An Empirical Evaluation on Performance of Organization through Human Resource Accounting (HRA): A Study on Selected Corporate Units of India

This study attempts to analyze the importance of Human Resource Accounting (HRA) practices for corporate financial reporting. This paper is both a theoretical and empirical exploration, aimed to some suggestions of new thoughts, methods, techniques and applications of HRA. Various MNCs in the field of HRM provide different types of thought about the practices of personnel management with different systems and aims of financial analysis and reporting.  HRM has been and remains one of the most powerful and influential ideas to have emerged in the field of business and management. Effective practices of human resources in the accounting statement can ensure long-term benefits to the employees of the corporations and it also increases quality, performance, values, and commitment to future need. The data of this study was collected from secondary and primary sources from selected corporate units. Very few corporations are practically practices this concept in their accounting and financial report. Some findings and suggestions are addressed in the study that may be the prerequisite for organizational growth and development.


Introduction and / or Statement of the Problem
Human Resource Accounting (HRA) is the process of identifying, measuring data about human resources and communicating this information to interested parties. The major benefits of such accounting are that it develops effective managerial decision making, quality of management, prevents misuse of human resources, increases human asset productivity, improve morale, job satisfaction, performance appraisal, motivation and creativity, etc. To ensure growth and development of any organization, the efficiency of people must be augmented in the right perspective. Without human resources, the other resources cannot be operationally effective. The original health of the organization is indicated by the human behavior variables, like group loyalty, skill, motivation, quality and capacity for effective interaction, cooperation, communication and decision making. Men, materials, machines, money and methods are the resources required for an organization. These resources are broadly classified into two types such as human and physical resources. Men, otherwise known as the human resources, are considered to be animate resources. Others, namely, materials, machines, money and methods are considered to be inanimate or physical resources. Human Resource Accounting (HRA) is a new concept of accounting. It follows the traditional theory that all expenditure on human capital formation is taken as a charge against the revenue of the period as it does not create any physical asset. But modern view is that cost incurred on any asset as human resources need to be capitalized as it provides benefits measureable in monetary terms. Measurement of cost and value of the people to organizations is highly important, costs incurred in recruitment, selection; hiring, training and development of employees along with their economic values are very much relevant for Human Resource Accounting. All the processes of the organization are operated by human resource, so valuation of this resource is very necessary and accounting will enable managers take appropriate decisions regarding investment in human resources. It will also provide comparative information regarding costs and benefits associated with investments in human assets. HR Accounting is very much needed to provide effective & efficient management within the organization.

Aims and/or Objectives of the Study
This study is an attempt for achievement of two major objectives of the human resource accounting practices in national corporations. 4.1 General Objective: To analyze the importance of HRA in HRM decision from an organizational perspective by increasing the transparency of human resource costs, investments and outcomes in profit and loss accounts, balance sheets and investment calculations. 4.2 Specific Objectives: The specific objectives are:  To analyze and evaluate the HRA plans and policies from previous literature review and applications of HRA in different organizations.  To evaluate the execution of HRA programs in financial statements and to identify the strength and weakness of HRA practices in the organizations.  To provide information to all people concerned regarding the efficiency of HR in obtaining productivity and profitability.  To facilitate valuation of human resources, recording the valuation in the books of account and disclosure of the information in the financial statement.  To provide some arguments and suggestions with a view to increasing the use of HRA in most of the corporations in India.

Conceptual Framework
Given the problem and the theoretical perspective for investigation of the problem, the proposal should clearly bring out the concepts to be used and demonstrate their relevance for the study. Besides, the dimension of empirical reality that needs to be explored for investigating the problem should also be specified.

Historical Cost Method
This method was developed by Brummet Fand W.C. Pyle. Under this method capital expenditure on human assets are amortized over an expected life of human assets. When employee is leaving early than unrecovered will be treated loss and charge to P&L A/c. However it is difficult to find out the effective life of human assets and fix the rate at which cost be amortized.

Human Resource Accounting in India
There certain major issues relating to implementation of human resources accounting arises because of it try to attempt measure and evaluate intangible. Which are as follow?
 Charging the expenditure incurred on recruitment, training and development of human resources to current period's profit and loss account, profit during that period are understated or losses overstated.  By not capitalizing expenses relating to human resource, even when they are substantial the assets are concealed and net worth is understated to that extent.  Writing of goodwill when profits are rising, accountants create secret reserves.  The historical cost approach to develop measures of human resource accounting uses an amortization rate, which provides the figure of amortization to be charge to the profit and loss account every year. But it is very difficult to develop norms in this regard. Physically and mentally, individuals grow and deteriorate at different rate. Some grow more capable as a result of their work experience, other do not. Given the difficulty of predicting such changes, it is even more difficult to develop a means of writing off and individual's value. So far, precise measures for amortization of human assets have not been developed.  Though physical assets are fully recorded under the existing system, human assets are ignored in the internal as well as external reports.This lead to faulty evaluation and decisions.  By not valuing human resources, on the principles of accounting depreciation or appreciation of human assets is ignored. There had been any attempt to systematically measure and report the depreciation or appreciation of human resource, the quality of management would certainly improve.

Research Question or Hypotheses
Traditional financial accounting considers only the fixed assets and current assets as assets and records this in the balance sheet of companies Annual reports, but the real asset, that is, the human assets are not taken into consideration. This accounting of human asset is done in human resource accounting. In developed countries, HRA is very well followed and is attached in their Annual reports. Although, there is much research about HRA in developed countries, there is a gap in the literature on this area in developing and fast developing countries. Till today many of the Indian companies do not follow the HRA. Therefore it is necessary to raise certain questions on the following  What is the nature and characteristics of HRA,  To examine whether HRA is useful to the management or any other users who make use of HRA,  How to analyze the perception of management and employees,  How to determine the contribution of Human resource accounting on the financial statement of Indian companies -Public Companies and Private Companies and  To know whether there is a relationship between the profitability of the company with human resource accounting disclosure. These questions are called for an in-depth analysis on HRA so as to give the awareness about HRA and make benefits out of human resource accounting disclosures. Hence this study is carried out. The following research hypotheses are framed and tested in the present study:  H0: There is no significant difference between the socio-economic variables and the nature and characteristics of human resource accounting disclosures in Indian companies.  H1: There is a significant difference between the socio-economic variables and the nature and characteristics of human resource accounting disclosures in Indian companies.  H0: There is no significant difference between the socio-economic variables and the ability of users of human resource accounting to make wise decisions  H1: There is a significant difference between the socio-economic variables and the ability of users of human resource accounting to make wise decisions.  H0: There is no significant difference between the socio-economic variables and the perception of management and employees on human resource accounting.  H1: There is a significant difference between the socio-economic variables and the perception of management and employees on human resource accounting. The existing models proffered under the HRA were adequately reviewed and objectively criticized so that more comprehensive could be developed.
As an employee of an organization will not merely work for a single year, it seems rational to account for employee as an asset in the balance sheet on the ground that they will provide future economic benefit to the entity. 4 The Over the last two decades the idea of accounting for human resources is gaining active consideration. So, HRA is not a new issue in economics. Economists consider human capital as a production factor, and they explore different ways of measuring its investment in business, agriculture, education, health, and other areas. Accountants have recognized the value of human assets for at least 50 years ago. Research into true HRA began in the 1960s by Rensis Likert (Bowers, 1973). Likert defends long-term planning by strong pressure on human resources' qualitative variables, resulting in greater benefits in the long run. American Accounting society on HRA defined HRA as the process of identifying, measuring data about human resources and communicating this information to interested parties. Stephen Knauf states that HRA is the measurement and quantification of human organizational inputs like recruiting, selecting, hiring, training, experience and communications. The experts in the field of HRA were Shultz (1960), William Pyle (1967), Flam Holtz (1973), Kenneth Sinclare (1978 and Roa (1983), etc who contributed appropriate methodology and correct methods for finding out the value of the employee to the organization. Accounting has special position and plays an important role in economic, trade and manufacturing development (Tomassini, et al. 1977). It is a man-made art and its principles, techniques and procedures have been evolved over a long period to aid business in reporting for the management and public. The four factors of production man, money, material and land, the last three of them are amenable to conventional accounting, but the first one, the human resource has not been subject to such accounting (Carme, Barcons et. al 1995).

Scope of the Research
The study is based on analysis of the information supplied in the questionnaire. As responses have been checked according to the perception of the person filling the questionnaire, the probability of certain amount of subjectivity in the response cannot be ruled out. In preparing the questionnaire related to stock of human resource, labour turnover, absenteeism, age, qualification, grouping, earnings, own funds, total assets, HRD expenditure, net sales, profit information, capital employed etc. has been used.
 In this study the meaning of accounting is taken in the sense of information system. The main focus of the study is to examine and evaluate the existing accounting practices in respect of expenditure on human resource. More specifically, the study examines the accounting treatment regarding conducting interviews etc.  The present study is a pilot project and an exploratory one conducted by an individual scholar. This study has not previewed all industries.  It is conducted among the employees of selected companies from BSE SENSEX 200. The period of the study will be past 10 years.  The study aims to reveal whether there is any impact of Human Resource Accounting on Indian Companies. Hence the present study is captioned as -Human Resource Accounting in Indian Companies‖.  Overall quantum of audited industries was examined.

Study Population
The population of this study consists of the total number of companies in the Bombay Stock Exchange Sensex (BSE 200). Out of which only 30 companies follow Human Resource Accounting. Hence these 30 companies, 16 Public Ltd. companies and 14 Private Ltd. companies have been selected as a sample unit for the study.

Sample Design and Sampling techniques
The present study used convenience sampling method and opinions have been collected from managers, accountants and employees in the respective companies. The companies which follow Human Resource Accounting have been selected as a sample unit for the study. Hence 30 companies have been selected as a sample unit for the study, 16 Public Ltd companies and 14 Private Ltd companies. A pre-test has been conducted through pilot study so as to ensure the relevance and consistency of various items and statements in the questionnaire, inconsistent statements have been altogether dropped and others found appropriate. Based on the determination and allocation formula, 300 respondents have been selected as a sample size for the study.

Collection of Data
The present study has collected both primary and secondary data. 10.3.1 Primary Data The primary data are collected from managers, accountants and employees of both Private and Public Ltd companies from the administration of questionnaire.

Measurement of Human Resources
Human beings are the dynamic elements of every organization. The success of any organization, to a great extent, depends upon the quality and caliber of the people working in it. In other words, human resources are the most important asset of an organization. Thus, in spite of all technological developments, the importance of human resources has in no way diminished. With the advent of scientific management, which emphasis on quantitative methodology to make a most efficient use of all resources, also it includes the computation of the human resource capital. OIL AND NATURAL GAS CORPORATION   Table-5 shows Human Resource Accounting disclosure practices by ONGC, HPCL, CCI and OIL. The table helps to understand which company provides more information regarding its HR. It can be seen that CCI provides 11 type of information (i.e. 84.6%) out of 13 listed information. ONGC disclose the 8 type of information (i.e. 61.53 %), than comes HPCL, it provide the 5 type of information (i.e. 38.46%) and OIL provide only 2 type of information (15.38%).

Measurement of Human Resources
Human beings are the dynamic elements of every organization. The success of any organization, to a great extent, depends upon the quality and caliber of the people working in it. In other words, human resources are the most important asset of an organization. Thus, in spite of all technological developments, the importance of human resources has in no way diminished. With the advent of scientific management, which emphasis on quantitative methodology to make a most efficient use of all resources, also it includes the computation of the human resource capital. Table indicates the value of employees' vis-à-vis total no. of employees as per Lev and Schwartz model. The total value of employees of sampled organizations is about 15crores. According to this table, ONGC indicates the highest value of employees i.e. 87.09% and it also have highest percentage among total number of employees 53.9% (17,000employees). The second company which have highest value is HPCL i.e. 4.22% value. But the table shows that there are some companies in sample that have higher number of employees but value of their human resources is not higher likes OIL that has employed 11.46% (3,620 employees) but their human worth is only2.3% that is too much less than number of employees. Thus, in spite of large number of employees, value of human capital is not high. The lowest value of human capital is represented by CCI which employed 0.063% employees and their human worth is only 0.004%.

Per Capital Value of Human Resources
High performing organizations in order to keep performing on a continuous basis must treat their human capital as the most important and valuable asset. They should treat them as adults, as partners and with dignity and respect. As we all know that ‗People who feel good about themselves produce good results' and People who produce good results feel good about themselves'. Such a healthy and virtuous cycle goes on and on, satisfying the individual goals and organizational goals too at the same time, in that the individual drives the job satisfaction, which in turn induces him to reach out for excellence, culminating in the all-round development of the performing organizations. In recent years, India has evolved from an inward looking economy to one with a global orientation. Today, the company exports large number of products to various destinations than ever before. Sound human resources not only facilitate to improve a firm's long run responsiveness and flexibility also thereby competitiveness. Table indicates the value per employee and number of employees working in organization. ONGC have the highest number of employees i.e. 17,000 and value per employee is also very high i.e. 80 lakh. After ONGC, HPCL have the highest value 46.4 lakh of each employee that is very high in comparison to the number of employees' i.e only 200 but the value shows that human resources are very important for these organizations. Human beings are the dynamic elements of the organization. The success of an enterprise will depend upon the caliber and motivation of persons working in it. The success of an organization depends upon the effective and meaningful utilization of men, materials and money. Infract, business is a system which consists of elements and inter-connections between elements. One cannot simply say that the value generated by a business consists of the sum of the value generated by individual elements. Value arises because each of the elements performs various functions and because these functions interact. The enterprises follow someone similar practice evolved out of the synthesis of the three approaches based on economic value as advocated by Lev and Schwartz, Flamholtz and Jaggi and Lew may appear to be an improved version. The present value approach to HRA is still in the experimental stage. But, it is already required in valuing some specific under general accepted human accounting standards. HR value may reflect the present value of future liability of an organization towards employer wage payment. It does not reflect the value of HR as an asset, nor does it facilitate to manage the same as an asset as against expense in the traditional accounting practice. The cost of the wages may have to be judged in relation to the services they render to access their value and improve organizational productivity. Besides the wages as a servicing cost of employees, the cost of manpower acquisition may be no less relevant. Formulation of generally accepted human accounting standard is essential at this juncture. It may not represent the value of the HR as proposed in the historical cost based HRA, but the same cost elements may have to be recognized while judging the extent of the services, the employees render to the organization to reflect their value. The value assigned by Indian companies to their human resources just denotes the present value of the costs with respect to remaining service life of an employee in the organization rather than their contribution that it will receive from HR.

Obstacles in HRA
Although, the theory of HRA appears to be useful, the redistill lack of adequate standards for the valuation of HR. The mere process of putting number to things can easily be taken outside the context of their proper use. It is likely that managers will treat human quantitative data not different from quantitative data regarding the physical plant and machinery. The managers may use HRA as a means of manipulating the employee. She/he may decrease the value of an employee as a form of punishment or control. This may be done by altering the variables like the probability of an employee being promoted to the next state, future increments etc., determining the value of HR. The employee's bargaining power might be increased if his/her value was known. However, power might be increased if his/her value was known.

Conclusion
HRA being an emerging area in accounting has greater potential for further research. The model devised so far, for the valuation of HRA, has been developed in USA keeping into consideration the environments prevailing there. There is a great need to review their applicability in India, a country which is substantially facing different environments. The special studies needed periodically to calculate cost of turnover, cost-benefit analysis of training and the cost of labor etc., must be a joint effort since many value judgments and assumptions must be made and understood by the prepares of data as well as the user. HRA has a promise; it has not yet met the test of usage. Much more research is necessary before HRA can possibly be useful to operating managers.