History of Human Resource Accounting
Human resource is considered as the most valuable and strategic asset of an organization.
Here the term human resources indicate at the macro level the sum of all the components such as skills, creative abilities, innovative thinking, intelligence, imagination, knowledge and experience possessed by all the people (Akkas, 2001).
An organization with sufficient physical assets may miserably fail unless it has right kind and number of people to manage its affairs. Human resource makes all other resources/ factors productive and useful. An asset is defined as an expenditure producing future benefit.
In the same way, unlike physical assets, human assets never get depreciated.
So much attention needs to be paid to the proper development of this important resource.
In spite of its importance, human resource has long not been shown in the balance sheet of organizations. It may be due to the complexities and difficulties involved in the measurement of human value.
It is needless to mention here that, the importance of human resources in business organization as a productive resource was by and large ignored by the accountants until two decades ago.
The conventional accounting does not recognize human resource as physical or financial assets.
Conventional accounting treats investment in human resources as an expense rather than as an asset. This results in distorted income statement and balance sheet.
Under conventional accounting, no information is made available about the human resources employed in an organization. But the reality is that without people, the financial and physical resources cannot be operationally effective (Likert, 1967).
But now there is a change in this concept. The expense incurred on human asset are being treated as capital expenditure by the organizations of many countries as it yields benefits, which can be derived from a long period of time and could be measured in monetary terms.
Therefore, the valuations of human resources along with other assets are also required in order to find out the total cost of an organization.
Though the Human Resource Accounting was introduced in the mid 60s, but it started gaining importance all over the world after it was adopted by some companies of North American and South Asian region.
A research team that included Rensis Likert, R, Lee Brummet, C. Pyle and others conducted a series of studies to develop concepts and methods of Human Resource Accounting (Flamholtz, 1999).
They proposed that the capital nature of certain human resource cost is recognized as investments rather than as expenses, which collectively became known as Human Resources Accounting (Weiss, M, 2001).
The necessity of displaying information on human resources has lead to the development of new field of accounting, known as Human Resource Accounting.
Human Resource Accounting shows the amount of an investment organization makes in its human resources and how the value of human resources change over time.
The HR value increases with training and experience over a period of time.
Human Resource Accounting helps in quantifying HR values in organizations. There is a valid reason to capitalize HR expenditure, which yields future benefits and reveals this information in the balance sheet.
While the underlying concept was simple and straightforward, academics observed that capitalization and amortization of applicable Human Resources, Accounting costs had no measurable of “value” or the worth of the HR investment.
The fundamental aim of human resource accounting is to assist the management in planning and controlling human resources in an effective way.
In fact, human resource accounting is a strategic tool available with the management that is used to estimate the cost and value of its aggregate workforce.
The role of HR accounting in organizations is to quantify the value of the human resources and is just like assessing the value of physical assets. When human assets are quantified in some form, it helps the organization in understanding the true worth of its human assets.
William Patty (1891), first of all, tried to calculate the value of human resource in the form of money.
Human Resource Accounting is not a new issue, but one of the most discussed impasse in the present accounting world. Many theories have been given and many techniques have been proposed for valuing human resource.
