Human Resource Accounting HRA - Meaning

Human Resource Accounting (HRA) means to measure the cost and value of the people (i.e. of employees and managers) in the organisation. It measures the cost incurred to recruit, hire, train and develop employees and managers. HRA also finds out the present economic value of its employees and managers. After measuring the cost and value of its employees and managers, the organisation prepares a report. This report is called HRA Report. It is shown to the top level management. It can also be shown to the employees, managers and outside investors.

Human Resource Accounting HRA - Meaning

Human Resource Accounting (HRA) means to measure the cost and value of the people (i.e. of employees and managers) in the organisation. It measures the cost incurred to recruit, hire, train and develop employees and managers. HRA also finds out the present economic value of its employees and managers. After measuring the cost and value of its employees and managers, the organisation prepares a report. This report is called HRA Report. It is shown to the top level management. It can also be shown to the employees, managers and outside investors. Methods of HRA

There are many different methods of HRA, some of which are:1. Actual Cost Method, 2. Replacement Cost Method, 3. Standard Cost method, etc.

Definition of HRA

According to American Accounting Association, "HRA is the process of identifying and measuring data about human resources and communicating this information to interested parties."

Advantages of HRA

Benefits, objectives, advantages of human resource accounting HRA:-

1. Information for manpower planning

HRA provides useful information about the cost and value of human resources. It shows the strengths and weakness of the human resources. All this information helps the managers in planning and making the right decisions about human resources. Thus HRA provides useful information for Manpower Planning and Decision Making.

2. Information for making personnel policies

HRA provides useful information for making suitable personnel policies about promotion, favourable working environment, job satisfaction of employees, etc.

3. Utilisation of human resources

HRA helps the organisation to make the best utilisation of human resources.

4. Proper placements

HRA helps the organisation to place the right man in the right post depending on his skills and abilities.

5. Increases morale and motivation

HRA shows that the organisation cares about the employees and their welfare. This increases their morale and it motivates them to work hard and achieve the objectives of the organisation.

6. Attracts best human resources

Only reputed organisations conduct HRA. So, competent and capable people want to join these organisations. Therefore, HRA attracts the best employees and managers to the organisation.

7. Designing training and development programmes

HRA helps the organisation to design (make) a suitable training and development programme for its employees and managers.

8. Valuable information to investors

HRA provides valuable information to present and future investors. They can use this information to select the best company for investing their money.

Limitations of HRA

Criticism, disadvantages, limitations of human resource accounting HRA:-

1. The valuation of human assets is based on the assumption that the employees are going to remain with the organisation for a specified period. However, this assumption is wrong because employee mobility is very high. 2. The human resource accounting may lead to the dehumanisation in the organisation. If the valuation is not done correctly or the results of the valuation are not used properly. 3. In the case of financial accounting, there are certain specified accounting standards which every organisation must follow. However, there are no standards for HRA. Each organisation has its own standards for HRA. So, there are no uniform standards for HRA. Therefore, the HRA of two organisations cannot be compared. 4. There are no specific and clear cut guidelines for 'cost' and 'value' of human resources of an organisation. The present valuation systems have many limitations. 5. The life of a human being is uncertain. So its value is also uncertain.

Position of HRA in India

In India, very few companies use HRA. HRA is not compulsory in India. Infosys Technologies and BPL are the leading companies in India, which use HRA. HRA reports give useful information to the company management, employees and investors.

Definition: HR Audit means the systematic verification of job analysis and design, recruitment and selection, orientation and placement, training and development, performance appraisal and job evaluation, employee and executive remuneration, motivation and morale, participative management, communication, welfare and social security, safety and health, industrial relations, trade unionism, and disputes and their resolution. HR audit is very much useful to achieve the organizational goal and also is a vital tool which helps to assess the effectiveness of HR functions of an organization. Scope of Audit: Generally, no one can measure the attitude of human being and also their problems are not confined to the HR department alone. So it is very much broad in nature. It covers the following HR areas:

Audit of all the HR function. Audit of managerial compliance of personnel policies, procedures and legal provisions. Audit of corporate strategy regarding HR planning, staffing, IRs, remuneration and other HR activities. Audit of the HR climate on employee motivation, morale and job satisfaction.

Benefits of HR Audit: It provides the various benefits to the organization. These are:

It helps to find out the proper contribution of the HR department towards the organization. Development of the professional image of the HR department of the organization. Reduce the HR cost. Motivation of the HR personnel. Find out the problems and solve them smoothly. Provides timely legal requirement. Sound Performance Appraisal Systems. Systematic job analysis. Smooth adoption of the changing mindset.

Approaches to HR Audit: There are five approaches for the purpose of evaluation of HR in any organization:

Comparative approach Outside authority Statistical Compliance approach and Management By Objectives(MBO)

What is a Human Resources Audit? A Human Resources Audit is a comprehensive method (or means) to review current human resources policies, procedures, documentation and systems to identify needs for improvement and enhancement of the HR function as well as to ensure compliance with ever-changing rules and regulations. An Audit involves systematically reviewing all aspects of human resources, usually in a checklist fashion. Sections of review include:

Hiring and Orientation Benefits Compensation Performance evaluation process Termination process and exit interviews Job descriptions

Form review Personnel file review

The purpose of an HR Audit is to recognize strengths and identify any needs for improvement in the human resources function. A properly executed Audit will reveal problem areas and provide recommendations and suggestions for the remedy of these problems. Some of the reasons to conduct such a review include:

Ensuring the effective utilization of the organizations human resources Reviewing compliance concerns with a myriad of administrative regulations Instilling a sense of confidence in management and the human resources function Maintaining or enhancing the organizations and the departments reputation in the community Performing due diligence review for shareholders or potential investors/owners Establishing a baseline for future improvement for the function

Conclusion: The auditors always prepare and submit an audit report to authority of the organization, which may be clean or qualified. The clean report indicates the appreciative of the department's function, but the latter one represents the gaps in performance and therefore contains remarks and remedial measures. HR Audit is very much helpful to face the challenges and to increase the potentiality of the HR personnel in the organization.