Page 94 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 7: Approaches of HRA

firm’s human organization cannot be assessed correctly unless periodic measurements Notes
of causal and intervening dimensions of that organization are taken regularly.
Current profit and loss reports often encourage us to believe that changes are
occurring. When profits increase, it is often assumed that the human organization
has become more productive, but steps taken to maintain earnings or prevent losses
may actually result in a decrease in the productive capability of the human
organization. There is some controversy about the validity and reliability of this
method. According to Flamholtz, future research on this method is necessary because
its validity and feasibility have not yet been established. Likert, however, maintains
that the method is feasible where reliable and valid measurements of the coefficients
are available.

Self Assessment

State true or false:
11. Intervening variables are those that can be controlled by the organization.
12. Causal variables include managerial behaviour and organisational structure.

13. The intervening variables reflect the achievements of the organization or the total
productive efficiency in terms of sales, costs, earnings, market performance, etc.
14. The causal variables influence the intervening variables, which, in turn, determine the
organization’s end result variables.

7.4 Recording and Disclosure in Financial Statement

In the preceding pages, we have explained the various models dealing with the mode of valuation
of human resources as an asset. The “present value of future earnings” model, as suggested by
Lev and Schwartz, has been found to be most popular model on account of convenience and
objectivity. The exponents of human resource valuation models in most cases have not dealt
with the mode of recording and disclosure of the accounting information relating to human
resources in the books of accounts or financial statements of the organisation. This has been left
to the discretion of the accounting bodies, who have yet to develop a generally accepted basis
for valuation, recording and disclosure of human resource accounting information in the financial
statements of an organisation. In most cases, the human resource accounting information is
given in the form of supplementary information attached to the financial statements.
Prof. N. Dasgupta has suggested in his total cost approach (explained earlier) the following
mode for disclosure of human resources in the balance sheet of an organisation.

Human resources valued as per his model should be shown both on the ‘assets’ as well as
‘liabilities’ sides of the balance sheet. On the assets side, it should be shown after the fixed assets
as human assets classified into two parts, (i) value of individual, (ii) value of firm’s investment.
On the liabilities side, it should be shown after the capital as human assets capital by that
amount at which it has been shown on the asset side against ‘value of individuals.’ He has given
the following example to clarify his point.

Example: A firm has started its business with a capital of ` 1,00,000. It has purchased fixed
assets worth ` 50,000 in cash. It has kept ` 26,000 as working capital and incurred ` 24,000 on
recruitment training and developing the engineers and a few workers. The value of engineers
and workers is assessed at ` 80,000.

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