HUMAN RESOURCE ACCOUNTING: BETWEEN MEASUREMENT AND REPORTING

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1 HUMAN RESOURCE ACCOUNTING: BETWEEN MEASUREMENT AND REPORTING Dr. YOGINI VIDYADHAR CHIPLUNKAR Assistant Professor, Symbiosis College of Arts & Commerce, Senapati Bapat Road, Pune ABSTRACT Human resources through their skills, knowledge, abilities, and talent assist companies in achieving their goals. Human resource accounting (HRA) stands for measurement, recording and reporting of cost and value of people as organizational resources. Earlier studies have found Human Resource accounting disclosures to be very low and very few companies are reporting HRA in their annual reports. Some of the studies have also highlighted the need to make HRA as part of global corporate disclosure practice which can facilitate comparison and transparency. The aim of this paper is to investigate whether HR cost and value analysis is done by the companies or not irrespective of the fact that it may or may not be reported in their annual reports. Thus the paper mainly deals with recording and analysis of HR data by companies rather than reporting. This research paper is a case study of two private limited software companies. The result show that the companies under study do calculates cost and value of their employees though the reporting norms are not applicable to them. Thus non- disclosure of HRA does not mean that it is not used by companies. Though HRA generated data is not reported to external stakeholders, internally it is reported and used very extensively to improve quality and accuracy of human resource planning and management. Key words :- Human Resource Accounting, Disclosures, Intangible asset, Human Resource Planning and Management. Introduction Few years back, the value of an enterprise as measured with the help of traditional balance-sheet was considered as a sufficient reflection of its assets. But with growing emergence of knowledge economy this traditional valuation is not sufficient. It is recognized everywhere that human resources in an organization are an essential pre-requisite for growth and development. It is the individuals not organizations who create excellence. The most significant resource of any organization is often said to be its people. So being an intangible asset of an organization their value should be measured and recorded in the Balance-sheet. In the year , Infosys Technologies Limited became first IT company to value its human resources in India. Infosys had always given at most importance to role of employees in contributing to company s success. Long ago Mr. Narayan Murthy, ex- Chairman and Chief Mentor, Infosys had said, Comparing this figure over years will tell us value of our human resources is appreciating or not. For knowledge intensive company like ours it is a vital information. Human Resource Accounting disclosure is a process of reporting the human resources of an organisation. It is a tool designed to assist Human resource senior management in understanding the cost and benefit implications of their HR decisions. Variety of empirical studies have analysed the HRA disclosure practices followed by Indian companies. It has been observed in these studies that there are very limited no of companies that have taken the initiative and disclosed HRA related information in their annual reports. But does non- disclosure of human value in annual report mean 9 icmrrjournal@gmail.com

2 non-measurement of human value and cost? Earlier studies do not focus on the co-relation between HRA measurement and HRA Reporting in Financial Statements. This research paper is an attempt to find the answer to this question. Review of Literature Sir William Petty developed the concept of Human Resource Accounting in the year 1691.But research into true human resource accounting began in the year 1960 by Renris Likert. In the year 1973 American Accounting Association s committee gave the definition of Human Resource Accounting. In the past decade, there are several studies on Human Resource Accounting (HRA) that focused on wide and diverse range of research concerns. For an instance, researchers have linked a HRA measures with firm or organizational performance (P.O.Okpako,E.N. Atube& O.H.Olufawoye 2014, Prince, F. Izedonme, Lucky, G. Odeyile& Kingsley Kuegbe 2013). Few others have focused on the valuation or measurement of HRA (Brian B. Stanko, Thomas L. Zeller, Matthew F. Melena 2014,Pedro Andradeand Ana Maria Sotomayor 2011). While some addressed the issues of regulations, standards or reporting of HRA.(Dr. A. Lakshmana Rao 2014, MamtaRatti 2012 ) Hypothesis HRA is applied and used by IT companies though related disclosures are not made in their annual reports. Methodology The study is based on all necessary information which is generated through primary and secondary sources. The secondary data is collected through published materials like articles, books, magazines. Primary data has been collected through discussions and interviews of HR Managers of selected IT companies. A case study method has been used in this study. Sample selection In case of IT companies, their growth, development and survival greatly depends on it s people and intellectual capital ( knowledge Workers ). But today these companies are finding it difficult to retain and maintain their knowledge workers. In case of IT companies, the employees are considered as assets who appreciate in value through experience and skills they acquire in company. So when they leave, business loses an essential element of intellectual capital. Often the loss is compounded when they join competitor. In view of predominant role played by HR in IT companies, 2 IT companies based in Pune are selected for the study. Both the companies under study are Private Limited Companies. So the Financial Disclosure norms are not applicable to these companies. Thus the random sample of present study comprised of two HR managers of IT companies. Limitations of the study The study is based on the data/information collected from two software companies. The research did not cover the study of methods/ procedures used by companies for HR cost and value analysis icmrrjournal@gmail.com

3 Data analysis and findings Both IT companies under study are Private Limited companies and the age of both the companies is in the range of years. Both companies are growing in the range of % for last 5 years. Both companies are providing high value software services and consultancy to clients worldwide. The number of employees working for both the companies are in the range of The companies under study do calculates cost and value of their employees though the Financial Reporting norms are not applicable to companies under study. The acquisition cost is compared to replacement cost from time to time. Employee performance is evaluated in terms of cost and contributions of employees. HR managers of both the companies pointed out that Human Resource Accounting is attracting greater attention and importance in current competitive environment. As competitive pressures are mounting, the quest to manage human resources in a better manner has increased substantially. For HR managers,human resource Accounting is highly important and useful activity. It generates significant data related to Human resources of the company. With the help of the data generated, HR managers pointed out that they can forecast human resource requirement, use existing manpower productively, cope with changes and can prepare people for future challenges. According to the HR managers, IT, being a dynamic industry, it is very difficult to predict future requirements exactly and precisely.the success of their company depends on company s ability to attract, develop, motivate and retain highly skilled employees. So their human resource policies and practices are oriented towards enhancing employee engagement levels by proactively addressing factors that impact retention. Several learning and development opportunities are provided to ensure that human resources not only update their skills and competencies but also able to keep pace with cutting edge of technologies and prepare themselves to take up challenging roles. HR managers also pointed out that their system considers various qualitative factors like honesty, integrity, qualifications, experience, interest in work and innovative skills. HR managers under study are of the opinion that Human Resource Accounting helps individual employee as well in improving their performance. It makes each of them conscious of the contribution he/she is making towards betterment of the company. The information generated by human resource accounting helps to interpret return on capital employed. It provides cost information about acquiring, developing, training, allocating and maintaining human resources. It enables management to effectively monitor the use of human resources. The information provided by Human Resource Accounting can be put to use for taking variety of decisions like employment, transfer, promotions, increments, training, turnover analysis etc.in fact the managers under study are of the opinion that as company grows and expands it becomes essential to have Human Resource Accounting in the company. The HR mangers are of the opinion that HRA is a tool that has been extensively used by them in the process of Human Resource Planning. Projecting human resources needs over a period of time is a risky affair. Being a forward looking function, Human Resource Planning demands lot of information about people and jobs. Variety of information is used to forecast personnel needs. The information used to forecast personnel needs originates from multitude of sources icmrrjournal@gmail.com

4 And Human Resource Accounting plays an important role here by offering valuable information about existing human resources of an organization. Conclusion Human Resource Accounting plays an important role in 1. Identifying and recording data about human resources. 2. Measuring the cost and value of human assets. 3. Identifying strength and weaknesses of employees. 4. Communicating this information to interested parties. Human Resource Accounting is not just recognition of value or cost of human resources but it also includes effective management of human resources to facilitate productivity and efficiency of human resources. It offers valuable information needed to hire, develop, reward and evaluate human resources.armed with Human Resource Accounting HR managers can proceed with the analysis of internal supply. So Human Resource Accounting, as a tool, definitely helps to improve quality and accuracy of Human Resource Planning. Thus the data collected supports the hypothesis of the research paper. It shows that non-disclosure of HR value does not mean that the technique is not used by companies. Though not reported, HR cost and value analysis is done by the companies on a regular basis as it provides vital inputs in the process of Human Resource Planning and Management. References 1. Ansari S. L., Flamholtz D. T. (1978). Management science and the development of human resource accounting. The Accounting Historians Journal, 5(2), Gupta D. K. (1990). The Lev and Schwartz model based human resource accounting in India: Some issues. Indian Journal of Accounting, 20(1), Bhatia B. S., Singh G. (1992). Human resource accounting in India. Journal of Accounting and Finance, 6(2), Batra G. S., Bhatia B. S. (1994). Human resource valuation: A study of Indian corporate sector. Journal of Accounting and Finance, 8(1), Tomassini L. A. (1997). Assessing the impact of human resource accounting: An experimental study of managerial decision preferences. The Accounting Review,52(4), Abeysekera I., Guthrie J. (2004). Human capital reporting in a developing nation. The British Accounting Review, 36(3), Shah T., Khedkar A. (2006). Measuring intangible assets Indian experience (Case study). Ahmedabad: IIPM. 8. Abeysekera I., Murthy V. (2007). Human capital value creation practices of software and service exporter firms in India. Journal of Human Resource Costing and Accounting, 11(2), Seth N. (2009). Human resource accounting practices adopted in Indian Industries.ASBM Journal of Management, 2(2), icmrrjournal@gmail.com

5 10. Dalwadi Y. M. (2010). Human resource accounting practices in selected companies in India. International Journal of Research in Commerce and Management, 1(2), Anam O. A., Fatima A. H., Majdi A. R. H. (2011). Effects of intellectual capital information disclosed in annual reports on market capitalisation. Journal of Human Resource Costing and Accounting, 15(2), Pedro Andrade and Ana Maria Sotomayor,Human Capital Accounting Measurement Models, International Journal of Economics and Management Sciences Vol. 1, No. 3, 2011, pp MamtaRatti, An Analyticalstudy Of Human Resource Accounting Practices An Indian Experience, Integral Review - A Journal of Management e-issn : , p-issn : ,Volume 5, No. 2, Dec.-2012, pp Kashive N. (2013). Importance of human resource accounting practices and implications of measuring value of human capital: Case study of successful PSUs in India. Journal of Case Research, 4(2), Prince, F. Izedonme, Lucky, G. Odeyile& KingsleyKuegbe,Human Resource Accounting and its Impact on Organisational Performance, Journal of Economics and Sustainable Development ISSN (Paper) ISSN (Online) Vol.4, No.15, Dr. A. Lakshmana Rao,Human Resource Accounting: a frame work for better Financial Accounting and Reporting, IOSR Journal of Business and Management (IOSR-JBM) e-issn: X, p-issn: Volume 16, Issue 4. Ver. II (Apr. 2014), PP P. O. Okpako* E.N. Atube& O.H.Olufawoye,Human Resource Accounting and Firm Performance Global Journal of commerce and management perspective, G.J.C.M.P.,Vol.3(4): (July-August, 2014) ISSN: Brian B. Stanko, Thomas L. Zeller, Matthew F. Melena, Human Asset Accounting And Measurement: Moving Forward, Journal of Business & Economics Research Second Quarter 2014 Volume 12, Number icmrrjournal@gmail.com