Human Resource Accounting

Definition

The term ‘Human Resource Accounting‘ means accounting for human beings, the most important-organizational resource. The accounting of it deals with the measurement of costs which are associated with recruiting, selecting, hiring, training, placing and developing the employees of an organization. It also involves measuring the present economic value of human resources to an organization.

Explanation

This section describes the various methods for calculating the value of human resources in an organization. The American Accounting Association Committee on human resource accounting broadly defines it as the process of identifying and measuring data about human resource and communicating this information to the interested parties.

The primary objective of accounting for human resources is not merely to account but also to help the management in planning and controlling the contribution of people to organizations and to society at large. Human Resource Accounting is also expected to improve the quality of financial decisions made both internally as well as externally regarding the functioning of an organization.

Information regarding human resources and changes thereof may provide the management with valuable aids for monitoring efficiency of employees, regulating organizational behavior, reducing absenteeism, and improving human relations.

Thus Human Resource Accounting helps in quantifying the service potential of employees in an organization. It helps in changing the attitude of management toward their people by viewing them as assets and thereby placing a monetary valuation on the services to be rendered by them. Such a change in attitude
is likely to have an impact on their decisions involving human resources.

Very few empirical studies have been made analyzing the behavioral implications of human resource accounting models on management decisions. The behavioral implications of human resource accounting can be assessed properly only if the results of experiments with human resource accounting systems in organizations, are researched and published. Hence there is a need for demonstrated benefits of human resource accounting systems.

Determination of Human Value

The value of an individual to an organization may be defined as the present value of the set of futüre service that the individual is expected to render during the period he is likely to work for the organization. The determinants of the value potentially realizable from his services (also referred to as the conditional value of an individual) consists of three variables viz. productivity, promotability and transferability.

The various factors which affect these three variables are the skill and motivation of the employees, individuals role in the organization, nature of organizational rewards etc, These variables interact mutually to
ultimately determine the potentially realizable value of an individual and the probability of him continuing to work in the organization.

Importance of Human Resource Accounting

Improving the quality of managerial decisions is the basic rationale for measuring and accounting for the value of human resources in an organization. Human resources data assist in the widening of the scope of internal decision making by permitting the consideration of a number of variables and improving the basis on which such variables are considered.

The case for human resource accounting stems from the basic premise that measurement of the value of human resources can assist management in recognizing and defining problems connected with manpower management in several ways.

Changes in the value of human resources may be used as an indicator of the cost of employee turnover. Assigning people to various organizational roles and tasks is usually decided on the basis of efficiency of the employees, opportunity of self-development and job satisfaction expected to be derived by them. Human resource accounting can help qualify the variables required to be considered in the process of allocation.

Prev page
More Articles from Human resource accounting

Leave a comment