Objectives of Human Resources Accounting
The aim of Human Resource Accounting is to depict the potential of HR in monetary terms, while casting the organization’s financial statements. The concept can be examined from two dimensions: (i) the investment in HR; and (ii) the value of HR. The expenditure incurred for recruiting, staffing and training and developing the HR quality is the investment in HR. The fruits of such investments are increased productivity and profit to the organization. The yield that the investment generates is considered as the basis for HR value. Putting in a capsule the main objectives of Human Resource Accounting are to:
- Improve management by analyzing investment in HR
- Consider people as its asset
- Attract and retain qualified people
- Profile the organization in financial terms.
The main objective of human resource accounting is to facilitate the management to get information on the cost and value of human resources. Human resources accounting brings to light the quantum of human resources and indicates the right control of conservation, depletion and appreciation of it in the right perspective. It provides data to the interested persons about the cost of human resources and correspondingly comparing it with the benefit obtained out of its utilization. The objective of Human Resource Accounting is not merely the recognition of the value of all resources used by the organization, but also includes the management of human resource which will enhance the quantity and quality of goods and services. The basic objective of Human Resource Accounting is to facilitate the efficiency of human resource. It is basically adopted to treat human resources as assets, to generate human data about human resources, to assign value to human resources and to present human assets in the balance sheet.
Limitations of Human Resource Accounting
Human Resource Accounting is the term used to describe the accounting methods, system and techniques, which coupled with special knowledge and ability, assist personnel management in the valuation of personnel in financial terms. It presumes that there is great difference among the personnel in their knowledge, ability and motivation in the same organization as well as from organization to organization. It means that some become liability too instead of being human assets. Human Resource Accounting facilitates decision making about the personnel i.e., either to keep or dispense with their services or to provide training. There are many limitations which make the management reluctant to introduce HRA. Some of the attributes are:
- There is no proper clear-cut and specific procedure or guidelines for finding cost and value of human resources of an organization. The systems which are being adopted have certain drawbacks.
- The period of existence of human resource is uncertain and hence valuing them under uncertainty in future seems to be unrealistic.
- There is a fear that HRA may dehumanize and manipulate employees. For e.g., an employee with a comparatively low value may feel discouraged and develop a complex which itself will affect his competency to work.
- The much needed empirical evidence is yet to be found to support the hypothesis that HRA as a tool of the management facilitates better and effective management of human resources.
- As human resources are not capable of being owned, retained and utilized, unlike the physical assets, there is problem for the management to treat them as assets in the strict sense.
- Another question is, on value being placed on human resources how should it be amortized. Is the rate of amortization to be decreasing, constant or increasing? Should it be the same or different for different categories of personnel?
- In spite of all its significance and necessity, tax laws do not recognize human beings as assets.
- There is no universally accepted method of human asset valuation.