Page 80 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 6: Human Resource Accounting

HRA also provides the HR professionals and management with information for managing the Notes
human resources efficiently and effectively. Such information is conserving, utilizing, evaluating
and rewarding in a proper way. These functions are the key transformational processes that
convert human resources from ‘raw’ inputs (in the form of individuals, groups and the total
human organization) to outputs in the form of goods and services. HRA indicates whether these
processes are adding value or enhancing unnecessary costs. In addition to facilitating internal
decision-making processes, HRA also enables critical external decision-makers, especially the
investors in making realistic investment decisions. Investors make investment decisions based
on the total worth of the organisation. HRA provides the investors with a more complete and
accurate account of the organisations’ total worth, and therefore, enables better investment
decisions. For example, conventional financial statements treat HR investments as “expenditures.
Consequently, their income statement projects expenditures to acquire, place and train human
resources as expenses during the current year rather than capitalizing and amortising them over
their expected service life. The balance sheet, thus, becomes distorted as it inaccurately presents
the “total assets” as well as the “net income” and, thereby, the “rate of return” which is the ratio
of net income to the total assets. HRA helps in removing this distortion.
Furthermore, in a business environment where corporate social responsibility is rapidly gaining
ground, HRA reflects the extent to which organisations contribute to society’s human capital by
investing in its development. Finally, in an era where performance is closely linked to rewards,
the performance of all groups/departments/functions needs to be quantified to the extent
possible. HRA helps in measuring the performance of the HR function as such.

Notes Objections or limitations against Human Resources Accounting
The following are some of the common objection against Human Resource Accounting:
1. Human beings cannot be owned like other physical assets. They, therefore, cannot
command any value.
2. Tax laws do not recognise human beings as assets. Hence, human resource accounting
remains merely as a theoretical concept.
3. There is no generally accepted model for valuation of human resources. The mode
of presentation has also not yet been codified.
4. The valuation of human resources depends on a large number of abstract factors not
measurable in precise monetary terms. Hence, the valuation lacks objectivity and
preciseness.

Self Assessment

State true or false:
8. HRA helps in the development of management principles by classifying the financial
consequences of various practices.
9. Tax laws recognise human beings as assets.
10. HRA does not help in measuring the performance of the HR function.

Task Identify the difference between HRA and historical accounting.

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