Human Resource Accounting

HR Accounting- What? And Why?

The process of identifying and measuring data about human resources and communicating this information to interested parties. - by : American Association s Human Resource Committee It furnishes cost/value information for making management decisions about acquiring, allocating, developing, and maintaining human resources in order to attain cost-effectiveness; It allows management personnel to monitor effectively the use of human resources; It provides a sound and effective basis of human asset control, that is, whether the asset is appreciated, depleted or conserved; Present accounting system ignores the importance of human resource value Put people on the balance sheet and value intellectual capital -Likert

Methods of HR Accounting
COST APPROACH HISTORICAL COST VALUE APPROACH
LEV AND SCHWARTZ MODEL

REPLACEMENT COST

FLAMHOTZ MODEL

OPPURTUNITY COST

STANDARD COST

The Lev and Schwartz model of accounting

The human capital value of a person is valued by taking into account the person s annual earnings up to retirement, a discount rate specific to the person and the person s retirement age.

AGGREGATION OF THE PRESENT VALUE OF DIFFERENT GROUPS WHICH REPRESENT THE CAPITALIZED FUTURE EARNINGS OF THE CONCERN AS A WHOLE, WHERE, VR = THE VALUE OF AN INDIVIDUAL R YEARS OLD I (T) = THE INDIVIDUAL'S ANNUAL EARNINGS UP TO RETIREMENT T = RETIREMENT AGE R = A DISCONT RATE SPECIFIC TO THE COST OF CAPITAL TO THE COMPANY.