Importance and evolution of Human Resource Accounting


Human resource accounting comprise accounting for expenditures related to human resource as assets opposed to traditional accounting approach which treats these costs as expenses that will reduce profits of organization. Importance and participation to growth in HRA to growth have been clear in number of countries. Human Resource Accounting (HRA) comprise accounting for expenditures of human resources as assets on the other hand traditional accounting approach which treats costs of human resource as expenses that will reduce profits of organization importance and contributions to growth in HRA have been plain in a number of countries Importance and participation to growth in HRA to growth have been clear in number of countries. Since the establishment of globalization of business and services, human basics are becoming more important input for the success of any organization. It helps the management to structure policies for human resources. Human resource accounting is a process of identifying and measuring data about human resources. Measurement of the investment in human resources will help to assess the charges in human resource investment over a period of time. HRA is not a new issue in the field of business. Economists think about human capital as a production factor, and they explore different ways of measuring its investment in education, health, and other areas. Accountants have accepted the value of human assets for at least 70 years.

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Key words: Human Resource Accounting, Human Capital accounting, Human resource.


The success of economic projects and achieving its goals depends largely on the efficiency and effectiveness of human resources, and as the human element is a real supplier of any project, and material resources are contribution factors, man what owned the skills and enjoyed by the desire to work is a crucial element to achieve production efficiency and profitability, the projects spent a lot of money in the recruitment and selection and training of workers. The traditional accounting view these charges treated as current expenditures charged to the income of the financial period when calculating the net profit, although it represents investment spending in order to create assets of the institution, and therefore to encourage the an organization to consider human resources as Capital Assets. When making decisions on the assets they expect to get all the future benefits, as well as encourage the organization to creating an integrated system of human resources accounting.

Need of HRA and its applications

Human Resource Accounting provides helpful information to the administration, financial analysts and human resources on the following issues.

1.Human Resource Accounting helps the management in the Employment, locating and utilization of human resources.

2.It supports in deciding the training, promotion, and retrenchment of human resources.

3.It provides a basis for planning of human resources.

4.It helps in evaluating the costs incurred for imparting moreover training in employees.

5.It supports to determine the causes of high labour turnover at various levels and taking defensive measures to contain it.

6.It helps in locating the real cause for low return on investment, like improper or under-utilization of physical assets or human resource or both.

7.It supports in understanding and assessing the inner strength of an organization and helps the management to steer the company well through most adverse and unfavorable circumstances.

8.It provides valuable information for persons interested in making long term investment in the firm.

9.It supports employees in improving their performance and bargaining power. It makes each of them to understand his contribution towards the betterment of the firm vis-à-vis the expenditure incurred by the firm on them.

Develop of HRA review

Although human resource accounting (HRA) is a relatively new field, its development has already passed through several discernible stages. The first stage of growth, from 1960 to 1966, was distinct by interest in HRA and the origin of basic HRA concepts from related bodies of theory, The initial momentum for the development of HRA came from a variety of sources, including the economic theory of human capital, the new human resource viewpoint, and a concern for human assets as components of corporate (flamholtz, 1999).there was many stage during development of Human resource accounting as following:

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First period (1960-66):

This characters the foundation of academic attention in the area of Human Resource Accounting. though, the center was mainly on derive Human Resource Accounting concepts from other studies like the financial theory of capital, psychological theories of leadership-effectiveness, the rising concepts of human resource as dissimilar from personnel or human relations; as well as the measurement of business goodwill.

Second period (1966-71):

The focus here was more on rising and validates different models for HRA. These models enclosed both costs and the monetary and non-monetary value of HR. The seek was to develop some tools that would help the organizations in assessing and organization their human resource/assets in a more rational manner. One of the first studies here was that of Roger Hermanson, who as part of his Ph.D. studied the problem of measuring the value of human assets as an element of goodwill. Inspired by his work, a number of research projects were undertaken by the researchers to develop the concepts and methods of accounting for human resource.

Third period: (1971-76)

This period was distinct by a extensive attention in the field of HRA leading to a quick growth of research in the area. The focus in most cases was on the issues of application of HRA in business organizations. R.G. Barry experiments contributed substantially during this stage. (R.G.BarryCorporation:1971)

Fourth period (1976-1980):

This was a period of decline in the area of HRA mainly because the multipart issues that needed to be explored required much deeper experiential research than was required for the previous simple models. The organizations, however, were not ready to support such research. They establish the idea of HRA interesting but did not find much use in pump in great sums or investing lot of time and power in supporting the research.

Fifth period (1980 onwards):

There was a unexpected regeneration of attention in the field of HRA to some extent cause of most of the developed economies had shift from manufacturing to service economies and perceived the criticality of human asset for their organizations. Since the survival, increase profits of the organizations were apparent to be reliant more on the intellectual assets of the organizations than on the physical assets; the need was felt to have more truthful measures for HR costs, investments and value.

An important outcome of this renewed interest was that unlike the previous decades, when the interests were mainly academic with some practical applications, from mid 90s the focus has been on greater application of HRA to business management. Different types of models to suit the specific requirements of the organizations have been developed incorporating both the tangible and the intangible aspects. Also, larger number of organizations actually began to use HRA as part of their managerial and financial accounting practice.

Today, human and intellectual capitals are perceived to be the strategic resources and therefore, clear estimation of their value has gained significant importance. The increased pressures for corporate governance and the corporate code of conduct demanding transparency in accounting have further supported the need for developing methods of measuring human value.