THEORETICAL FRAME WORK OF HUMAN RESOURCE ACCOUNTING

Human Resource Accounting (HRA) deals with accounting treatment of expenditure on human resources viz., Salaries, Training costs, etc. The widely followed approach is to account for all expenses on human resources of an organization (employer) as revenue expenditure (period cost).  However a closer analysis of the expenditure and benefits would indicate that there is a timing difference between expenditure incurred and benefit derived as illustrated below¹.

TABLE – 3.1: VARIOUS HUMAN RESOURCES COSTS AND THEIR BENEFITS AND IDEAL TREATMENT

S. No.	Cost	Benefits	Ideal Treatment
01	Recruitment costs	Benefits over a period	Defer or capitalize and amortize
02	Induction and Training costs	- do -	- do -
03	Salary Compensation
	a) For present services	Benefit derived immediately	Charge off
	b) For retained talent	Benefits over a period	Defer or capitalize and amortize

Human resources, like any other asset, bring with them several costs (Table– 3.1), Using criteria to determine elements that can be recorded [Financial Accounting Standards Board, 1984, 1993; International Accounting Standards Committee, 1989, 1994] Table 3.2 shows the possibilities of considering human resources as an asset [Financial Accounting Standards Boards, 1984, 1993] and as a current expense.²

TABLE – 3.2 THE COSTS OF HUMAN RESOURCES

Costs	Definitions
Original	Financial flows originating when hiring and training becomes necessary
Substitution	Incurred today to substitute resources used in a determined activity.
Opportunity	The value of human resources in its most favourable alternative use.

Source: [Flamholtz, 1976]

TABLE – 3.3 ASSETS AND EXPENSES OF HUMAN RESOURCES

S. No.	Assets	Expenses
01	In the future, the enterprise will probably obtain profits. Zubiarre [1995] states that profit generation is a subjective item.	Reasons for considering human resources as an asset come from avoiding the problems when considering them as an asset.
02	Asset costs must be measured easily.  This is determined through a simple external, not an internal operation.
03.	This is good for human resource control. The firm does not own human resources like it owns other assets.

Individual Expected Realizable Value (IERV):

The above methods discussed so far are based on cost consideration.  Therefore, these methods may provide information for record purpose but do not reflect the time value of human assets. As against these methods, expected realizable value is based on the assumption, and this is true also, that there is no direct relationship between cost incurred on an individual and his value to the organization at a particular point of time.  An individual’s value to the organization ca be defined as the present worth of the set of future services that he is expected to provide during the period he remains in the organization³.  Flamohltz has given the variables affecting an Individuals Expected Realizable Value (IERV):

Variables:

Individual conditional values and his likelihood of remaining in the organization. The former is a function of the individual’s abilities and activation level, while the later is a function of such variables as job satisfaction, commitment, motivation and other factors as shows in the given figure⁴