Human resource accounting and social accounting - Unitedworld School of Business
Meaning of human resourceaccounting Human Resources accounting, also known asHuman Asset Accounting, involved identifying,measuring, capturing, tracking and analyzing thepotential of the human resources of a company andcommunicating the resultant information to thestakeholders of the company. It was a method by which a cost was assigned to everyemployee when recruited, and the value that theemployee would generate in the future.Human Resource accounting reflected the potential ofthe human resources of an organization in monetaryterms, in its financial statements.
AAA Definition:“ The process of identifying and measuring data abouthuman resources and communicating this information tothe interested parties ”Stephen Knauf (1983):“ The measurement and quantification of humanorganizational inputs such asrecruiting, training, experience and commitment ”Eric Flamholtz“ Accounting for people as organizational resources. It isthe measurement of the cost and value of people for theorganization ”
Why HRA?It furnishes cost/value information for makingmanagement decisions about acquiring, allocating,developing, and maintaining human resources inorder to attain cost-effectiveness;It allows management personnel to monitor effectivelythe use of human resources;It provides a sound and effective basis of human assetcontrol, that is, whether the asset is appreciated,depleted or conserved;It helps in the development of management principlesby classifying the financial consequences of variouspractices.
Need for hra HR Accounting is very much needed to provideeffective & efficient management within theorganization. If there is any change in the structure of manpower, itis HRA which provides information on it to themanagement. HRA provides qualitative information & also assess thecost incurred in personnel.
It gives a platform to the management by providingfactors for better decision-making for futureinvestment. The return on Investment on human capital is bestevaluated through HRA. HRA communicates to the organization & public aboutthe worth of human resources & also its properallocation within the organization. HR helps the management in developing principles byclassifying the financial consequences of the variouspractices.
Valuation Approaches of HumanResourceMeasurement is arbitrary and there are mainly 2approaches;Cost based approaches Present Value of Future Earning Cost Based Approaches1. Historical Cost Approach2. Replacement Cost Approach3. Opportunity Cost Approach
Historical Cost ApproachThe cost of recruitment, selection, development are allcapitalized and amortized over the useful life time ofthe employee. This amortization may be dealtaccording to the situation.Benefits: Easy to operate, Conforms with the matchingprinciple, Similar to the treatment of other fixed assetsShortcomings: Estimation of the useful life time maynot be easy, The value of humans are generallyincreasing over time - but this method gives adeclining picture, This method doesn’t actuallymeasure the value but undermines it
Replacement Cost ApproachThe cost to replace the existing human resources areestimated. All costs incurred to attain the current levelof competence of an existing employee. Created fromscratchBenefits: Is present/ future orientedDisadvantage: Not always possible to obtain such ameasure (identical replacement), It is hencesubjective
Opportunity Cost ApproachIs based on economic concept which overcomes thedeficiency in replacement cost app. Measured througha competitive bidding process within the entity.Steps:1. The entity is divided in to investment centers2. The investment centre managers bid for scarceemployees they need within the entity3. The maximum bid price may obtained by thecapitalization of the excess profits generated by theemployee
Present Value of FutureEarnings Lev and Schwartz (1971) proposed an economic valuationof employees based on the present value of future earnings,adjusted for the probability of employees’ death/separathion/retirement. This method helps in determining what an employee’sfuture contribution is worth today. According to this model, the value of human capitalembodied in a person who is ‘y’ years old, is the present valueof his/her future earnings from employment and can becalculated by using the following formula:E(Vy) = Σ Py(t+1) Σ I(T)/(I+R)t-yT=Y Ywhere E (Vy) = expected value of a ‘y’ year old person’s humancapital T = the person’s retirement age Py (t) = probability ofthe person leaving the organization I(t) = expected earnings ofthe person in period I r = discount rate
LimitationsThe measure is an objective one because it useswidely based statistics such as census income returnand mortality tables.The measure assigns more weight to averages than tothe value of any specific group or individual.
Investment patternThe human resource investment usually consists of thefollowing items:-1) Expenditure on advertisement for recruitment2) Cost of selection3) Training cost4) On the job training cost5) Subsistence allowance6) Contribution to provident Fund7) Educational tour expenses8) Medical expenses9) Ex-gratia payments10) Employee’s Welfare FundAll these items influence directly or indirectly the humanresources and the productivity of the organization.
Hra in indiaThough Human Resources Accounting was introduced wayback in the 1980s, it started gaining popularity in India after itwas adopted and popularized by NLC. Even though thesituation prevails, yet, a growing trend towards themeasurement and reporting of human resources particularlyin public sector is noticeable during the past fewyears. BHEL, Cement Corporation of India, ONGC,Engineers India Ltd., National Thermal Corporation,Minerals and Metals Trading Corporation, Madras Refineries,Oil India Ltd., Associated Cement Companies, SPIC,Metallurgical and Engineering consultants India Limited,Cochin Refineries Ltd. Etc. are some of the organizations,which have started disclosing some valuable informationregarding human resources in their financial statements. It isneedless to mention here that, the importance of humanresources in business organization as productive resourceswas by and large ignored by the accountants until twodecades ago.
Social Accountingsocial accounting may be defined as identification andrecording of business activities and socialresponsibilities.social responsibilities concept is one of the importantconcept of management.it is the duty of enterprise to do some social activitiesto completing their social responsibilities.social accounting is very important tool to measuresthe performance of any company in a view of socialresponsibilities.
company has to make the social responsibilitiesincome statement and balance sheet. But it is notcompulsory to make these statement.France , UK and USA are the top countries wheresocial responsibility statements are made with otherfinancial statements . In India social accounting is notso popular but some India companies are now focusingon social responsibility and also started to make socialreport for calculating to total cost and benefits forperforming social responsibility .
objectives of social accountingMain objectives of social accounting are to help society byproviding different facilities by enterprise and to recordthem. We can write them in following points.1. Effective utilization of natural resourcesMain objectives of making social accounting is todetermine whether company is properly utilize theirnatural resources or not .
2. Help to employeesCompany can help employees by providing the facilityof education to children of employees, providingtransport free of cost and also providing good workingenvironment conditions .3.Help to societyBecause companies factories spread the pollution innatural society which is very harmful for society . So ,enterprise can help to society by planting the trees ,establishing new parks near factory area. and alsoopening new hospitals .
4. Help to customersIn social accounting this the part of benefits given bycompany to society , if company provides goods tocustomers at lower rate and with high quality .5. Help to investorsCompany can help to investors by providingtransparent accounting information to investors .Because of many objectives are related to safeguardingof natural resources so this accounting is also knownas Social and Environmental Accounting, CorporateSocial Reporting, Corporate Social ResponsibilityReporting, Non-Financial Reporting, SustainabilityAccounting
Aditya Birla social projects vision"To actively contribute to the social and economicdevelopment of the communities in which weoperate. In so doing, build a better, sustainableway of life for the weaker sections of society andraise the countrys human development index."
FarmersdevelopmentSelf-help groups SGSY - dairy,readymadegarments, juteproject, basketmaking, aggarbatimaking, bee keeping,durrie making. Check dam Irrigation Land development Soil and waterconservation Pasturedevelopment Social forestry/plantation activities/nurseryHorticultureFarmer training
Health andfamily welfareMobile clinics -doctors visit once aweekMedical camps -general and issue-basedHealth trainingand awarenessSanitation - toilets,training, smokelesschullahs, biogasSafe drinking waterMother and childhealthReproductivehealthAwareness building
InfrastructuredevelopmentRoadsDams CommunitycentersHouses Culverts Electricity Health centersWater channels Schools
Social causesWidow / dowry-less mass marriagesWomenempowermentAwareness drivesonknowledge, attitudeand practices