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Concept of Human Resource Accounting

Human resource accounting is the process of measuring and reporting the human resources of an organisation. It is the process of providing information about individuals and groups of individuals, within an organisation to decision-makers both inside and outside the organisation.

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

According to Flamholtz. “Human resource accounting may be defined as the measurement and reporting of the cost and value of people as organizational resources. It involves accounting for investments in people and their replacement cost. It also involves accounting for the economic value of people to an organisation.”

According Davidson and Weil “it is the process of measuring and reporting the human dynamics of an organisation. It is the assessment of the condition of human resources within an organisation and the measurement of the change in the condition through time.”

According to the above definitions, the requirements of HRA are as follows :

Valuation of human resources

Recording of human resources as per accounting principles.

Disclosure of human resource information in the financial statements

HRA is the measurement of cost value of people for organisation. HRA is the systematic recording of the transactions relating the value of human resource. The importance of people in the organisation as productive resource was ignored by the management, but now a days it has received increasing attention and widespread interest in developing the system of HRA. The productivity of a company’s investment is known for the rate of return, which is calculated on the basis of physical assets investment only. There is need to find out productivity of investment on human beings in any organisation. It is an effective tool for decision making. Human resources have certain distinct characteristics from the physical assets like personality, self control, devotion, quality, skill, talent, loyalty, initiativeness etc. It is a basic need of present time to improve productivity, that can be improved by the human force. Hence to encourage, it is necessary to account them and to take progressive decisions for them.

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