Human Resource Accounting (HRA) is the process of measuring and valuing the economic worth of human resources within organizations, aiding management in decision-making and investment analysis. While few companies in India adopt HRA, its importance lies in improving managerial decisions, enhancing organizational efficiency, and providing insights for recruitment and human resource policies. Limitations include a lack of established procedures for valuation and the potential discouragement of lower-valued employees.

3. HUMAN RESOURCE
ACCOUNTING

4. CONTENTS
• Introduction
• Definitions
• Objectives
• Advantages
• Position of HRA in India
• Need &Importance of HRA
• Limitations
• Measurement in HRA
• Methods of HRA
• Summary

5. Introduction
Process of identifying and measuring data about
human resources and communicating this information
to interested parties.
Quantification of the economic value of the people in
an organization.
Art of valuing, recording and presenting systematically
the worth of human resources in the books of account
of an organization.

6. Definitions
“Human resource accounting is the measurement of the
cost and value of the people for the organisation.”
Eric Flamholtz of University of California, Los Angeles
“ The measurement and quantification of human
organizational inputs such as recruiting, training,
experience and commitment ”
Stephen Knauf (1983)
“Human Resource Accounting is the process of
identifying and measuring data about human resources
and communicating this information to interested
parties.”
American Accounting Society Committee on HRA

7. Objectives
Improve management by analyzing investment in HR
Consider people as its asset
Attract and retain qualified people
Profile the organization in financial terms
To have an analysis of the human asset
To aid in the development of management principles, and proper
decision making for the future
It provides a sound and effective basis of human asset control, that
is, whether the asset is appreciated, depleted or conserved

8. Advantages
Throws light on the strengths and weaknesses of the
existing workforce in an organization.
Helps management in recruitment planning.
Offers valuable feedback regarding the effectiveness of
HR policies and practices.
Helps potential investors judge a company better on the
strength of the human assets utilized therein .
Organizations can find out how much they earn from an
individual.
Provides a sound and effective basis for human asset
control.
Reflects the extent to which organization contributes to
society’s human capital by investing in its development.

9. Position of HRA in
India
In India, very few companies use HRA.
HRA is not compulsory in India.
Infosys Technologies and BPL are the leading
companies in India, which use HRA.
HRA reports give useful information to the
company management, employees and investors.

11. ed &Importance of HRA
It develops effective managerial
decision making.
It enhances the quality of
management.
It prevents misuse of human
resources.
It helps the efficient allocation of
resources.
It increases human asset
productivity.
It improves their morale,
cooperation, job satisfaction and
creativity.

12. Cont…
It influences the individual behavior, attitude and
thinking in desired direction
It helps in long term investment decisions.
It provides good basis of human asset control.
It helps the development of management principles.
It ensures good monitoring of effective uses of human
resources.
It develops human efficiency.

13. Limitations
No specific procedure for finding cost and value of human
resources of an organization.
Form and manner of including HRA value in the financial
statement is not clear.
Employee with a comparatively low value may feel
discouraged.
Tax laws do not recognize human beings as assets.

14. Measurement in HRA
• Historical Cost
• Replacement cost
• Opportunity cost
• Standard cost
Cost based approaches
• The Lev and Schwartz Model (Present value of future earnings method)
• The Eric Flamholtz Model (Reward Valuation method)
• Morse Model (Net Benefit Model)
Monetary value based approaches
• The Flamholtz Model
• Ogan Model (Certainity Equivalent Net Benefit Model
• Likert Model
Non-monetary value based approaches

15. Methods of HRA
Historical Cost Method
Replacement Cost Method
Opportunity Cost Method
Capitalization of Salary Method
Economic Valuation Method
Return on Efforts Employed Method
Adjusted Discounted Future Wages Method
Reward Valuation Method
Standard Cost Method
Currant Purchasing Power Method

16. Summary
• Human resource accounting provides quantitative
information about the value of human assets, which helps
the top management to take decisions regarding the
adequacy of human resources.
• Based on these insights, further steps for recruitment and
selection of personnel are taken. Outside the organization,
quantitative data on the most valuable asset has an impact
on the decisions of the investors, clients, and potential staff
of the company.
• When proper valuation and accounting of the human
resources is not done then the management may not be able
to recognize the negative effects of certain programmes,
which are aimed at improving profits in the short run. If not
recognized on time, these programmes could lead to a fall in
productivity levels, high turnover rate existing employees.

17. Any Question
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