Page 78 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 6: Human Resource Accounting

Self Assessment Notes
Fill in the blanks:
1. Human Resource Accounting (HRA) denotes the ………….. of quantification/measurement
of human resources.
2. Human resource accounting is the art of, valuing, recording and …………… systematically
the worth of human resources in the books of account of an organisation.
3. The ………….does not demand furnishing of HRA related information in the financial
statements of the companies.

6.2 Nature of HRA

Like any accounting exercise, HRA too depends heavily on the availability of relevant and
accurate information. HRA is essentially a tool to facilitate better planning and decision-making
based on the information regarding actual HR costs and organisational returns. The kind of data
that needs to be managed systematically depends upon the purpose for which HRA is being
used by an organisation.

Example: If the purpose is to control the personnel costs, a system of standard costs for
personnel recruitment, selection and training has to be developed. It helps in analysing projected
and actual costs of manpower and thereby, in taking remedial action, wherever necessary.

Did u know? What is the role of information on turnover cost?
Information on turnover costs generates awareness regarding the actual cost of turnover
and highlights the need for efforts by the management towards retention of manpower.
Accountability in the management process is often enhanced when information involving an
evaluation of managerial effectiveness is generated. Finally, information on the intangibles
like intellectual capital/human capital becomes necessary to measure the true worth of the
organisation. This information, though unaudited, needs to be communicated to the board and
the stockholders.

Notes Significance of Human Resources Accounting
Human Resources Accounting provides useful information to the management, financial
analysts and employees, as shown below:
1. Human Resources Accounting helps the management in the decision-making process
relating to the following matters:
Employment, locating and utilisation of human resources.
Transfers, promotions, training and retrenchment of human resources.
Planning of physical assets vis-à-vis human resources.
Evaluating the expenditure incurred for imparting further education and
training to employees in terms of the benefits derived by the firm.
Identifying the causes of high labour turnover at various levels and taking
preventive measures to contain it.
Contd...

LOVELY PROFESSIONAL UNIVERSITY 73