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HR Accounting

Human resource accounting aims to record, report, and analyze human resource-related figures through the accounting system to aid decision making. While humans are priceless, their value as capital can be quantified such as the present value of future salary costs. Tracking human capital is important because people are corporations' most important asset, but current accounting ignores human value and managers lack information on human investment effectiveness. Human resource accounting classifies employees as capital based on uniqueness and value, tracks acquisition, learning, and replacement costs, and examines how financial and non-financial human factors influence operational results.

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Kanchan Rajdev
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94 views18 pages

HR Accounting

Human resource accounting aims to record, report, and analyze human resource-related figures through the accounting system to aid decision making. While humans are priceless, their value as capital can be quantified such as the present value of future salary costs. Tracking human capital is important because people are corporations' most important asset, but current accounting ignores human value and managers lack information on human investment effectiveness. Human resource accounting classifies employees as capital based on uniqueness and value, tracks acquisition, learning, and replacement costs, and examines how financial and non-financial human factors influence operational results.

Uploaded by

Kanchan Rajdev
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Human Resource Accounting

What is human resource accounting?

To record, report and analysis human resource related figures through accounting system
The result can be use for decision making purpose

What is the value of human?

Human is priceless. Human capital can be counted.


How do you calculate the value of an employee in the company?
Minimum value = The present value of her(his) salary in the future, by considering the possibility of early absence.

Why human resource accounting?

Human capital becomes the most important asset in the corporation to extract value Present accounting system ignores the importance of human resource value Managers lack information about the effectiveness and efficiency of human resource investment

Human capital becomes the most important asset in the corporation

More service(human intelligence) oriented company than before


Higher Tobins Q(Price/Equity) Higher Return on Assets(ROE)

The importance of capital shifts from financial capital to intellectual capital

Intellectual capital including


human capital, organizational capital
Relation capital(outside) Customer capital(outside) Process capital(inside) Learning and development capital(inside)

Characteristics of Human capital


Hard to imitate Causal ambiguous Cannot duplicate in a short time

Present accounting system ignores the importance of human resource value

Generally Accepted Accounting Principle(GAAP) treats most human capital related costs as expenses, instead of assets The more the company invests in human capital, the less the current net income Revenue-Expense(including HR)=Net Income

Financial ratios, based on financial statements, provide little or bias human capital profitability information, for example
ROA: based on hard asset Return on Investment(ROI): The I represents the investment on hard assets Assets Turnover: Sales/Total hard assets
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Reasons why GAAP does not allow human capital investment becomes assets
Future benefit uncertainty Conservatism Ethical issue

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Managers lack information about the effectiveness and efficiency of human resource investment

Lay off decisions


Does the lost training cost and future orientation cost be considered? Short term, immediate positive impact on current net income Vs effect on long term profit Impacts on employees feeling which may negatively influence company income
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Investment in human capital decisions


What is the relationship between human capital investment and operation result? The communication of company human capital to investors.

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The Human capital Architecture

The classification of Human capital


Not all employees are classified as human capital Value Vs Uniqueness(Lepak & Snell, 1999) High value Employees can be considered as human capital

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Costs related to human capital


1. Formation and acquisition costs at the early stage of development, e.g. Recruiting cost 2. Learning costs in the middle stage of development, e.g. Training cost 3. Replacement costs at the final stages of development, e.g. discharge cost

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Human resource factors that may have influence on operation result

Financial (human resource accounting, use accounting system to collect data) Non-financial (use questionnaire)
Personal background, such as age, gender, education, experiences and licenses. Personal characteristics, such and personal traits.
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Some personal background and personal characteristic, together with human capital cost, do have significant influences on operating results Capitalizing human capital cost may improve the quality of earning.

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The Limitation

Hard to find specific human resource data


Case study rather than general study

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Future development

The influence of mark to market value accounting(such as the evaluation of investments) on human resource accounting R & D cost also faces the future benefit uncertainty problem, does the accounting treatment for R & D provide any guidance for human resource cost?
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