Page 77 - DCOM409_CONTEMPORARY_ACCOUNTING

Contemporary Accounting

Notes 6.1 Meaning of HRA

In simple words, human resource accounting is the art of, valuing, recording and presenting
systematically the worth of human resources in the books of account of an organisation. This
definition brings out three important aspects of human resource accounting:
(i) Valuation of human resources.
(ii) Recording the valuation in the books of accounts.

(iii) Disclosure of the information in the financial statements of the business.
The American Accounting Society Committee on human resource accounting defines it as follows:
“Human resource accounting is the process of identifying and measuring data about human
resources and communicating this information to interested parties.”
Mr. Woodruff Jr. Vice President of R.G. Barry Corporation defines human resources accounting
as: “Human resource accounting is an attempt to identify and report investments made in the
human resources of an organisation that are presently not accounted for in conventional
accounting practice. Basically, it is an information system that tells the management what changes
over time are occurring to the human resources of the business.”
The American Accounting Association’s Committee on Human Resource Accounting (1973) has
defined Human Resource Accounting as “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.
Flamholtz (1971), too has offered a similar definition for HRA. He defines HRA as “the
measurement and reporting of the cost and value of people in organizational resources”.

As far as statutory requirements go, the Companies Act, 1956 does not demand furnishing of
HRA related information in the financial statements of the companies. The Institute of Chartered
Accountants of India too, has not been able to bring any definitive standard or measurement in
the reporting of human resources costs. While the chairmen in their AGMs often make qualitative
pronouncements regarding the importance of human resources, quantitative information about
their contribution is rarely recorded or communicated. There are a few organizations, however,
that do recognize the value of their human resources, and furnish the related information in
their annual reports.

Example: In India, some of these companies are: Infosys, Bharat Heavy Electricals Ltd
(BHEL); Steel Authority of India Ltd. (SAIL), Minerals and Metals Trading Corporation of India
Ltd. (MMTC), Southern Petrochemicals Industries Corporation of India (SPIC), Associated Cement
Companies Ltd, Madras Refineries Ltd., Hindustan Zinc Ltd., Engineers India Ltd, Oil and Natural
Gas Commission (ONGC), Oil India Ltd., Cement Corporation of India Ltd., etc.

Objectives of HRA

The following are the key objectives of HRA:

To furnish the information for making the decisions at the investors’ and managers’ level
To evaluate the return on human investment through the results
To report the worth of human resources to the organization and society

72 LOVELY PROFESSIONAL UNIVERSITY