Human Resource Accounting & Aduit :

Human Resource Accounting:

Human Resource Accounting Human Resource Accounting is defined as
The process of identifying and measuring data about human resources
and communicating this information to interested parties.
Purpose of Human Resource Accounting:
It furnishes cost/value information for making management decisions
about: - acquiring, allocating, developing & maintaining human
resources in order to attain cost-effectiveness
It allows management personnel to monitor effectively the use of
human resources
It provides a sound and effective basis of human asset control
It helps in developing management principles by classifying financial
consequences of various practices
Objectives of HRA:
To inform general public how far enterprises are successful in fulfilling
the human contributions
To facilitates effective and efficient management of human resources.
To provide information of changes in the structure of manpower to the
management.
To provide qualitative, relevant and timely information on human
resources.
To know whether the human resources are properly utilized and
allocated.
To evaluate the return on investment on human capital.
Measurement in HRA :
Two main approaches are employed for measurement:
1. Cost Approach which involves methods based on costs incurred by the
company, with regard to an employee
2. Economic Value Approach which includes methods based on: the
economic value of human resources and their contribution to the
companys gains This approach looks at human resources as assets & tries
to identify the stream of benefits flowing from the asset
Return on Investment Approach:
Return on Investment Approach
HR ROI = Results (actual performance or expectations) Salary + human
resource development investment

The concept of HR ROI is expressed with the above equation. The

denominator of the HR ROI is essentially the total amount of compensation
for a targeted individual employee. This total compensation includes salary,
benefit packages and investment in human resource development.
The fixed HR ROI rule aims at encouraging more high-performance
employees - to improve their skills and knowledge through a training and
self enhancement program.
Human Resource Audit
Purposes of HR Audit :
To get a clear judgment about the overall status of the organisation
To find out whether certain systems put in place are yielding any
results
To figure out any gaps or lapses and the reason for the same
To identify and address HR-related problems
To seek out HR-related opportunities
To conduct due diligence for mergers and acquisitions
To support initial public offerings
HR Audit Process :
HR audit process is conducted in different phases Each phase is designed
to build upon the preceding phase These phases are:
Pre-Audit Information
Pre-Audit Self-Assessment
On-site Review Records
Review Audit Report
Preparation for an Audit :
Auditor engagement : If using internal resource it is better: to appoint
them formally with clarity on scope and to select persons who are non
political or those who are not high on hierarchy also must be training for the
persons in auditing
Data gathering : Completion of a self-assessment questionnaire
significantly expedites the audit process and Allows for better audit
planning On-site access: On-site portion of the audit is the most critical.
Approaches to HR Audit :
There are five approaches to HR Audit:
Comparative approach
Outside authority

Statistical Compliance approach and

Management By Objectives(MBO)
The audit is made up of four main steps: Define desired HR practices for
your organization Assess current practices against the criterion that you
have established Analyze the results Establish improvement goals and take
action
Benefits of HR Audit :
It helps to find out the proper contribution of the HR department
towards the organization.
Development of the professional image of the HR department of the
organization.
Reduce the HR cost. Motivation of the HR personnel.
Find out the problems and solve them smoothly.
Provides timely legal requirement.
Sound Performance Appraisal Systems.
Systematic job analysis.
Smooth adoption of the changing mindset.
Methodology and Instruments of HR Audit :
In audit to evaluate the HRD structure, system, culture, competency &
other aspects, the following multiple methods are used:
Interviews
Group Discussions and workshops
Observation
Analysis of records and documents
Questionnaires
HR Audit Report :
HR audit report may be clean or qualified. Clean report indicates the
appreciation of the department's function, Qualified report represents the
gaps in performance & therefore contains remarks and remedial measures.
HR Audit is very much helpful to face the challenges and to increase the
potentiality of the HR personnel in the organization.