Human resource accounting involves measuring the costs and value of employees to an organization. It aims to provide cost and valuation information to aid management decision making regarding acquiring, developing, and maintaining human resources. The objectives of human resource accounting include monitoring human resource use, analyzing whether human assets are conserved or depleted, and facilitating valuation and disclosure of human resources in financial statements.

1. HUMAN RESOURCES
ACCOUNTING AND AUDIT

2. Definition for human resources
accounting
 Human Resource Accounting is the process of
assigning, budgeting, and reporting the cost of
human resources incurred in an
organization, including wages and salaries and
training expenses.

3. Concept of HR Accounting
 Human Resource Accounting (HRA) is a new branch
of accounting.
 It is the measurement of the cost and value of
people to organizations.
 It involves measuring costs incurred by private firms
and public sectors to recruit, select, hire, train and
develop employees and judge their economic value
to the organization.

4. Objectives of HR Accounting
 To furnish cost value information for making proper
and effective management decisions about
acquiring, allocating, developing and maintaining
human resources in order to achieve cost effective
organizational objectives.
 To monitor effectively the use of human resources by
the management.
 To have an analysis of the human assets i.e.
whether such assets are conserved, depleted or
appreciated.

5. Cont..d
 To aid in the development of management principles.
and proper decision making for the future by
classifying financial consequences of various
practices.
 In all, it facilitates valuation of human resources
recording the valuation in the books of account and
disclosure of the information in the financial
statement.
 It helps the organization in decision making process.

6. Measurement in HRA
 Two main approaches are employed for measurement:
1.Cost Approach which involves methods based on costs
incurred by the company, with regard to an employee.
2. Economic Value Approach which includes methods
based on :
 Economic value of the human resources
 And their contribution to the company’s gains
This approach looks at human resources as assets & tries
to identify the stream of benefits flowing from the asset.

7. HR Audit
 The American Accounting Association’s
Committee on Human Resource Accounting (1973)
has defined Human Resource Accounting as
“the process of identifying and measuring data about
human resources and communicating this
information to interested parties”.

8. Who should conduct the audit?
 The team that is responsible for the audit should
represent a cross-section of the organization’s
staff, including line staff, middle and upper
management, and those responsible for HR
functions.

9. Need and Purpose of Human Resource
Auditing
 Human Resource audit is highly useful for the purpose
 Does the organization regularly forecast the supply of
and demand for employees in various categories?
 Do job analyses exist for all positions in the organization?
 Are all potential sources of recruitment identified and
evaluated?
 Are measurable selection criteria developed and used
while filling up jobs?

10. Cont..d
 Do effective training and development programs
exist?
 Is there a performance evaluation system that helps
assess past and potential performance?
 Is the remuneration programmed designed to
motivate employees?
 Is the plant unionized?
 Does a grievance procedure exist?

11. Cont..d
 Does the organization have high quality of work life?
 Does the HRM practice contribute to organizational
effectiveness?
 Does the management underestimate the capacity of
HRM to contribute to organizational effectiveness?

12. Approaches to Human Resources Audit
The following approaches are adopted for purpose of
evaluation:
 Comparative approach
 Outside authority approach
 Statistical approach
 Compliance approach
 Management by objectives (MBO) approach

13. Comparative Approach
 In this, the auditors identify Competitor Company as
the model. The results of their organization are
compared with that Company/ industry.

14. Outside authority approach
 In this, the auditors use standards set by an outside
consultant as benchmark for comparison of own
results.

15. Statistical approach
 In this, Statistical measures are performance is
developed considering the company’s existing
information.

16. Compliance approach
 In this, auditors review past actions to calculate
whether those activities comply with legal
requirements and industry policies and procedures.

17. Management by objectives (MBO)
approach
 This approach creates specific goals, against which
performance can be measured, to arrive at final
decision about organization’s actual performance
with the set objectives.