In this article, we will discuss the major importance of human resource accounting, which plays an essential role in smooth functioning. Also, you will be aware of some problems of human resource accounting faces.
Needs/Importance of Human Resource Accounting
These are the importance of human resource accounting that we will mention in the below section:
1. Helps with Scheduling and the Implementation of HR Policies
The HR policies of an organization contain policies regarding HR functions such as training, promotions, transfers, demotions, etc. HR policies of an enterprise are essential to the company. Also, it is helpful in the proper schedule and execution of the procedures are vital for the smooth operation of any organization. It is the importance of human resource accounting. This task is managed through an HRA system in an organization.
2. Helps in Calculating ROI
HRA describe as an accounting process that recognizes the expenses incurred by the enterprise’s human resources management. Once the cost of the investment determine the company can quickly determine the return on investment (ROI) by analyzing the profit made. It is the importance of human resource accounting. This helps the managers decide how much they need to spend on human resources to maximize ROI.
3. Motivates Employees
Employees are motivated to better themselves when they are aware of their value to the HRA system within the organization. The amount they invest in them will encourage them to boost their output, in line with the investment made by the company. It is the major importance of human resource accounting
4. Sign of Good Health of the Organization
HRA can be used to gauge a company’s overall health. The amount of money spent on an organization’s Human Resources helps determine the amount of profit that could be made in the future.
5. Improves the Process of Decision-Making
HRA is a center to gather information about the actual worth of the human resource within an organization. HRA’s information helps management make the appropriate decision regarding organizational questions. It is the major importance of human resource accounting.
6. Helps in Determining the Need for Recruitment
HRA provides information on the likelihood of receiving returns and how much should be spent on the company’s human resources. If the profit is high, the demand for new employees rises. If there are no gains, there is no need to recruit anymore. It is the major importance of human resource accounting. The decisions made are dependent on the data provided to the HRA.
7. Ascertains Negative Effects of the Programmes
HRA system can also assist managers in determining the negative impact of various programs that are running within an organization. This is the major importance of human resource accounting.
Extreme 7 Problems of Human Resource Accounting
Although there are numerous benefits of HRA, there are also some negatives or problems of human resource accounting. Some of them include the following:
1. Non-Availability of Standards
The company’s most significant issue is the need for the proper standards to assess the costs incurred by human resources. The Institute of Chartered Accountants of India (ICAI) should develop specific criteria for determining how much value is placed on human resources.
2. Trade Union Resistance
Estimating how much value is attached to human resources could cause industrial conflict and opposition from union leaders. This opposition may be due to the management’s bias when assessing the value of human assets. So, before the introduction of HRA within an organization, all employees and their leaders should be informed about the significance of HRA and how it can help them.
3. Expensive
When introducing HRA in an organization, the first thing to be kept in mind is that it needs to be economical. The system will be ineffective if its implementation is detrimental to the company’s profits. Therefore, any expenditure by this system must be done prudently. Otherwise, it may result in additional expenses to the organization.
4. Variety of Methods Create Confusion
Numerous methods can be utilized to determine the expense incurred by human resources. This leads to miscommunications, so managers should use a specific way of evaluating the HR costs to ensure certainty.
5. Results in Dehumanization
If the valuation of human assets isn’t done correctly, it could result in exploiting employees. The HRA’s assessment will benefit the organization rather than at the expense of a bias toward employees.
6. Uncertainty over the Continuity of employees
In contrast to machinery, one can’t expect employees to remain within the organization for the rest of their lives. Certain situations could make employees leave their job. This is why it is described as the stability of employees in any company is not guaranteed. This uncertainty also increases the number of vacancies within the organization. It can cause problems with the assessment used in the accounting of Human Resources, which also affects the employees’ work.
7. A lack of Knowledge regarding the future receiving of HR
Futures are unpredictable and full of uncertainty. There is no way to tell if an investment will yield or not. Thus, accurate information needs to be improved regarding the future earnings of any organization. Therefore, sometimes an evaluation of assumptions creates a significant issue for the HRA system.