Human Resource Accounting & Auditing

HUMAN RESOURCE
ACCOUNTING
PREPARED BY :
SUDHANSHU SHARMA
MBA-II sem.
H.I.M.C.S.
DEFINITION OF
H.R.ACCOUNTING
Human Resource Accounting is, “ The process of
identifying and measuring data about human resource and
communicating this information to intrested parties ”
- AMERICAN ACCOUNTING ASSOCIATION COMMITTEE
HISTORICAL DEVELOPMENT OF
H.R.ACCOUNTING
According to Eric G Falmholtz
 FIRST STAGE (1960-1966) –

begening of academic interest in the area of HRA
 SECOND STAGE (1966-1971) –

The focus here was more on developing and validating
different models of HRA
Cont..
 THIRD STAGE (1971-1976) –
This period was marked by a widespread interest in the field of HRA.
R.G.Barry experiments contributed substantially during this
stage
 FOURTH STAGE (1976-1980) –

This was the period of decline in the area of HRA
 FIFTH STAGE (1980 onwards ) –

There was a sudden renewal of interest in the field of HRA
OBJECTIVES OF H.R.ACCOUNTING
 Provide cost value information about acquiring, developing,
allocating and maintaining HR.
 Enable mgmt.to effectively monitor the use of HR.
 Find whether human asset is appreciating or depriciating
over a period of time.
 Assist in the development of effective management
practices.
 To motivate individual persons in the organization to
increase their worth by training.
 In planning physical resource vis-à-vis HR by giving valuable
information.
PURPOSE OF HR ACCOUNTING
 Use of resources to achieve the immediate and long-run

goals of the organization.
 Traditional accounting involves treatment of human capital

and non-human capital differently.
 Conventional treatment on human resource.

USES OF HR ACCOUNTING
according to Grojer and Johansson-
 As a political tool, used to demonstrate mismanagement of

human resource.
 As a pedagogical instrument for analyzing and structuring.
 As a decision making aid to ensure that decision on HR are

more rational from the management point of view.
ADVANTAGES OF HR ACCOUNTING
 Foresee the changes
 Provides different methods of testing
 Increase productivity
 Brings high return
 Helps individual employee to aspire
 Provides scope for advancement
 Throws light on the strength and weaknesses of the
existing workforce
 Helps potential investor judge a company
LIMITATIONS OF HR ACCOUNTING
 Not easy to value human asset.
 Results in dehumanizing human resource.
 No evidence.
 HR is full of measurement problem.
 Employees and Unions may not like the ideas.
 Unrealistic.
 Lack of Empirical evidence.
ASSUMPTIONS UNDERLYING
H.R.ACCOUNTING
 People are valuable organizational resource.
 Human Resource value is influenced by management

style.
 HRA information is needed.

METHODS OF H.R.ACCOUNTING
* COST APPROACH-
- Historical Cost Approach
- Replacement Cost
- Standard cost method
- Present value
- Opportunity Cost method
- Economic Value method
* ECONOMIC VALUE APPROACH

HUMAN RESOURCE AUDIT
The word ‘AUDIT’ comes from the latin verb ‘audire’

which means, to listen
“HR Audit is a tool which helps assesss effictiveness of

HR functions of an organization.”
NATURE OF
HUMAN RESOURCE AUDIT
c t i v i ties
A
HRM
e s
Ou tcom
Audit HRM
HR M
WHY CONDUCT AN HR AUDIT ?
• Ensure compliance
• Improve HR practices
• Train your managers
• Prepare for potential government audit or litigation
• Gain an understanding of department’s environment
• Show a “good faith effort”
• Correct errors
SCOPE OF AUDIT
 Audit of human resource function.
 Audit of managerial compilance.
 Audit of human resource climate.

- Employee turnover.
- Absenteeism.
- Safety records.
- Attitudes survays.
 Audit of corporate strategy.

BASIC PRINCIPLES OF AUDITS
1. Identify the Scope

2. Develop a Questionnaire
3. Collect Data
4. Benchmark Findings
5. Provide Feedback about Results
6. Create Action Plans
7. Foster Climate of Continuous Improvement
APPROACHES TO HUMAN
RESOURCE AUDIT
 Comparative Approach,
 Outside Authority Approach,
 Statistical Approach,
 Compliance Approach, and
 Management By Objectives (MBO) Approach
TYPES OF AUDIT
 INTERNAL AUDIT :
The internal audit is conducted by the company's own ataff as
a part of their control activities.
 EXTERNAL AUDIT :
The external audit is conducted by outsiders specifically
employed for this purpose. The advantage is to get the
unbiased evaluation by competent people of the manpower
management function.
BEFORE YOU BEGAIN THE AUDIT
PROCESS :
1. Determine who will conduct the audit.
Internal vs. External
2. Secure senior management commitment.

a. Are they ready to fix what’s broken, even if it costs $$$$?
b. Do they agree with the methodology?
c. Will they allow access to all departments/information?
d. Will they publicly support the process?
Before you begin the audit
process…
3. Define the parameters.
a. Who will be audited?
b. What do you want to audit?
c. What audit tools will you use?
d. How will the process be rolled out?
e. How will results get reported?
f. Who will get the results?
4. Introduce the audit process to your managers.

H.R.AUDIT PROCESS
PRE-AUDIT INFORMATION
PRE-AUDIT SELF ASSESSMENT
ON-SITE REVIEW
RECORDS REVIEW
AUDIT REPORT

Human Resource Accounting & Auditing

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HUMAN RESOURCE

 FIRST STAGE (1960-1966) –

 SECOND STAGE (1966-1971) –

 FOURTH STAGE (1976-1980) –

 FIFTH STAGE (1980 onwards ) –

 Use of resources to achieve the immediate and long-run

 Traditional accounting involves treatment of human capital

 Conventional treatment on human resource.

 As a political tool, used to demonstrate mismanagement of

 As a pedagogical instrument for analyzing and structuring.

 As a decision making aid to ensure that decision on HR are

 Human Resource value is influenced by management

 HRA information is needed.

* ECONOMIC VALUE APPROACH

The word ‘AUDIT’ comes from the latin verb ‘audire’

“HR Audit is a tool which helps assesss effictiveness of

 Audit of managerial compilance.

 Audit of human resource climate.

 Audit of corporate strategy.

1. Identify the Scope

2. Secure senior management commitment.

4. Introduce the audit process to your managers.

PRE-AUDIT SELF ASSESSMENT

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