Human Resource Accounting

(HRM)

Presented By –
Saket Agrawal
Gurbaksh Singh Chhabra
What is human resource accounting?
 Human Resource Accounting is “the process
of identifying and measuring data about human
resources and communicating this information to
interested parties”. HRA, thus, not only involves
measurement of all the costs/ investments
associated with the recruitment, placement,
training and development of employees, but also
the quantification of the economic value of the
people in an organisation.
 What is the value of human?
 Human is priceless.
 Human capital can be counted.
– How do you calculate the value of an
employee in the company?
• Minimum value = The present value of her(his)
salary in the future, by considering the possibility of
early absence.
 Why human resource accounting?

 Human capital becomes the most

important asset in the corporation to
extract value
 Present accounting system ignores the
importance of human resource value
 Managers lack information about the
effectiveness and efficiency of human
resource investment
Present accounting system ignores the
importance of human resource value

 Generally Accepted Accounting

Principle(GAAP) treats most human capital
related costs as expenses, instead of assets
 The more the company invests in human
capital, the less the current net income
 Revenue-Expense(including HR)=Net Income
Reasons of Ignorance
• Financial ratios, based on financial
statements, provide little or bias human
capital profitability information, for example
– ROA: based on hard asset
– Return on Investment(ROI): The “I” represents
the investment on hard assets
– Assets Turnover: Sales/Total “hard ”assets
 Measurement
 The biggest challenge in HRA is that of
assigning monetary values to different
dimensions of HR costs, investments
and the worth of employees. The two
main approaches usually employed for
this are:

1. COST APPROACH
2. ECONOMIC VALUE APPROACH
Approaches of H.R.A.
The cost approach which involves
methods based on the costs incurred by
the company, with regard to an employee.
 The economic value approach which includes
methods based on the economic value of the
human resources and their contribution to the
company’s gains. This approach looks at human
resources as assets and tries to identify the
stream of benefits flowing from the asset.
 Summary
 During the past decade, the concept of HRA has
been tuned to the requirements of a knowledge
economy by focusing on such intangible assets
as intellectual capital, relationship capital, etc.

 Whatever the tool or approach to HRA, much of

the potential for developing human resource
accounting capability and gaining its advantage
depends upon the availability of and accessibility
to the required data.