: original cost & replacement cost.* Original/ historical costs of human resources is thesacrifice that was made to acquire & develop the re-source. These include the costs of recruiting, selec-

tion, hiring, placement, orientation & on- the- jobtraining.* The replacement cost of human resourcesis the cost that would have to be incurred if presentemployees are to be replaced. * Other cost methodsthat may be used are the standard cost method & thecompetitive method. In the standard cost method, thestandard costs associated with the recruitment, hiring,training & developing per grade of employees aredetermined annually. * The Economic Value Approachwhich includes methods based on the economic valueof the human resources & their contribution to thecompanys benefits. The methods for calculating theeconomic value of individuals are two types- monetaryand non-monetary methods.5. Need for HR Accounting* HR Accounting is very much needed to provide ef-fective & efficient management within the organiza-tion. * If there is any change in the structure of man-power, it is HRA which provides information on it tothe management.* HRA provides qualitative informa-tion & also assess the cost incurred in personnel.* It gives a platform to the management by providingfactors for better

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International Referred Research Journal, December, 2011, ISSN- 0975-3486, RNI : RAJBIL 2009/30097, VOL- III * ISSUE 27

decision-making for future investment.* The return on Investment on human capital is bestevaluated through HRA.* HRA communicates to the organization & publicabout the worth of human resources & also its proper

allocation within the organization.* HR helps the management in developing principlesby classifying the financial consequences of the vari-ous practices.Significance

The basic reason for developing HR Account-ing is to overcome problems arising from the valua-tion of intangible assets. We know that many organi-zations do not provide sufficient information to invertinvestors in traditional balance sheet & HRA is a de-vice to overcome this difficulty. HRA provides an in-sight on employees as assets. HRA provides a profileto the enterprise & thus improves its image. HRA probes

to retain intelligent human capital.The very importance of HRA in developingcountries like India can be best judged through gov-ernment report which shows that in India approxi-mately 73% of National Income is utilized to compen-sate employees.

In addition to wages and salaries, organiza-tions often make other sizeable investments in theirhuman resources. Despite all this, the concept of HRAin India is a recent phenomenon & struggling for itsacceptance. In India, HRA has not been introduced sofar as a system. The Indian companies act does notprovide any scope for furnishing significant informa-

tion in this regard in the financial statement. However,

some public sectors like BHEL, Cement Corporationof India, ONGC, Engineers India Ltd, NTPC, MMTC,etc. have started disclosing some valuable informationregarding human resources in their respective finan-cial statements. The IT majors like Infosys also has

applied HRA in a systematic manner.However until now, the efforts made are to

value human resources & to integrate & present theirvalue in the conventional financial statements. But ifthe real ability of human resource accounting is to bederived, the whole concept of preparing financial state-ment have to be prepared with a view which is basedon human beings instead of the present view based oncapital.Conclusion

The HR Accounting system tries to evaluatethe worth of human resources of an organization in asystematic manner & record them in the financial state-

ment to communicate their worth with changes in time& result obtained from their utilization to the users ofthe financial statement. Hence, looking at the impor-tance of HRA, now it is required under law & Govern-ment guidelines, for undertakings, to maintain a sepa-rate item in their balance sheet about such HR activi-ties undertaken by them.

Hopefully in future the HR practioners like us& the budding leaders of future enterprises would worktogether to use HRA in every organization, which hashelped to a great extent in differentiating humans frommere operators of machines to intellectual capital. Thejourney has thus begun as HRA is in its infancy & there

are miles to go.

Dr. Mukesh Chauhan & Ms Shivani Gupta, Human Resource Accounting- Concepts & practices in India; The management accountant,january2009; vol-44 American Accounting Association Committee of Accounting for Human Re sources, Report of the committee on HumanResource Accounting,1973, The Accounting Review Supplement to vol.XLVIII. D. Prabhakar Rao 1993, Human Asset Accounting: AnEvaluation of the Indian Practices, ASCI Journal of Management,Vol.22. Eric G. Flamholtz (1999; Third edition): Human Resource Account-ing: Advances in Concepts, Methods & Applications; Kulwer Academic Publishers. Journal of Accounting Review, Jaipur, Vol.2,1991. VSPRao:Human Resource Management Text & Cases; Second Eds;.Excel Book Publications.

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