Professional Documents
Culture Documents
Human Resources Accounting
Human Resources Accounting
1
Background
• The most valuable asset of an entity which is not
reported in the Balance Sheet due to
conventional accounting practices
• Behavioral scientists like Maslow, Elton Mayo
emphasized the value of Human Resource
Management to increase output
• Currently, expenses of Selection, Training and
Retirement are considered as Revenue
Expenditure
• Writers such as Kaplan, Landekich are of the
view that the Traditional Framework of
Accounting is expanding
2
Human Resource – An Asset ?
IASC Definition of an Asset:
“ Is a resource controlled by the enterprise, as a
result of past event and from which future
benefits are expected to flow to the enterprise”
Theoretical Questions:
1. Are Humans resources?
2. Are they controlled by the enterprise?
3. Do they result from past events?
4. Do they bring future economic benefits?
• If “Yes” for all it is an “asset”
3
Human Resource – An Asset ?
Opponents’ View (Against View)
4
Human Resource – An Asset ?
Proponents’ View (For View)
Objectives
- Recognition of value of all resources controlled/
used by the entity (Primary Objective)
- Improvement of Human Resource Management
(Quality and Quantity of Goods can be Increased)
- Effective and Efficient management of people
Purposes
- Internal Decision Making
- External Decision Making
7
Objectives and Purposes of Human
Resource Accounting
Purposes
- Internal Decision Making - on alternative
investment decisions
E.g. Direct Recruitment Vs Internal Promotion
Retirement Vs Retention
- External Decision Making - To evaluate the true
worth of the firm for investor decision making, To
compute ratios as ROCE more accurately
8
Valuation Approaches of Human Resource
Measurement is arbitrary and there are mainly 2 approaches;
- Cost based approaches
- Earnings based approaches
10
Valuation Approaches of Human Resource
Weaknesses:
1. Restricted to the next best alternative of the same
organization
2. Subjective – Only being bid employees
3. Discriminatory 13
Valuation Approaches of Human Resource