Objectives
Rensis Likert, one of the earliest proponents of HRA, has specified the following objectives of an HRA system:
i. To provide cost value information for managerial decisions about acquiring, developing, allocating and maintaining human resources so as to attain cost effective organizational objectives.
ii. To enable management personnel to monitor effectively the use human resources.
iii. To provide a determination of asset control, i.e. whether human assets are conserved, depleted or appreciated.
iv. To assist in the development of effective management practices by classifying the financial consequences of various practices.
Need for Human Resource Accounting
It is quite natural to ask: Why is there need for separate system of HR accounting? Can the system of financial accounting not take care of valuation of organisation’s human resources. It may be stated that financial accounting has developed various tools that largely measure the value of various physical assets (land, building, machinery’, etc.) and intangible assets (goodwill, patent, brand, etc ). However, financial accounting docs not measure the value of human capital which, at times, can be many times more than the value of physical and financial assets of an organisation. HR accounting attempts to bridge this gap. It is true that HR accounting in India has not become popular the way it should be. There are very few companies that have adopted HR accounting to value its human resources. For example, companies such as Infosys Technologies. BPL Limited, etc. use HR accounting and show human resource valuation in their annual reports. We see increasing use of HR accounting in know ledge-based sectors such as information technology, consultancy, electronic media, etc.
Basic Premises of Human Resource Accounting
i. People are the valuable resources of an enterprise.
ii. The usefulness of manpower in an organization is determined by which they are managed.
iii. Information on investment and value of human resource is useful for decision making for an enterprise.