concept of human resource accounting

The concept of human capital is not a recent discovery. It originated in the late seventeenth century. However, the Institute for Social Research, University of Michigan, first used the term human asset in the late 1950’s. It has now been replaced by human resource.

Moreover, human resource accounting is yet to be evolved for its proper implementation. Absence of human resource as an asset in the balance sheet violates the accrual principles, defies the principle of disclosure, and underrates the firm’s net worth and current income and thereby not reflecting the true and fair view of the organization. American Accounting Association (1973) defined ‘HRA is the process of identifying and measuring data about human resources and communicating this information to interested parties. It is a scaling tool that generates the quantitative control information about contribution of human resources for promoting industrial productivity. HRA is intended basically, as an information system, which reflects the changes in the human resources over a period of time.  It aims at classifying human resource in money term, the costs and benefits through its deployment.

Accounting of human resource is nothing but mainly the valuation of human asset in monetary terms and the process of their recording and disclosure.  Accounting for people as an organizational resource is called human resource accounting. It involves, measuring the costs incurred by business firms and other organizations to recruit, select, hire, train and develop human asset. It also involves measuring the economic value of people to the organizations. Human Resource Accounting may be referred to as a process of identifying, measuring and communicating information about human resource in financial terms to aid HRP (Human Resource Planning) and control.

In this regard it is better to go through one more definition of HRA given by Mr. Woodsulf which is “Human Resource Accounting is an attempt to identify and report investments made in human resources of an organization that are presently not accounted for in conventional system that tells the management what changes over time are occurring to the human resources of the business.”

According to above definition we may state in concise way the following requirements of HRA.

a.                   Valuation of human resource.

b.                  Recording of human resource as per accounting rules.

c.                   Disclosure of human resource by concerning statement¹⁰.