Human resource accounting is described as a type of accounting that views human resources as assets and all financial expenditures on human resources like salaries, wages, and training. Human resources are valued in the books of accounts and included in the book of accounts. They are also recorded in books of accounts like other possessions.
The financial report of a business is entirely dependent on the amount of labor who work within that organization. There are assessments, budgeting, and reporting of human resources costs to aid the organization in accurately documenting its assets. This is essential in every business association.
Definition of Human Resource Accounting (HRA)
As per Stephen Knauf, “Human resource accounting is the measurement and quantifying of human-related organizational inputs, like recruitment as well as training experience as well as a commitment.”
American Accounting Association Committee says, “Human resource accounting is the process of identifying and quantifying data about human resources, as well as providing the relevant information to interested individuals.”
Extreme Objectives of Human Resource Accounting
Human resource accounting has the following goals:
- Accounting for human resources is among the most effective methods to determine an organization’s expenditure based on human resources and the worth of these funds. Every decision regarding the workforce employed by a company is based on HRA.
- It assists the organization in creating an estimated amount for the human resource costs before time, including the cost of acquisition, the price for training and the cost of expanding the human resources, salaries and wages, and so on.
- To determine the worth of human resource resources, an organization must adhere to specific guidelines and procedures according to the standards established by the department responsible for human resources.
- It aids the administration in assessing whether the human resources available are utilized in the best possible manner, as well, i.c.. it is important to ensure that there must be the optimal use of the employees. There shouldn’t be any exploitation of the workforce within the organization.
- If any changes are coming up in the values of people assets employed within an organization. Also, HRA indicates the authority ahead of time to ensure that the appropriate actions can be taken to safeguard those assets that are the most valuable to the organization.
- HRA system assists the management of any company in assessing employees by their performance and expectations and offering them incentives according to their performance.
- Once management has complete mathematical information on the company’s human resources. Then, they consider human assets integral to their decision-making. This improves the management concept. The organization will be more aware of the financial implications of its human resources.
Quick Process of Human Resource Accounting
There is a specific process that must be followed by management for the HR accounting process. This procedure goes as the following:
1. HR Accounting Objectives
Every organization must achieve the same set of objectives. These goals and organizational demands are the basis for determining the purposes of the accounting system for human resources.
The main goals that are the focus of the HRA system are to create a trouble-free budgeting system that can define the cost of human resources and give precise information on the importance of human resources to the management to ensure its optimal utilization. It is the duty of all departments involved with HR management to provide a clear description of the roles they perform, their decisions, and their rationale. The information comes from different departments within the organization. Once various organization departments have provided this information, it is easy to determine the purposes of the HRA system.
2. Developing HRA Measurements
There are two main ways to take the accounting for human resources. These are described below:
1). The management may choose a specific or a range of measurement methods and implement the Human Resource Accounting System. Human Resource Accounting System
2). Methods that are non-monetary or monetary are also utilized to evaluate the value or cost of human resources.
Before using any of these strategies, The validity and consistency of these methods should be verified.
3. Developing HR Accounting Database
The human resource accounting system is based on various aspects like timesheet management, costs of each employee in the organization, numerous psychological elements, etc. These are the elements that make up the database of the HRA system. In certain situations, it is necessary to overhaul the whole organization’s accounting system to classify costs of human resources separately, or the expenditures are categorized as general and administrative expenses.
This classification must be based on financial aspects like training and development, staffing, etc. So, the costs of the above elements can be analyzed independently, making the work of the HRA more efficient. In addition to focusing on the monetary aspects, it’s important to ensure that accounting departments keep an eye on non-monetary factors like employee behavior and evaluate the value and personality of employees to assess how valuable they will be for the organization.
4. Pilot Testing the System
After completing the initial three stages, i.e., the objectives have been set, dimensions are created, and the database is adequate to support the HRA system. The next step is trial testing of the accounting procedure. The pilot testing process involves confirming the system’s operation before establishing it as a component of the organization. The coordination and cooperation of management during this process are vital for its success.
5. Implementing the Human Resource Accounting System
This is the final stage to complete the HRA process. This is where the organization can introduce the entire workforce and employees to a new accounting method. The significance and various forms of HRA are explained to employees to ensure that they are acquainted with the concept and fully accept it. How HRA will benefit employees should be clearly stated. The responsibility of managing the HRA system is given to deserving candidates.
HRA can easily implement any modifications by making a few changes and improvements to the system. To ensure the efficient operation of the HRA system, periodic review is crucial since it helps the system to be able to adapt to the ever-changing requirements of the company.
6. Requires High Managerial Skills
Zero-based budgeting demands a high degree of managerial expertise. Because it requires a lot of time, effort, and money, numerous organizations carry out this task only once every couple of years.
What is the Role of Human Resource Accounting?
Human resource accounting is the process of recognizing and measuring the value of a company’s human resources and reporting this information in financial terms. It is an important tool for helping organizations assess the worth of their human capital and measure their return on investment from human resource initiatives.
What is the Process of Human Resource Accounting?
Human resource accounting is the process of recognizing and evaluating the value of a company’s human capital assets. It is done by measuring the cost of recruiting, training, and developing employees and then attributing a monetary value to them.