Page 81 - DCOM409_CONTEMPORARY_ACCOUNTING

Contemporary Accounting

Notes 6.4 HRA in India

In India, the financial statements of companies have to be prepared as per the provisions of the
Companies Act, 1956. The Act does not provide for disclosure of any significant information
about human resources employed in a company except that the companies have to give by way
of a note to the Profit & Loss Account, particulars of employees getting remuneration of
` 6,00,000 per annum or more. However, there is nothing in the Act which prevents a company
from giving details about its human resources byway of supplementary information attached
with its financial statements.
In view of the growing importance of human resource accounting, many corporate enterprises
in India are voluntarily giving information about their human resources. They number about 15
in all and include many important public sector enterprise viz. Bharat Heavy Electricals Ltd.
(BHEL), Steel Authority of India Ltd. (SAIL), Minerals and Metal Trading Corporation of India
(MMTC), National Thermal Power Corporation (NTPC), Oil and Natural Gas Commission
(ONGC) and Engineers India Ltd. (EIL), Among all these enterprises BHEL is the pioneer in the
field of human resource accounting since mid-1 970.

Most of the Indian companies and corporations have followed basically Lev and Schwartz
Model for valuation of human resources. This is one of the popular methods in India, which
discounts the future earnings of human resource into present value till the retirement age.

It
Vy =
(1 Rt y
)
+
−
Vy = Human capital value of a person up to y years old
It = the personal annual earnings up to retirement
R = discount rate specific to the person

6.5 Summary

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.
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”.

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.

Human Resources Accounting provides useful information to the management, financial
analysts and employees.

HRA is a management tool that is designed to assist senior management in understanding
the long-term cost and benefit implications of their HR decisions so that better business
decisions can be taken.
HRA also provides the HR professionals and management with information for managing
the human resources efficiently and effectively.

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