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Human Resource Accounting HRA - Meaning Advantages

square 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

Image credits © Genbug.

There are many different methods of HRA, some of which are:-

  • Actual Cost Method,
  • Replacement Cost Method,
  • Standard Cost method, etc.

square 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."

square 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, it 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, favorable working environment, job satisfaction of employees, etc.

3. Utilization of human resources

HRA helps the organisation to make the best utilization 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, it attracts the best employees and managers to the organisation.

7. Designing training and development programs

HRA helps the organisation to design (make) a suitable training and development program 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.

square 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 dehumanization 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 it. So, there are no uniform standards for it. 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.

square Position of HRA in India

In India, very few companies use HRA. It 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.



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