Human Resource Accounting


The concept of human resource accounting can be better understood if one goes through some of the important definitions given by the competent authors in the accounting field.

Human Resource Accounting is defined by the American Accounting Association (AAA 1973) as “the process of identifying and measuring data of human resources and communicating the information to the interested parties.”

The American Accounting Society Committee on human resource accounting defines it as follows:

“Human resource accounting is the process of identifying and measuring data about human resources and communicating this information to interested parties.”

Mr. Woodruff Jr. Vice President of R. G. Barry Corporation defines it as follows:-

“Human resource accounting is an attempt to identify & report investments made in human resources of an organization that are presently not accounted for in conventional accounting practice. Basically it is an information system that tells the management what changes over time are occurring to the human resources of the business.”

In simple words, human resource accounting is the art of, valuing, recording and presenting systematically the worth of human resources in the books of account of an organization. This definition brings out three important aspects of human resource accounting:
• Valuation of human resources.
• Recording the valuation in the books of accounts.
• Disclosure of the information in the financial statement of the business.


HRA helps in developing financial assessments for the people within the organization. However, the specific objectives of HRA may be outlined as under:-
• To assist the management in taking suitable decisions regarding investment on human resources.
• To provide information to all people concerned regarding the earning potential of human resources of the organization.
• To assess the efficiency of human resources in obtaining productivity and profitability and
• To provide comparative information regarding costs and benefits associated with investment in human assets.
The basic premises underlying the theory of Human Resources Accounting.
• People are valuable resources of an enterprise.
• The usefulness of manpower as an organization resources is determined by the way in which it is managed and
• Information on investment and value of human resource is useful for decision making in the enterprise.


It is basic need for effective utilization of any source to get full information about the same. Identifying, measuring, recording and reporting of human assets form an integral part of accounting because:
• It is necessary for assessing the future potential and profitability of a firm.
• It helps to recognize the valuable human capital.
• It helps in evaluating the return on investment in human capital.
• It provides quantitative information for decision making.
• It helps in assessing productivity of the firm.
• It provides data about labour turnover, low morale, absenteeism, motivation and monitoring efficiency or performance.
• It helps the management in the utilization of human resources effectively & efficiently.
• It helps for decision about allocation of resources to training and development programmes.
• It helps in assessing the efficiency of personnel management. The standard costs of acquiring and developing the people may be compared with actual cost incurred for the purpose.
• It helps whether to acquire or develop people for various positions in the organization by comparing historical and current cost of acquisition and development.
• Reporting need of human resources information has a vital importance. It is useful for investor, who can get benefit from this information. External reporting of human resources will increase comparability and complemented of financial statements.

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