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“Human resource are the greatest assets of any company. You can raise tariffs or prevent MNC’s from entering, but you cannot stop employees from leaving if they are unsatisfied.”

-Narayan Murthi

Human resource accounting is one of the emerging areas of the Indian accounting industry. As we all know, any organization cannot survive if it does not have the human assets. Specially in today’s IT era, its employees are most important assets of the organization. In the financial accounting, we record every assets of the organization in monetary term at historical cost. When we consider our employees as our greatest assets, the question arise, can we account for these assets? At which value? How this value will be calculated? Are there any standard for recording the value of human resource?

First we have to know, what human resource accounting is. Basically human resource accounting (HRA) is a information system that tells management what changes are occurring over the time to the human resource of the business. HRA also involves accounting for investment in people and their replacement cost; it also involves economic value of people in the organization. It is a process of identifying and reporting the investment made in human resource of the organization that is not accounted for in current conventional accounting system.

Now we have to know that why we need Human resource accounting. The adoption of system of human resource accounting discloses the value of human resources. It helps the management in employment and utilization of human resource.It helps in deciding transfer, training and retrenchment of human resource. Now the question comes in mind that, how the human resource accounting will do that?

The Human resource accounting is focused on return on knowledge rather than return on investment about which most of the companies are concerned. It is focused on the measurement of abilities of all the employees of the company, at every level, to produce value from their knowledge and capabilities. HRA also concern about the replacement cost and economic value of employees. If the employee of our organization move to another then what economic value will be forego, which he can contribute to company, along with that employee and what will be the replacement cost and training cost of the replacement; that calculation, measurement and information system is part of human resource accounting.

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Published by

CA Prashant Gupta
(Practising Chartered Accountant)
Category Accounts   Report

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