Human resources are no lesser important

It is widely recognized that human resources are no lesser important than other productive resources. However the recognition of importance of people in organisations as productive resources by the accountants is a recent origin. In conventional accounting practices, human work force, a core element, did not find its place. The expenses incurred in respect of acquisition, selection, layoff, training, promotion and development etc. of employee are treated as revenue expenditure which yield benefits to an enterprise in the form of service rendered by the manpower and such expenditure should be quantified as well as capitalised and shown in the Balance Sheet. But the managers failed to recognize and treat them as an asset in the financial statements. It was in 1960's, the behavioural scientists attacked the conventional accounting practice for its failure to value the human resources of the organisation along with other productive resources and pointed out that this was a serious handicap for effective management. As a consequence, valuation of human resources has received widespread recognition. In the course of time a number of accounting models have been developed to value and report human resources of an organisation. In the management terminology this is called “Human Resource Accounting” (HRA). Human resources have certain distinct characteristics from other physical assets, like personality, self control, devotion, quality, skill, talents, loyalty and initiativeness. An organisation's basic need of present time is to improve productivity, that can be improved by the human force. Hence to encourage, it is necessary to take progressive decisions for them. Advocates of HRA stresses on the importance of the human element in organisations and the failure of conventional accounting in dealing with it as an asset. In its simplest form HRA involves the identification of the costs of recruitment, training, and maintenance of an entity's human assets.

The basic premises underlying the theory of HRA are:

• People are valuable resources of an enterprise.
• The usefulness of manpower as an organizational resources is determined by the way in which it is managed.
• Information on investment and value of human resources is useful for decision making in the enterprise.

Just like financial capital structure, which consists of various types of capital, the human capital structure consists of various types of employees employed in an organisation. The type of employees may be executives, supervisory, artisans, clerical and skilled staff or semi-skilled staff. The composition and proportion of various types of employees play an important role in development of an organisation. The human capital structure is highly related with HRA and the techniques to value human resource.