Master Mind Financers - Human Resource Accounting - 38 Ishu Aggarwal (A) , 95 Pallavi Saini (B) , 159 Rohit Kumar Bharadwaj (C)

Introduction - 95 Pallavi Saini (B)

Human Resource Accounting is a method to measure the effectiveness of personnel management activities and the use of people in an organization.

Approaches to Human resource accounting was first developed 1691 the next stage was during 1691-1960 and third phase post-1960. There are two approaches to HRA. Under the cost approach, also called human resource cost accounting method or model, there is a) Acquisition cost model and b)replacement cost model. Under the value approach there are a) present value of future earnings method, b) discounted future wage model, c) competitive bidding model.

Discussion - 159 Rohit Kumar Bharadwaj (c)

• cost approach

This approach is also called as acquisition cost model.This approach is developed by Brummet, Flamholmay tz and Pyle but the first attempt towards employee valuation made by a foot ware manufacturing company R. G. Barry Corporation of Columbus, Ohio with the help of Michigan University in the year 1967 . This method measures the organization’s investment in employees using the five parameters: recruiting, acquisition; formal training and, familiarization; informal training, Informal familiarization; experience; and development. this model suggest instead of charging the costs to p&l accounting it should be capitalized in balance sheet.the process of giving an status of asset to the expenditure item is called as capitalization. This method is the only method of human resource accounting which is based on sound accounting principals and policies.

• Limitations

• The valuation method is based on false assumption that the dollar is stable.
• Since the assets cannot be sold there is no independent check of valuation.

• Replacement Cost approach

This approach measures the cost of replacing an employee. According to Likert (1985) replacement cost include recruitment, selection, compensation, and training cost (including the income foregone during the training period). The data derived from this method could be useful in deciding whether to dismiss or replace the staff.

• Limitations

• Substitution of replacement cost method for historical cost method does little more than update the valuation, at the expense of importing considerably more subjectivity into the measure. This method may also lead to an upwardly biased estimate because an inefficient firm may incur greater cost to replace an employee .

• Value to the organization

Hekimian and Jones (1967) proposed that where an organization had several divisions seeking the same employee, the employee should be allocated to the highest bidder and the bid price incorporated into that division’s investment base. For example a value of a professional athlete’s service is often determined by how much money a particular team, acting in an open competitive market is willing to pay him or her.

• Limitations

• The soundness of the valuation depends wholly on the information, judgment, and impartiality of the bidder .

• Expense model
  
• According to Mirvis and Mac, (1976) this model focuses on attaching dollar estimates to the behavioral outcomes produced by working in an organization. Criteria such as absenteeism, turnover, and job performance are measured using traditional organizational tools, and then costs are estimated for each criterion. For example, in costing labor turnover, dollar figures are attached to separation costs, replacement costs, and training costs

Conclusion - 95 Pallavi saini (B)

HR accounting system tries to evaluate the worth of human resorces of an organization in a systematic manner & record them in the financial statement to communicate their worth with changes in time & result obtained from their utilization to the users of the financial statement. hence,looking at the importance of HRA, noe it is required under law & government guidelines, for undertakings, to maintain a seprate items in their balance sheet about such HR activities undertaken by them.
Hopefully in future the HR practitionrs and the budding leaders of future enterprises would work together to use HRA in every organization, which has helped to a great extent in differentiating humans from mere operation of machines to intellectual capital.
HUMAN RESOURCE ACCOUNTING provides quantitative information about the value of human assets, which helps the top management to take decisions regarding the adequacy of human resources.
The training cost can be treated in a similar way as any other capitalized expense.