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HUMAN RESOURCE ACCOUNTING

HUMAN RESOURCE ACCOUNTING. Presented By: Ketan Popat Raghuvansi Consultancy. Introduction To HRA. ‘ The most valuable of all capital is that invested in human beings.’ - Alfred Marshall

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HUMAN RESOURCE ACCOUNTING

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  1. HUMAN RESOURCE ACCOUNTING Presented By: Ketan Popat Raghuvansi Consultancy RAGHUVANSI (KETAN POPAT)

  2. Introduction To HRA ‘ The most valuable of all capital is that invested in human beings.’ - Alfred Marshall • HRA is an attempt to identify and record investment made in the human resources. • Its an information system reporting the cost and value of the human factor to the organization. RAGHUVANSI (KETAN POPAT)

  3. Definition Of HRA • The American Accounting Association has defined HRA as ‘the process of identifying and measuring data about human resources and communicating information to interested parties.’ • According to Woodruff Jr., VP of R.G. Barry Corporation U.S.A, “HRA is an attempt to identify and report investment made in human resources of an organization that are not accounted for under conventional accounting practice. Its an information system that tells the management what changes over time are occurring to the human resources of the business. “ RAGHUVANSI (KETAN POPAT)

  4. Characteristics Of HRA • Its a system of accounting in which identification of human resources is made. • Investment made in human resources is recorded. • Measurement of costs and values are made. • Changes occurring in human resources over a period of time are also recorded. • Communicates information through financial statements to interested parties. RAGHUVANSI (KETAN POPAT)

  5. Characteristics of HRA [Cont’d] • Helps the management to gain knowledge of the various aspects of employees which is necessary to take vital decisions for the progress of the organization. • HRA is a part of MIS. • Joint efforts of behavioral scientists, accountants and managements are needed for the working and development of HRA. RAGHUVANSI (KETAN POPAT)

  6. Objectives Of HRA • Proper management of human resources • Improvement of human resources. • Depicting the true value of the organization. • Provides quantitative information on human resources which helps the managers and investors in making decisions. • HRA communicates the worth of human resources to the organization and to the public. RAGHUVANSI (KETAN POPAT)

  7. Methods/Models Of HRA • Historical Cost Method: Actual cost incurred for recruiting, hiring, training and developing the human resources of the organization are capitalized and amortized over the expected useful life of the human resources. RAGHUVANSI (KETAN POPAT)

  8. Methods/Models Of HRA [Cont’d] • Replacement Cost Method: This is the measure of the cost to replace a firm’s existing human resources. This method has the advantages of adjusting the human value of price trends in the economy. • Opportunity Cost Method: In this method, the human resource of an organization has to be valued on the basis of the economist’s concept of opportunity cost which is value of benefit foregone by putting it to present use. RAGHUVANSI (KETAN POPAT)

  9. Methods/Models Of HRA [Cont’d] • Present Value Of Future Earnings Method: It recognizes an individual’s expected economic value to the enterprise during his remaining service period. An estimate about the future earning is made, and these earnings relate to the period which extents to the date of retirement of the employees. Such earnings are discounted by an appropriate range to get the present value. RAGHUVANSI (KETAN POPAT)

  10. INFOSYS- A PROFILE • One of the leading technology consulting firms with operations in more than 15 countries. • Provides software development and engineering through a network of development centers in Asia and America. RAGHUVANSI (KETAN POPAT)

  11. HRA IN INFOSYS ‘Our Assets walk out of the door each evening. We have to make sure that they come back the next morning.’ - N R Narayana Murthy • In 1995-96, Infosys began putting a value on its human assets. • Infosys human assets today are valued at a mind-boggling figure of Rs.28,334 crores ($6.4 billion). • At the end of March 2005, the company had 36,750 employees on its rolls. RAGHUVANSI (KETAN POPAT)

  12. HRA IN INFOSYS [Cont’d] • The software deliver staffs are valued at Rs.26,550 crores while those in the support function are valued at Rs.1,784 crores. • To arrive at the aforementioned values, Infosys had to take the following assumptions: employee compensation, incremental earnings based on group and age. • The FY 2005 annual report on HRA of Infosys mentioned the dichotomy in accounting between human and no-human capital is fundamental. RAGHUVANSI (KETAN POPAT)

  13. The HRA Method Of Infosys Lev And Schwartz Accounting Model • The model is based on human capital theory which recognizes human capital as one of the several forms of holding wealth for a business enterprise, such as money, securities and physical capital. • The human capital value of a person is valued by taking into account the person’s annual earnings up to retirement, a discount rate specific to the person and the person’s retirement age. RAGHUVANSI (KETAN POPAT)

  14. HRA- A Challenge To HRM The concept of HRA has encouraged HR professionals to take a more strategic and business focused approach in managing their human capital. Knowledge –based organizations value and invest significantly in human capital. Measuring the HR, therefore, becomes even more critical from a business impact perspective.

  15. THANK YOU RAGHUVANSI (KETAN POPAT)

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