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INTRODUCTION The term Human Resource at macro level indicates the sum of all components such as skills, creative abilities, innovative thinking, intuition, imagination, knowledge and experience possessed by all the people. An organization with abundant physical resources may sometimes miserably fail unless it has right people, human resource to manage its affairs. Thus the importance of human resource cannot be ignored. Therefore it becomes important to pay due attention on proper development of such an important resource of an organization.

Development of the concept of HR Accounting:

Development of the concept of HR Accounting Till the recent past, organizations took few efforts to assign monetary value to human resource in its accounting practice. The traditional concept suggested that expenditure on human resource is treated as a charge against revenue as it does not create any physical asset, but now there is a change in this concept and the expenses incurred on any asset(as human resource) should be treated as capital expenditure as it yields benefits which can be derived for a long period of time and could be measured in monetary terms.

The First Attempt:

The First Attempt Human Resource accounting was first started with simple measures of trying to convert output data into contributions. When an HR programme had effected a change in the output especially for organizations operating on profit basis,its value was determined by calculating the profit contribution. The first major systematic effort at evaluation was made by RG barry corporation of columbus in 1967. Their annual report detailed the inauguration of HRA procedure developed by the company to enable them to report accurate estimates of the worth of the organization’s human assets.

What is Human Resource Accounting??:

What is Human Resource Accounting?? Human Resource Accounting is the measurement of the cost and value of people to the organization. It involves measuring costs incurred by the organizations to recruit, select, hire, train and develop employees and judge their economic value to the organization. HR accounting is receiving attention in the recent years as now there is a genuine need for reliable and complete management of human resources. The American Accounting Society Committee defines it as: “ Human Resource Accounting is the process of identifying and measuring data about human resources and communicating this information to interested parties .” In simple terms, it is an extension of the accounting principles of matching costs and revenues and of organizing data to communicate relevant information in financial terms.

Some More Definitions of HR Accounting:

Some More Definitions of HR Accounting Human Resource accounting is the term applied by accountancy profession to quantify cost and value of employees to their employing organizations. HR Accounting is a process of accounting which identifies, quantifies and measures human resources for the use of management to cope up with the changes in its quantum and quality so that equilibrium could be achieved in between the required resources and the provided human resources.

Importance of Human Resource Accounting:

Importance of Human Resource Accounting Human Resource Accounting helps the management in the employment, locating and utilization of human resources. It helps in deciding the transfers, promotion ,training and retrenchment of human resources. It assits in evaluating the expenditure incurred for imparting further education and training in employees in terms of the benefits derived by firm. It helps to identify the causes of high laour turnover at various levels and taking preventive measures to contain it. It helps in understanding and assessing and inner strength of an organization and helps the management to steer the company well through most adverse and unfavourable circumstances. It helps employees in improving their performance and bargaining power.

Objectives of HRA:

Objectives of HRA Information for Manpower Planning: HRA provides useful information about the cost and value of human resources. It shows the strengths and weakness of the human resources. All this information helps the managers in planning and making the right decisions about human resources. Thus HRA provides useful information for Manpower Planning and Decision Making. Information for Making Personnel Policies: HRA provides useful information for making suitable personnel policies about promotion, favourable working environment, job satisfaction of employees, etc.

Limitations of HRA:

Limitations of HRA The valuation of human assets is based on the assumption that the employees are going to remain with the organization for a specified period. However, this assumption is wrong because employee mobility is very high. The human resource accounting may lead to the dehumanization in the organization. If the valuation is not done correctly or the results of the valuation are not used properly. In the case of financial accounting, there are certain specified accounting standards which every organization must follow. However, there are no standards for HRA. Each organization has its own standards for HRA. So, there are no uniform standards for HRA. Therefore, the HRA of two organizations cannot be compared. There are no specific and clear cut guidelines for ' cost ' and ' value ' of human resources of an organization. The present valuation systems have many limitations.

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Proper Placements: HRA helps the organisation to place the right man in the right post depending on his skills and abilities. Increases Morale and Motivation: HRA shows that the organisation cares about the employees and their welfare. This increases their morale and it motivates them to work hard and achieve the objectives of the organisation. Attracts Best Human Resources: Only reputed organisations conduct HRA. So, competent and capable people want to join these organisations. Therefore, HRA attracts the best employees and managers to the organisation.

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Designing Training and Development Programmes: HRA helps the organisation to design (make) a suitable training and development programme for its employees and managers. Valuable information to Investors : HRA provides valuable information to present and future investors. They can use this information to select the best company for investing their money.

HRA for managers & HR Professionals::

HRA for managers & HR Professionals: HR Professionals must perform a wide variety of functional roles. A functional role is a specific set of tasks and expected output for a particular job. We will briefly discuss the roles played by two HR Professionals: the HR Executive/ Manager and the HR Practitioners .

The HR Executive/Manager :

The HR Executive/Manager The HR executive/manager has primary responsibility for all HR activities. One of the important tasks of the HR executive is to promote the value of HRD as means of ensuring that organizational members have the competencies to meet current and future job demands. The role of the HR executive has become more important and visible as organization make the necessary transition to a global economy. The immediate challenge to HR executives is to redefine a new role for HRD during this period of unprecedented change.

HR Practitioners:

HR Practitioners HR practitioners perform distinct roles, which are described below: The HR strategic adviser: consults strategic decision makers on HRD issues that directly affect the articulation of organization strategies and performance goals. The HR systems designer and developer: assist HR management in the design and development of HR systems that affect organization performance. The organization change agent: advises management in the design andimplementation of change strategies used in transforming organizations

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The organization design consultant: advises management on work systems design and the efficient use of human resources. The performance consultant: advises line management on appropriate interventions designed to improve individual and group performance. Outputs include intervention strategies, coaching design, and implementation. The researcher: assesses HR practices and programs using appropriate statistical procedures to determine their overall effectiveness and communicates the results to the organization.


INVESTMENT IN HUMAN RESOURCE Any resource pressed into service for producing good and services is called investments. Thus, investment refers to expenditure on new plant and machinery, capital equipments, physical construction of new buildings together with any change in the stock of goods produced. There are two basic determinants of investment :- The expected rate of profit which the business hopes to realize from investment, and The rate of interest. The level of investment is guided by the level of expected profits. Firms will invest, only if it is profitable. Further an important cost associated with investment is the cost of borrowing capital, which is the rate of interest.


COST OF HUMAN RESOURCE As human resource is considered as an asset, any expenditure incurred in the acquisition and accumulation of human resource will be treated as an investment. Cost of human resources represents sacrifice that will have to be incurred today to acquire and develop people in future. The cost of human resource otherwise called Historical cost of human resources is the investment in human resources which has both Revenue (expense) and Capital (asset) components. This cost may be classified as follows: Acquisition Cost Training (Development) Cost Welfare Cost and Other Costs


QUALITY OF WORK FORCE The degree to which members of a work organization are able to satisfy important personal needs through their experience in the organization. It refers to favorableness or unfavorable ness of a job environment for people. Quality of work life improvement refers to any activity for greater organizational effectiveness through the enhancement of human dignity and growth process through which the work force of the organization learn how to work together for betterment of the organization. Conditions of employment which are also the measuring factors of QWL. They are: Adequate and fair compensation. Safe and healthy working conditions. Opportunity to use and develop human capacities. Opportunity for career growth. Social integration in work force. Work and quality of life.


MAINTAINING QUALITY OF WORKFORCE A manager can maintain high quality work force by applying following:- Flexibility in work schedule Job Enrichment Opportunities for Growth Autonomous work group Stability of employment Participation Recognition Seniority & Merit Promotion Adequacy of Resources Better Communication Minimize their Stress Level Health Awareness Programme


STEPS IN EFFICIENT USE OF HUMAN RESOURCE The efficient use of human resources could be successfully planned only when the employees are made to understand the objectives of the organization, plan to develop their own career in the organization which will make them more confident and involve them together as a quality workforce. The efficient use of human resources must result in High productivity , development of skill and organizational commitment & Career development . The following actions will be more fruitful to improve the use of human resources: Conduct a productivity drive. Improve manpower budgeting and control techniques. Introduce work measurement. Use appropriate payment method by results, bonus and profit-sharing schemes. Improve motivation. Involve employees in improvement programmes. Introduce new technology. Introduce training programme based on an analysis of productivity needs.

Enumerating the Assets:

Enumerating the Assets Until recently, Human Resource Management (HRM) activities have commonly been evaluated in behavioral and statistical terms. In this competitive climate the need to evaluate HRM activities in economic terms is becoming increasingly apparent. Developing such measures requires an inter- disciplinary approach wherein information from accounting, finance, economics and behavioral science has to be incorporated and delivered in the language understood by the business world. The next step is to transform generated data into the only language the business world understands-”Money”

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According to the theory of accounting for HR propounded by Flamholtz EG: people are valuable resource of an enterprise investment and value of human resource is useful for internal and /or external decision-making.

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Prof. N. Dasgupta has suggested in his total cost approach model, the human resources should be shown on ‘assets’ as well as ‘liabilities’ sides of the balance sheet. On the assets side, it should be shown after the fixed assets as Human Assets classified into two parts – ( i ) value of individuals, (ii) value of firm’s investment. On the ‘Liabilities’ side, it should be shown after the capital as Human Assets Capital by that amount at which it has been shown on the asset side against ‘value of individuals.’

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Example: A firm has started its business with a capital of Rs.10,00,000. It purchased fixed assets worth Rs.5,00,000 in cash. It has kept Rs.2,60,000 as working capital and incurred Rs.2,40,000 on recruiting, training and developing the engineers and few workers. The value of engineers and workers is assessed at Rs.8,00,000. LIABILITIES Amount ASSETS amount capital 1000000 Fixed assets 500000 Human assets capital 800000 Human assets: Individuals value ii)Value of Firm’s Investments 800000 240000 Current assets 260000

Types of human assets:

Types of human assets Intellectual capital Social capital Emotional capital Spiritual capital

Methods of valuation of human assets:

Methods of valuation of human assets Cost based approaches: i ) Historical Cost ii) Replacement Cost iii) Opportunity Cost iv) Standard Cost The Lev and Schwartz Model

The lev & schwartz model:

The lev & schwartz model Where, V r =  the value of an Individual  ‘r’ years old I (t) = the individual's annual earnings up to retirement t      = retirement age r   = a discount rate specific to the cost of capital to the company.

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