What is Human Resource Accounting?

The human resource accounting is defined as the procedure that is used for the identification and the reporting of the investments that are made in the human resources of a company that are currently not counted for in the conventional accounting processes as it is an extension of the standard principles of the accounting. The human resources are referred to as the very vital and the critical assets of any company or an organisation as are very much different from the various other types of the assets like that the physical assets of an organisation. The physical assets are not having any type of the feelings and the emotions but in the case of the human assets, these are subjected to the various types of the feelings and the emotions and as result of this, the human assets never in any of the cases get depreciated but this is not the case in the case of the physical assets as these with the time surely depreciate. Hence, in the other words it can be said that the various types of the valuations of the human resources accompanied by the various other forms of the assets are required for finding out the total cost of the company or the firm. The same was suggested in the early years of the 1960’s by Renis Likert with the help of the large no of the other researchers and the scientists when this whole team made a strong attempt in order to define the process of the human resource accounting. The human resource accounting is the phenomenon that is used for the identification and then the measurement of the facts and the figures of the human resources and then finally conveying the same facts and the figures to the various types of the parties that are interested in the same function. This explanation has the full support of the American Association of the accountants (AAA) that has defined the process of the human resource accounting in the similar way.

One of the other scientist or the researcher Flamhoitz made an attempt to define the concept of the human resource accounting as the accounting that is done for the people like the resource of the company or the firm as the major parameters that are involved in the process are measurement of the costs that are incurred by the organisations in order to recruit, then select and hire and then train and then finally develop the human assets. It helps in the measurement of the economic value of the people to the company. The human resource accounting is defined by Stephen Knauf as the measurement and the qualification of the human organisational inputs like the recruiting, the training, the experience and the commitment.

The growing concerns for the various human relations management in the organisation lead to the dire need of the human asset valuation that is the human resource accounting. Under the human resource accounting i.e. conventional in the nature, has no type of the information that is available about the human resources that are employed in the firm and with out the people the financial and the physical resources can not be operationally active in the nature. The expenses of the human organisation have to be taken from the current revenue and not at all in any of the cases can be treated as the investments that need to be amortized with the passage of the time with the result that the magnitude of the net income comes out to be in a much distorted picture. As a result of this, the comparison of the firm and the inter firm can not be accessed in an easier way but instead becomes very difficult in the nature. The human assets have been found to be playing a very critical and a vital role in the productivity and also the profitability of the company as the two companies which are having same type of the physical assets and are also operating in the same market, can very easily have different types of the returns and this is mainly due to the various types of the differences in the human assets. If the value of the human assets is ignored then the total valuation of the company becomes very difficult to be predicted. In any of the case where the human resources is not efficiently reported in the profit and the loss account of the firm and also in the balance sheet of the firm, then in such type of the case the act of the management on the human assets can not be perceived at all. This is because the expenses that are made on the activities like the recruitment, the training etc are treated as the expenses and are also written off against the head of the revenue in the calculation that is performed under the accounting that is conventional in the nature as the expenses on the human resources are to be treated as the investments since the benefits that are accrued over a duration of the time.

With the help of the human resource accounting, the information about the cost value about the acquiring, the development, the allocation, the maintenance of the human resources can be achieved as with the help of the human resource accounting, the management is enabled to help in the monitoring of the use of the human resources. The depreciation or the appreciation of the human resources can be depicted with the help of the human resource accounting as this type of the accounting helps in the development of the effective practices of the management. The awareness of the manager of the value of the human resources can also be increased for the better human resource planning with the help of the human resource accounting. For knowing more about the people and for taking better and more use full decisions of the people based on the improved information system, the human resource accounting plays a very crucial role as it helps in assisting the very effective utilisation of the man power or the work force. The human resource accounting can be done with the help of the various types of the methods that have been advocated for the valuation of the human resources. The methods of the human resource accounting are the historical method, the replacement cost method, the present value method, the opportunity cost method and the standard cost method. All the methods have certain types of the benefits as well as the limitations. With the help of the human resource accounting, the value of the human resources can be disclosed as it helps in the proper interpretation of the return on the capital that has been employed. The managerial decision making can be improved with the help of the human resource accounting as the implementation of the human resource accounting simply identifies the human resources as the valuable assets that help a lot in the prevention of any type of the miss use of the human resources with the help of the superiors as well as the management. The human resource accounting plays a very vital and the critical role in the effective utilisation of the human resources and the under standing of the evil effects of the unrest of the labour on the quality of the human resources as this system can lead to the increase in the level of the productivity as the human talent, the devotion, the skills are considered to be very valuable assets that can lead to the boosting of the morale of the employees of the company or the firm. The human resource accounting helps in the assistance of the management for the implementation of the best available methods of the administration of the wages and of the salaries of the staff or the employees of the firm or the organisation.

The human resource accounting has been tried by a large no of the countries of the world and in many of them has been very successful as well but in the nation of the India, the human resource accounting is yet to spread its wings and the main reason for this is because of the certain types of the limitations like the various types of the methods of the valuation have a large no of the disadvantages supported by the large no of the advantages, hence there is always a bone of the contention in the firms about which is the best type of the technique of the human resource accounting that is available as there are no standardised processes formed so far and the firms or the companies are running here and there for getting the various types of the additional information that is available. In the case of the accounting that is conventional in the nature, a large no of the specific standards are accepted very commonly but this is not at all possible under this type of the method. The various methods of the human resource accounting in the case of the human assets are simply based on the particular type of the assumptions that can any time go in the wrong direction like if any of the firm or the company assumes that all the workers will continue to work for them till the retirement, is a view that is very far away from the possibility of the existence. It is always said that the human resources are not at all a victim of the depreciation and in other words are always referred to be appreciating in the nature but this factor can at times prove to go in the opposite direction in the case of the certain firms or the companies as the life span of the human resources can not be estimated at all at any of the time so it can be said that the valuation seems to be very unrealistic in the nature in the practical scenarios of the day to day life.

So the conclusion that comes out here is that there are two types of the resources that are used in the various enterprise of the business and these are the physical and the financial resources along with the human resources. One asset is omitted and it’s worth I want to know but that asset is the value of the men who are actually running the show. The value of the men i.e. the human resources is not at all measured and reflected in the accounts of the business enterprise as the success of the business to a very great extent depends on the abilities, the efficiencies and the power of these people who are actually running the business. The human resource accounting ia the accounting system that helps in the recognition of the human resources as an asset and then records it in the books of the account after the measurement of the value in the same way as done in the case of the various types of the physical resources. This type of the accounting helps at times in the generation of the valuable and the significant information that is very much relating to the human resources. The employees are always the greatest assets of any type of the organisation or the firm and the success or the failure of the firm or the company depends a lot on the quality and the performance of the employees as the traditional accounting systems of the human resources fail to provide an in depth analysis of the value of the most valuable asset. There are times when it becomes very difficult to find out the no of the years over which the effect of the investment that has been made on the staff members will be realized and then the extent to which the employee will utilise the knowledge acquired is also estimated subjectively. As at times it becomes difficult to fix a rate of the amortization with the help of the no of the methods that have been derived in order to write off the depreciation on the fixed assets but in the case of the human asset it will surely be on a constant basis.