HUMAN RESOURCE
ACCOUNTING
PREPARED BY :
SUDHANSHU SHARMA
MBA-II sem.
H.I.M.C.S.
DEFINITION OF
H.R.ACCOUNTING
Human Resource Accounting is, “ The process of
identifying and measuring data about human resource and
communicating this information to intrested parties ”
- AMERICAN ACCOUNTING ASSOCIATION COMMITTEE
HISTORICAL DEVELOPMENT OF
H.R.ACCOUNTING
According to Eric G Falmholtz
FIRST STAGE (1960-1966) –
begening of academic interest in the area of HRA
SECOND STAGE (1966-1971) –
The focus here was more on developing and validating
different models of HRA
Cont..
THIRD STAGE (1971-1976) –
This period was marked by a widespread interest in the field of HRA.
R.G.Barry experiments contributed substantially during this
stage
FOURTH STAGE (1976-1980) –
This was the period of decline in the area of HRA
FIFTH STAGE (1980 onwards ) –
There was a sudden renewal of interest in the field of HRA
OBJECTIVES OF H.R.ACCOUNTING
Provide cost value information about acquiring, developing,
allocating and maintaining HR.
Enable mgmt.to effectively monitor the use of HR.
Find whether human asset is appreciating or depriciating
over a period of time.
Assist in the development of effective management
practices.
To motivate individual persons in the organization to
increase their worth by training.
In planning physical resource vis-à-vis HR by giving valuable
information.
PURPOSE OF HR ACCOUNTING
Use of resources to achieve the immediate and long-run
goals of the organization.
Traditional accounting involves treatment of human capital
and non-human capital differently.
Conventional treatment on human resource.
USES OF HR ACCOUNTING
according to Grojer and Johansson-
As a political tool, used to demonstrate mismanagement of
human resource.
As a pedagogical instrument for analyzing and structuring.
As a decision making aid to ensure that decision on HR are
more rational from the management point of view.
ADVANTAGES OF HR ACCOUNTING
Foresee the changes
Provides different methods of testing
Increase productivity
Brings high return
Helps individual employee to aspire
Provides scope for advancement
Throws light on the strength and weaknesses of the
existing workforce
Helps potential investor judge a company
LIMITATIONS OF HR ACCOUNTING
Not easy to value human asset.
Results in dehumanizing human resource.
No evidence.
HR is full of measurement problem.
Employees and Unions may not like the ideas.
Unrealistic.
Lack of Empirical evidence.
ASSUMPTIONS UNDERLYING
H.R.ACCOUNTING
People are valuable organizational resource.
Human Resource value is influenced by management
style.
HRA information is needed.
METHODS OF H.R.ACCOUNTING
* COST APPROACH-
- Historical Cost Approach
- Replacement Cost
- Standard cost method
- Present value
- Opportunity Cost method
- Economic Value method
* ECONOMIC VALUE APPROACH
HUMAN RESOURCE AUDIT
The word ‘AUDIT’ comes from the latin verb ‘audire’
which means, to listen
“HR Audit is a tool which helps assesss effictiveness of
HR functions of an organization.”
NATURE OF
HUMAN RESOURCE AUDIT
c t i v i ties
A
HRM
e s
Ou tcom
Audit HRM
HR M
WHY CONDUCT AN HR AUDIT ?
• Ensure compliance
• Improve HR practices
• Train your managers
• Prepare for potential government audit or litigation
• Gain an understanding of department’s environment
• Show a “good faith effort”
• Correct errors
SCOPE OF AUDIT
Audit of human resource function.
Audit of managerial compilance.
Audit of human resource climate.
- Employee turnover.
- Absenteeism.
- Safety records.
- Attitudes survays.
Audit of corporate strategy.
BASIC PRINCIPLES OF AUDITS
1. Identify the Scope
2. Develop a Questionnaire
3. Collect Data
4. Benchmark Findings
5. Provide Feedback about Results
6. Create Action Plans
7. Foster Climate of Continuous Improvement
APPROACHES TO HUMAN
RESOURCE AUDIT
Comparative Approach,
Outside Authority Approach,
Statistical Approach,
Compliance Approach, and
Management By Objectives (MBO) Approach
TYPES OF AUDIT
INTERNAL AUDIT :
The internal audit is conducted by the company's own ataff as
a part of their control activities.
EXTERNAL AUDIT :
The external audit is conducted by outsiders specifically
employed for this purpose. The advantage is to get the
unbiased evaluation by competent people of the manpower
management function.
BEFORE YOU BEGAIN THE AUDIT
PROCESS :
1. Determine who will conduct the audit.
Internal vs. External
2. Secure senior management commitment.
a. Are they ready to fix what’s broken, even if it costs $$$$?
b. Do they agree with the methodology?
c. Will they allow access to all departments/information?
d. Will they publicly support the process?
Before you begin the audit
process…
3. Define the parameters.
a. Who will be audited?
b. What do you want to audit?
c. What audit tools will you use?
d. How will the process be rolled out?
e. How will results get reported?
f. Who will get the results?
4. Introduce the audit process to your managers.
H.R.AUDIT PROCESS
PRE-AUDIT INFORMATION
PRE-AUDIT SELF ASSESSMENT
ON-SITE REVIEW
RECORDS REVIEW
AUDIT REPORT
