Human Resource Accounting

(HRA)
Managerial Accounting

Presented by; Jayanth G R(23M01207)

Chandu Shree Y H(23M01197)
Manoja B C(23M01217)
Nithish Kumar L(23M01227)
Shivalinga (23M01237)
Vinay Singh K(23M01247)
 Introduction
What is Human Resource Accounting?

Human resource accounting (HRA) is a type of accounting

that seeks to determine the cost and value of the people,
also known as human capital, working in an organization.

HRA is an economic indicator of what an organization

spends on its human capital. It indicates money spent on
recruiting, training, salary and benefits of existing
employees in previous months and years.
 Definition
American Accounting Society Committee (1973)

“Human Resource Accounting is the process of identifying and

measuring data about HR and communicating this information to
interested parties.”

Davidson and Roman L Weil

“HRA describes a variety of proposals that seek to report and

emphasize the importance of human resources – knowledgeable,
trained and loyal employees in a company earning process and
total assets
Human Resource Accounting Methods
1. Cost Approach Method

The cost approaches involve the computation of the cost of human resources to
the organization. Different cost approach methods include –

• Historical Cost Method – The historical cost method involves calculating the cost
incurred by the company in recruiting, training, and developing its employees. This
approach is easy to apply but does not reflect human assets’ true value.

• Replacement Cost Method – This method involves estimating the cost of

replacing an employee with a similar level of skill and experience.

• Opportunity Cost Method – The opportunity cost method estimates the potential
2. Value Approach Method
The value of human resources is measured based on the contribution they are likely to make to
the organizations during their employment. Different value approach methods include –

• Present Value Method – This method estimates the present value of the future cash flows
an employee must generate for the company.

• Value to the Organization Method – In this method, the most valuable employee of the
organization is determined and measured whether the organization is earning premium
profits from the services of that employee and helps in finding the value of that employee.

• Expense Model Method – This method divides the employees into two categories:
Decision-making and decision-execution. It then determines the actual cost incurred in both
categories and whether it benefits the organization.
 Objectives of Human Resource Accounting

Smarter HR Decisions: HRA provides financial insights to guide strategic choices in talent
01 management

Cost Management: It helps identify cost-saving opportunities and optimize HR resource allocation.
02

HR Value Proposition: HRA quantifies the financial value of human capital, strengthening HR's case
03 for investments.

Strategic Alignment: It ensures HR strategies support overall business goals.

04

Performance Improvement: HRA aids in pinpointing areas for employee development and boosting
05 overall productivity.
Importance of Human Resource Accounting

1. Data-Driven Decisions: HRA assigns financial value to your workforce, enabling data-driven
choices in talent management.

2. Cost Optimization: It helps identify areas to streamline HR processes and reduce unnecessary
Think of your learning style. What works and
expenses.
doesn’t work? Discuss with your group areas
of improvement
3. Holistic View: HRA recognizes employees as valuable each aofmore
assets, providing you would like to
comprehensive financial picture. make and list 3 of them on
this slide.
4. Justified Investments: By quantifying employee value, HR can secure funding for essential
programs.

5. Strategic Alignment: HRA ensures HR strategies support overall business goals for long-term
success.
 Limitations of Human Resource Accounting
1. Valuation Difficulty: HRA assigns a financial value to human capital, but this can be subjective
and imprecise due to the intangible nature of employees' skills and experience.

2. Financial Reporting Integration: Traditionally, human capital isn't reflected in financial

statements. Integrating HRA data can be challenging.
;

3. Future-Oriented Uncertainty: HRA focuses on the future potential of employees, which is

inherently uncertain compared to past expenditures.

4. Data Dependence: HRA relies on accurate employee data, and any incompleteness or
inconsistency can affect valuation accuracy.

5. Performance Metrics Focus: HRA's financial emphasis might overshadow other important
aspects of employee performance and morale.
 • Big Data & Analytics: Unleashing a wealth of employee data
insights for more sophisticated valuation models.

• AI-Powered Talent Management: Predicting high-potential

employees and proactively addressing turnover risks.

• Blockchain: Ensuring data accuracy and building trust in HR

accounting practices.
The future of human
resource accounting • Valuing the Intangible: Quantifying the worth of creativity,
innovation, and leadership potential.

• Standardized Reporting: Enabling consistent comparisons of

human capital strength across organizations.

• Ethical Considerations: Balancing data-driven decision

making with respect for employees' individuality.
Thank you