Literature Review on Valuing and Accounting for Human Resources

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Published On: February 15, 2016
InternationalJournalofInformative&FuturisticResearch ISSN: 2347-1697
Volume 3 Issue 6 February 2016Reviewed Paper
Abstract
Human resource accounting is of recent origin and is striving for
acceptance. Human resources accounting is an accounting analysis
system and in the last decade a large body of literature has been
published for setting the various procedures for analysis. At the same
time from academicians the theory and underlying concepts of
accounting measurement have received sizeable attention and a
considerable body of literature has developed. The conventional
accountings of human resources are not perceived as physical or
financial assets. This paper reviews the literature available on the
perception of human resource accounting. In worth, previous study have
shown and debated various magnitudes related to valuing human
resource. For accounting human resources, different models have been
developed which are helpful to identify and report investment made in
the human resource of an organization that are not presently accounted
for under conventional accounting practice.
1. INTRODUCTION
Winds of change are exhaustive over the corporate landscape and there is an increasing
urgency to cope with the continually changing forces of competition, technological
development and new trend in the economy which has force to a growing awareness that
productive utilization of human resource which is the key to organizational success.
Human resource accounting is of recent origin and is striving for acceptance. Human
resources accounting is an accounting analysis system and in the last decade a large
body of literature has been published for setting the various procedures for analysis. At
the same time from academicians the theory and underlying concepts of accounting
A Literature Review On Human
Resource Accounting
Paper ID IJIFR/ V3/ E6/ 009 Page No. 1867-1876 Subject Area Commerce
Keywords Literature, Valuation, Human Resource Accounting , HR decision,
Anjna Rani
Research Scholar,
Department Of Commerce
Kurukshetra University, Kurukshetra (Haryana)

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International Journal of Informative & Futuristic Research (IJIFR)
Volume - 3, Issue -6, February 2016
Continuous 30th Edition, Page No.:1867-1876
Dr. S. Nirmala, Deepthy. K:: A Study Of Cointegration Between
Indian, American And Chinese Stock Markets
measurement have received sizeable attention and a considerable body of literature has
developed. The conventional accountings of human resources are not perceived as
physical or financial assets. HRA is a management tool which is designed to assist
senior management in understanding the long term cost and benefit implication of their
HR decision so that better business decision can be taken. If such accounting is not
there, then the management runs the risk of taking decision that may improve profit in
the short run but may also have severe results in future.
2. OBJECTIVE OF THE STUDY
The main objective of the present study is to explore the literature review related to
human resource accounting.
3. RESEARCH METHODOLOGY
This study is descriptive cum exploratory in nature. Secondary data is used for the
purpose of the study. To develop this study in depth literature review has been used
which is collected from websites, different books, previous research findings and from
different libraries.
4. REVIEW OF LITERATURE
1st. Elias (1976) attempted to provide framework for analyzing the behavioral
aspects of accounting methods. It was found that HRA due to its behavioral
impact had a distinct effect on decision making. It had a potential impact for both
functional and dysfunctional consequences which were different depending on
the circumstances and management philosophy. All expenditures related to HR
were considered to have been made for the acquisition and maintenance of
human assets and are therefore capitalized. It was suggested to consider sunk
cost in the various analysis of the company.
2nd. Fleming (1977) assessed the behavioral implications if a value for employee is
published as an asset on the balance-sheet. For the purpose of the study a survey
was done on faculty members and students, which was based on a questionnaire.
It was revealed that 43% of faculty and 38% of students were against the
statement that placing a dollar value on human being is an insult to their dignity
and an equal percentage of faculty felt that it was not only an insult but also a
way treating people as slaves or machines. 85% of students were against the
discloser of information publicly related with individual.
3rd. Tsay (1977) analyzed the relevance of internal and external reporting in an
organization. The mutual dependence of measurements & decisions was defined
by considering some examples and found that the internal reporting was relevant
of effective decision making. It was concluded that measurement can be
proposed after considering its purpose. HRA measures proposed for financial
reporting should be based on the general purpose of financial reporting.

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Historical cost measurement was suggested as an appropriate method of
measuring.
4th. Stephenson and Franklin (1982) gave a macro level perspective to human
resource accounting by analyzing different HRA models which reinforced the
practical implications of HRA in terms of real dollars and common sense for
management. It was found that many companies have recognized the need for
systematic assessment of the human element of the organization in quantitative
terms for internal management purposes. It was invented that in the near future
maximum corporations will be recording their human capital in the balance
sheet.
5th. Dawson (1994) studied the distinction between prescriptive and descriptive
approaches with regard to human resource accounting. It was found that both
approaches have a useful contribution to make but prescriptive approach should
not be confused with low quality descriptive approaches and that while the latter
are to be deplored the former have a valuable place in management research.
6th. Batra (1996) calculated the HRA and auditing practices in selected public
enterprises like BHEL, SAIL & CCI up to the period 1991-92. Primary and
secondary data were collected for the purpose of study. This study suggested a
model for measuring the value of human assets of these enterprises and found
that HR valuation and audit activity could be helpful in improving the efficiency
of human resources in the changing business scenario.
7th. Flamholtz et. al. (2002) explored the term HRA and implications of measuring
human capital for financial capital and managerial use. It was also studied about
the Swedish based HRA applications with respect to measuring human assets
and intellectual capital including the Skandia Navigator illustrates the intellectual
history and developments in business schools. It was revealed that HRA suggests
a vehicle for improvement of management as well as measurement of HR. If
HRA can demonstrate that improvement in HR management enhances profits,
then managers will integrate human capital implications in their decision making
to an enhanced degree.
8th. Dhade (2005) gave a macro level perspective to human resource accounting for
succeeding in highly knowledge driven economy. It was concluded that
companies should focus on intangible assets like human resources for future
growth.
9th. Theeke (2005) in a study presented the positions and conclusions of scholars to
support a proposition that the asset approach to human resource accounting has
failed. The paper offered an alternative liability approach to account for and
report human resources. The paper provided an argument and rationale to
demonstrate that a liability paradigm would be compatible with normal
accounting and reporting procedures.

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10th. Vedd and Kouhy (2005) analyzed the role of management accountants in
relation to strategic human resource management. The study was based on four
case studies by using a grounded theory approach. It was found that three of the
four cases, where there was particularly increased awareness of global
competition, the organizations were developing strategic team leadership to face
this challenge. The strategy for leadership and supervisory development
programmes for the Royal Mail, Canada Post and Weycan tried to give
employees the ability to understand cultural values and to develop organizational
excellence. Further, it was concluded that management accountants in these four
cases had several roles in relation to SHRM including contributing information
and analyses for strategic planning (including competitive analysis), setting
targets, decision-making, measuring performance (both financial and non-
financial) and reporting (including benchmarking).
11th. Theeke and Mitchell (2008) in a study made an attempt to explore the
implications of HR liability accounting paradigm including effects on financial
statements, ratios, risk and management behavior. It was found a relationship
between a firm value and the present value of HR expenses and recognizing HR
expenses will tend to depress asset turnover and return on assets while inflating
estimates of risk in the form of a higher debt ratio, lower cash flow coverage and
higher degree of operating leverage.
12th. Tracy (2008) directed at analyzing the types and adoption of HR policies,
practices and programs in the hospitality industry of Kenya that may be linked to
a firm’s overall business strategy & helps to drive performance in the hospitality
industry of Kenya. It was proclaimed that there is a need to develop a clear and
strong alignment between the overall business plan and the HR function.
13th. Catasus et. al. (2009) conducted a study to measure the sensegiving cues
encapsulated in models of reporting for human resources by investigating
elements, arguments and formats of the model. The paper focused on the three
discourses’ of HR reporting. It was revealed that sensegiving process is affecting
by different sensegiving cues/models which have an ethical dimension.
14th. Mamun (2009) investigated the relationship between corporate characteristics
and Human Resource Disclosure level in fifty five companies of Bangladesh.
The relationships were determined using a HRAD Index under a number of
hypotheses and found that companies averagely disclosed 25% of the total
HRAD items. In this study, HRAD has been found significantly related with the
size of the company, category of the company and profitability. However,
HDAD was found in a condition not influencing the age of companies.
15th. Seth (2009) studied the concept of human resource accounting and various
human resource accounting models, which have been adopted by a number of
Indian enterprises to give information about human resource in their balance
sheets, steps involved in calculation of human value using Lev and Schwartz

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model and its critical aspects, and lastly, concludes with suggestions for
improvement in the field. It was revealed that the measurement and reporting of
HRA in Indian Industry were in growing trend. Further, it was found that most of
the Indian companies and corporations have followed Lev & Schwartz model for
determining the value of human resources & HRA should have been flourished
throughout the nation.
16th. Avazzadehfath (2011) checked the impact of human resource accounting
information on the investment decisions and explored the factors that could
interfere in the effect. Further, it was examined that which evaluation method of
human resource was the most appropriate method consistent with Iranian
companies in terms of qualitative characteristics of accounting information. It
was revealed that human resource accounting (HRA) information disclosures in
financial statements were relevant and affect on the optimal investment
decisions. Original cost method was found to be the most effective and
appropriate evaluating method of human resource consistent with current status
of Iranian companies and institutions.
17th. Compbell and Helleloid (2011) conducted a study to analyze the adoption of
IFRS in the organization and HRM practices by global accounting firms.
Theoretical framework was the base of the study. It was found that there is a
need to be part of the discourse surrounding the possible U.S adoption of IFRS.
It was suggested that if global accounting regulatory standards are adopted then
it would be much easier for staff to work trans-nationally, and much easier to
meet regulatory standards regarding supervision when audit work was performed
in different countries.
18th. Badiyani (2012) described the brief history and the popular models of assessing
the value of human resources in the organization. It was found essential for an
organization to consider its human resources as an asset. The gradual
developments have been observed in the field of human resource accounting and
new approaches and models were given. Different organizations were found
using various models according to their need and the nature.
19th. Hosseini (2012) in a research studied the concept of human resource accounting
and found that the promotion of human capital and its effect on different aspects
of organization operation and in more extended level on economic and social
development was not hidden for everybody. Promotion of this capital was found
including a collection of competences for Appling knowledge and skill for
achieving to results of programs. Creativity, flexibility, capability of conducting,
solving problem and making creative relation with others, job making and
complex skill such as knowledge of manner of learning were the features
embracing in the competences.
20th. Pandey (2012) analyzed HRA practices of fifty selected companies on the Nifty
based of three years of annual reports. Content analysis was used for the study. It

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was found that out of 50 leading companies of India only one (ONGC) company
follows the HRA practices. Due to increasing importance of intangibles
especially human resources, how to what extent these are reported is of utmost
interest to a large number of stakeholders.
21st. Ratti (2012) calculated the value of human resources at different levels of
organization and determined the human resource efficiency quotient taking the
sample of fifteen Companies for the measurement of human resources. Primary
data were used in the study. It was revealed that the value of human resources
did not depend upon the number of persons employed.
22nd. Cherian and Farouq (2013) examined the relationship among HRA and
organizational performance and a study was conducted on reviews in the field of
Human Resource Accounting. It was found that company management and in
addition to HR professionals were not willing to execute HRA. Further, it was
revealed that organization faced several challenges during the HRA
implementation but disclosures on human assets acted as evidence for wealth
creation and helped in calculating the human resources capital, worth of
management development and enhances the value of management accounting.
23rd. Kesavan and Dayana (2013) made an attempt to analyze the Human Resource
Accounting disclosure in selected Indian companies. 20 companies were
considered for the study, out of that only 6 companies (3 Public and 3 Private
sector companies) were following Human Resource Accounting and
Independent’t’ test was used to find the difference in the disclosure of Human
Resource variables in selected Indian companies. A significant difference had
been found between human resource disclosers of public and private sector
banks.
24th. Bloom and Kamm (2014) conducted a study to aim at analyzing the human
resource costs incurred by organization under U.S generally accepted accounting
principles and reflect the impact of the Balanced Scorecard and recent literature
on the valuation of human capital. The study concluded that superior performing
companies recognized and reward their best employees to highlight the value of
human capital.
25th. Kaur et. al. (2014) attempted to evaluate extent of HRA measurement and
reporting practices of selected Indian companies. The study was aimed at
analyzing these companies and ranks the companies on the basis of the extent of
disclosure of HRA information in annual reports of companies. The study was
based on exploratory research design and secondary data were collected for this
purpose. It was revealed that measurements and reporting are highly subjective
and the companies are trying to fit available model for the valuation of HR as per
their own requirement.
26th. Madhumalathi et. al. (2014) identified the objectives of Human Resource
Accounting and various HRA models which are need to arrive at HR value. It

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also emphasized the application of HRA in various corporate sectors in India
with special reference to Infosys. It was concluded that HRA in Infosys helped in
identifying the right person for right job based on the person’s specialized skills,
knowledge, capabilities experience etc. and proper initiation should be taken by
the govt. for the measurement and reporting of such valuable assets. It was
suggested to take proper initiatives by the government along with the other
professional and accounting bodies both at the national and international levels
for the measurement and reporting of such valuable assets.
27th. Sharma and Kumar (2014) compared the disclosers and practices adopted by
selected public and private sector banks and revealed that public sector banks
were disclosed more information related to the human resource practices than the
private sector banks. Public sector banks were found disclosing some quality
information of human capital related information.
28th. Sharma and Lama (2014) highlighted the growth and development made in the
field of human resource accounting taking the examples of some Indian
companies that made effort to value and account human resource in the financial
statements. Further, the validity of the misleading financial statements was
examined. The Indian companies were found conscious about various advantages
of the HRA and for encouraging the development and application of HRA the
Regulatory Bodies for Accounting Standards in both the National and
International level have to focus on the measurement and reporting aspect of
HRA and enforce sound standards for it.
29th. Stanko et. al. (2014) examined the history of human asset accounting and its
feasibility in current financial reporting environments. Additionally, the
importance of human asset accounting, different approaches toward human asset
accounting, and how beneficial an accurate method could prove to be in financial
reporting was demonstrated. It was revealed that as a foregoer to measurement
the development of general quantitative & qualitative human capital disclosures,
with real company examples, be included in a company’s sustainability
reporting.
30th. Bullen and Eyler examined the international contributions made to the field of
HRA considering the human capital, human resource metrics, intellectual capital,
and organizational management. In results, a situation of growth was recorded in
the field of HRA Along with advances in HRA theory. It was concluded that
HRA gained positive effect overseas assignment on personal development. It
was suggested to follow the international trends emerging in intangible reporting,
capitalized human resource information, so that HRA can become more
prevalent.

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5. FINDINGS OF THE STUDY
i.) HRA termed as a vehicle for improvement of management as well as
measurement of HR.
ii.) The measurement and reporting of HRA in Indian Industry are in growing trend.
iii.) Human resource accounting (HRA) information disclosures in financial
statements were relevant and effect on the optimal investment decisions.
iv.) It was found that most of the Indian companies and corporations have followed
Lev & Schwartz model for determining the value of human resources.
v.) Some organization faced several challenges during the HRA implementation.
vi.) The companies are trying to fit available model for the valuation of HR as per
their own requirement.
6. CONCLUSION
In concise we perceived that a large body of theoretical and empirical research has been
done on human resource accounting disclosures, human resource accounting models and
measurement for assessing the human resources. Human Resource Accounting has
fewer acceptances by business world. But previous study have shown and debated
various magnitudes related to valuing human resource which defines that human
resource accounting is inevitable for every business and these businesses should valuing
their human resources . For accounting human resources, different models have been
developed which are helpful to identify and report investment made in the human
resource of an organization that are not presently accounted for under conventional
accounting practice. On the behalf of accounting bodies, government agencies and
regulatory bodies there is a need to come forward and issue guidelines of accounting in
relation to disclosures being more objective and user worthy. The scope of the further
study is in how the technology of HRA can be adapted and broadened to the measure of
different types of intellectual property.
7. REFERENCES
[1] Sharma, Dr. C. S., & Lama, Sameer. (2014). A Critical Evaluation of Measuring the
Immeasurable: Human Resource Accounting (HRA). The International Journal Of Business &
Management, 2 (3), 22-28.
[2] Madhumalathi, R., George, Lina., & Madhumathi, T. K. (2014). A STUDY ON HUMAN
RESOURCE ACCOUNTING IN CORPORATE SECTORS. International Journal of
Organizational Behaviour & Management Perspectives, 3 (1), 717-722.
[3] Bullen, Maria. L., & Eyler, Kel-Ann. Human resource accounting and international
developments: implications for measurement of human capital. Journal of International
Business and Cultural Studies, 1-16.
[4] Flamholtz, E. G., Bullen, M. L., & Hua, W. (2002). Human resource accounting: A historical
perspective and future implications. Management Decison, 40 (10), 947-954.
[5] Seth, Neha. (2009). Human Resource AccountingPractices Adopted in Indian Industries.
ASBM Journal of Management, II (2), 103-113.

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[6] Cherian, Jacob., & Farouq, Sherine. (2013). A Review of Human Resource Accounting and
Organizational Performance. International of Journal Economics and Finance, 5 (8), 74-83.
[7] Vedd, Rishma., & Kouhy, Reza. (2005). Interface between Management Accounting and
Strategic Human Resource Management: Four Grounded Theory Case Studies. The Journal of
Applied Accounting Research, 7 (iii), 117-153.
[8] Dawson, Chris. (1994). Human Resource Accounting: From Prescription to Description?.
MANAGEMENT DECISION, 32 (6), 35-40.
[9] Campbell, Katherine., & Helleloid, Duane. (2011). IMPLICATIONS OF IFRS
ADOPTATION ON THE ORGANIZATION AND HUMAN RESOURCE MANAGEMENT
PRACTICES OF GLOBAL ACCOUNTING FIRMS. Journal of International Business
Research, 10 (1), 109-116.
[10] Stephenson, Blair. Y., & Franklin, Stephen G. (1982). Human Resource Accounting:
Dollars and Sense for Management. Business and Society (pre-1986), 46.
[11] Tsay, Jeffrey J. (1977). Human Resource Accounting: A Need for Relevance. Management
Accounting (pre-1986), 58 (9), 33.
[12] Elias, Nabil. (1976). BEHAVIORAL IMPACT OF HUMAN RESOURCE
ACCOUNTING. Management Accounting (pre-1986), 57 (8), 43.
[13] Stanko, Brian. B., Zeller, Thomas. L., & Melena, Matthew. F. (2014). Human Asset
Accounting And Measurement: Moving Forward. Journal of Business & Economic Research, 12
(2), 93-104.
[14] Flaming, Mary. M. K. (1977). BEHAVIORAL IMPLICATIONS OF HUMAN
RESOURCE ACCOUNTING: A SURVEY OF POTENTIAL PROBLEMS. Human Resource
Management (pre-1986), 16 (2), 24.
[15] Kaur, Surinder., Raman, A. Venkat., & Singhania, Monica. (2014). Human Resource
Accounting Disclosure Practices in Indian Companies. Vision, 18 (3), 217-235.
[16] Dhade, Aruna. (2005). A HUMAN RESOURCE ACCOUNTING: A WAY TO SUCCEED
IN KNOWLEDGE-DRIVEN ECONOMY. MANAGEMENT & LABOUR STUDIES, 30 (4),
381-392.
[17] Tracey, Bruce. J. (2008). Accounting for Human Resource Flexibility. Cornell Hospitality
Quarterly, 49 (4), 428-431.
[18] Pandey, N. N. (2012). Human Resources Its Valuation and Disclosure Practices in Nifty-
based Companies of India. Management and Labour Studies, 37 (4), 323-335.
[19] Bloom, Robert., & Kamm, Jacob. (2014). Human Resources: Assets That Should Be
Capitalized. Compensation & Benefits Review, 46(4), 219-222.
[20] Theeke, Herman. A. (2005). A human resource accounting transmission: shifting from
failure to a future. Journal of Human Resource Costing & Accounting , 9 (1), 40-59.
[21] Mamum, S. A. (2009). Human resource accounting (HRA) discloser of Bangladeshi
companies and its assocition with corporate characterstics. BRAC University Journal , VI (1),
35-43.
[22] Avazzadehfath, F., & Raiashekar, H. (2011). Decision making based on human resource
accounting information and its evaluation method. Asian Journal of Finance and Accounting , 3
(1: E14).
[23] Hosseini, M. G. (2012). Human resource accounting. IOSR Journal of Business and
Management , 2 (5), 06-10.

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[24] Badiyani, B. M. (2012). Human resource accounting: brief history and popular models.
Quest International Multidisciplinary Research Journal , I (II), 155-158.
[25] Ratti, M. (2012). An analytical study of human resource accounting practices- an Indian
experience. Integral Review- A Journal Of Management , 5 (2), 37-45.
[26] Sharma, N., & Kumar, M. (2014). A comparative study of human resource discloser and
reporting practices of selected public and private sector banks. Abhinav , III, 78-86.
[27] Kesavan, S., & Dyana, P. F. (2013). Disclosure of human resource accounting (HRA) in
selected Indian companies- An empirical analysis. Indian Streams Research Journal , 3 (5), 1-6.
[28] Theeke, Herman., & Mitchell, John. B. (2008). Financial imlications of accounting for
human resources using a liability model. Journal of Human Resource Costing & Accounting, 12
(2), 124-137.
[29] Batra, G. S. (1996). Human resource auditing as a tool of human resource valuation:
interface and emerging practices. Managerial Auditing Journal, 11 (8), 23-30.
[30] Catasus, Bino., Martensson, Maria., & Skoog, Matti. (2009). The communication of human
accounts: examining models of sensegiving. Journal of Human Resource Costing & Accounting,
13 (2), 163-179.

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