Human Resource Accounting: Measuring and Reporting the Value of People
The age of information technology has made human resource accounting (HRA) an increasingly important means of measuring and reporting the value of human resources in a business organization. In today’s competitive business environment, HR professionals are increasingly incorporating HRA techniques as a way to maximize asset performance. The purpose of HRA is to measure and report the value of the investment made in human capital. Human capital includes any measure of the value of people, whether it is their skills, knowledge, or abilities. By assessing and recognizing the value of the human resources of the organization, HR professionals can effectively assign financial value to the contributions and performances of the individual employees.
HRA can be used in two ways – for internal and external purposes. Internally, HR professionals measure the value of individuals and their capabilities to the organization. This can include assessing the skills required for different positions, the cost of salary and overtime premium benefits received, medical benefits, training and professional development costs, and other human capital measures. By measuring and assigning a monetary value to human capital, HR professionals are able to determine the overall value a particular individual or group of individuals can contribute to the organization. External HRA methods provide valuable data to shareholders, creditors, and external auditors, who require information about an organization’s assets and liabilities. This data can provide an external measure of how financial resources are allocated for human resources, and therefore can provide an indication of whether or not the resources are being efficiently managed.
HR professionals utilize HRA to provide data to enable both managers and external users to assess the performance and value of the organization’s human capital. This data can then be evaluated to identify areas of cost savings, both in financial and human capital, and highlight areas where investments in people can lead to improved organizational performance. By using HRA, officials can compare actual costs for human capital-related items with those included in the budget. Furthermore, the data can be used to recognize discrepancies in the organization’s objectives and actual performance and provide necessary corrective action.
One of the most useful components of HRA is its ability to identify intangible assets. Intangible assets are those assets that are not easily recognized but can have a profound effect on the value of the organization. Such items include brand recognition, reputation, industry expertise, and customer relationships – all items that cannot be easily quantified in terms of financial worth but can have a significant impact on the success of the business. By being able to identify and quantify the value of intangible assets, organizations are in a better position to make strategic decisions that can help the organization become more successful and profitable.
HRA is a valuable tool for assessing the value of people in a business. As such, organizations should include it in their financial planning and decision-making process. HR professionals should take the time to research and understand the principles of HRA in order to better serve their organization and improve the success and profitability of their business.
