Corporate Reporting Framework in

India:
A Case of HRA Reporting

By Pragnesh Shah (Journal of Accounting and Finance,Vol.23,No.1,

2008)

Presented By:

Nimisha Gupta
MBA-HR(09-11)
 Flow of the Presentation

HRA
Framewor
Valuation
History
k of of
Introducti
and
Conclusion
Corporate
HRA in
Disclosure
on
Reporting
India
practices
in India
in India
 Introduction
• Human element is the most important input in any corporate
enterprise.

• The investments directed to raise knowledge; skills and

aptitudes of the work force of the organization are the
investments in human resource.

• Of late, HR function has assumed a strategic dimension

Framework of Corporate Reporting in India
• In India Corporate Reporting is mandatory

• Governed by the Companies Act 1956

• ‘True and fair view’ of the affairs of the company

• Does not explicitly provide for disclosure on Human assets in

the financial statements of companies.

• It is upto the organization to decide how much, what and in

which form information they want to disclose voluntarily
 History of HRA in India
• The commencement of HRA practice in India was a result of
the Initiative taken by BHEL, in 1974-75

• Initially the Public sector organizations took a lead in HRA

valuation and reporting in India.

• Now knowledge based organizations like Infosys, GTL and

some finance sector organizations have joined them
Organizations practising and reporting HRA
in India
• BHEL • KRL
• ACC • MECON
• CCI • MMTC
• CFSL • MRL
• ELIL • NTPC
• EIL • OIL
• GTL • ONGC
• HMTL • PEC
• HPCL • ROLTA
• HZL • SPIC
• IDPL • STC
• INFOSYS • SAIL

Only 28 companies have been found disclosing HRA information in India

 Companies following HRA in India
• Very few private sector
companies Pubic sector Private sector Total

• CFSL in 1989-90
21 7 28

• Post-liberalization all 4
private cos. were from
service and knowledge
based IT sector.
Period of acceptance of HRA practice

• A no. of companies have Particulars HRA practice accepted in

stopped HR valuation and
reporting Pre- Post-
liberalization liberalization
Public sector 21 -

Private sector 3 4
 HRA Valuation and Disclosure practices in
India
Valuation Practices: Reporting Practices:

• Valuation Model • Disclosure of HRV

• Discount Rate • Disclosures related to

profitability and efficiency
• Cataloguing of Employees
 Human Resource
Valuation Model
• CFSL,GTL,HPCL,HZL,IDPL, HR Valuation Model selected by Indian Companies
INFOSYS, KRL, MECON, MMTC,
Particulars Model Accepted
NTPC,ROLTA,SAIL, SPIC and STC
in first category
L&S L&S Model Own
• Cos. Like ACC,CIL,EIL,MRL,OIL Model with amended Not
refinements Model Repor
and PEC are the six cos. in the suggested by -ted
second category Flamholtz,
• BHEL has developed its own Jaggi and Lau
model based on L&S model. No. of 15 6 1 3
• ELIL,HMTL and ONGC not Companies
reported
 Discount Rate
• BHEL,HZL,MMTC,NTPC,ELIL, Discount Rate applied by different companies in
and STC apply 12% DR India
considering the risk free rate of Sr. No. Percentage No. of Cos.
return
1 10 1
•EIL,ONGC,OIL,MECON,CCI,KRL, 2 10.5 1
MRL, SAIL, use DR equal to the
cost of capital 3 12 6
4 14 1
•GTL,HPCL,INFOSYS,ROLTA use
different DR every year equal to 5 15 4
the cost of capital
6 Varying 5

•Different Cos, from same 7 Not reported 7

industry i.e oil industry apply Total 25
different DR
Cataloguing of Employees
• No uniformity in the cataloguing
of employees
• Age-wise and designation wise
or
• Educational qualifications and
designation wise
or
• Age and educational qualification
wise
Efficiency Indicators
• Calculation of ratios to check the
profitability and efficiency of the
resources applied
• Dicsclosures:
– HRV
– HRV:Fixed Assets
– Turnover:HR
– Turnover: total resources
– Employee cost:HRV
– Rate of return on HRV
• In all 18 variables
 Conclusion
• No statutory requirement under Companies Act 1956 regarding HRA
reporting
• Almost all Companies follow L&S model of HR valuation

• Even after following same base method of valuation, Different discount

rates are used by different companies
• BHEL provided leadership not only in initiation of HRA in India but also by
providing maximum information under the head ‘Human Resource
Accounting’
• HRV , efficiency and productivity disclosures are hardly comparable
amongst Cos. Due to lack of standardization in reporting
• Comparatively little attention is given to variables which can be of relevant
use to decision-makers
“ HRA has progressed at something less than a
snail’s pace in the past two decades”
- Turner(1996)