Dr. D. Mukhopadhyay
Hardly anybody can deny that human resource is not behind the economic success of an organization. In other words, human resource is the key driver of sustainable economic development of a country. The degree of economic success of a firm depends on the quality of human resource it possesses in its payroll. In the terminology of Accountancy, the resources which generate future return are termed as assets. Return on Assets is one of the financial performance indicators of a firm. It is imperative to state that human resource which is, now a days, also known as human capital of an organization plays a prominent role in the process of generation of future return on investment. Balance sheet of a firm gives a snap shot of financial position of the organization on a particular date which is normally the last day of the financial year . A balance sheet exhibits liabilities and assets that remained under the control of the organization on an even date. In all perspective, human capital is an intangible asset. Furniture and fixture, equipment, and even a calculator is given a room under the definition of assets but not the human resource which is the prime mover of the organization. In the knowledge industry which is essentially education sector of the economy, human resource is the only strength by which intellectual capability of human being is developed and they are made capable of contributing to movement of socio-economic wheel of the country from one stage of development to the next stage of development.
But neither core industrial sector nor education sector has so far given due consideration or serious thought to recognize human resource as asset. Only few organizations that include Reliance, Tata, Infosys, BHEL, ONGC, NTPC, MMTC, CCI etc are found to be serious in the perspectives for treatment of human resources with certain degree of dignity by giving certain important information on the possession of human capital in the Annual Reports of the firm. But, not a single organization in education sector i.e. Universities in general have ever tried to ponder over the issue of treatment of human resources in the financial statements. More than 75% of the total expense comprises payment of salary to the teachers by the Universities. The University teachers are the part and parcel of national resources which directly or indirectly create the environment of socio-economic well being of the nation but they are kept behind the curtain. It is therefore essential to give a serious thought for considering human resource as asset and be given a prominent room in the balance sheet of the organization and it is so necessary for the education sector. N. R. Narayana Murthy says while highlighting the importance human resource in Infosys, “In a knowledge intensive company like Infosys, our main assets are our people. Out assets walk out in the evening and it is the company’s responsibility to make sure they came back fresh, enthusiastic and energetic the next morning”. It is therefore , crystal clear that people of an organization highly deserve to be recognized as assets. Assets only generate return and it is the human capital that plan, organize, mobilize, combine and allocate other resources and make production and distribution system possible and workable in order to achieve the organizational objectives. Intellect is the primary ingredient that makes strategy and takes appropriate decisions under different situations and make an organization navigate at the proper harbour. Human Resource Accounting , a new Branch of Accountancy has emerged to be of great help in recognizing human resources as Asset.
Human Resource Accounting is the process that recognizes and measures costs associated and involved in recruiting, hiring, training and developing, retaining the employees. Human Resource Accounting is a mechanism that scientifically generates and furnishes information on the costs involved in acquisition and retaining people in the organization. Total cost i.e. historical costs incurred for recruitment, hiring, training, induction and development of human capital and costs associated and involved with replacement of unserviceable people at the expiry of useful and working life of the people are accounted for. There are various approaches for Human Resource Accounting and the cost based approach and the economic value based approach are the popular ones. Human resource Accounting reports on human capital, knowledge management and employment strategies so that investors shall be able to know how human resource contributes to the process of value creation in an organization. The ROI on human capital is an important indication of the performance of the people in the organization. Moreover, it guides the investors.
A revolution on Human Resource Accounting is called for at national level and human resource should be attributed with the status of ‘Assets” and the same must be disclosed on the face of the balance sheet of an organization irrespective of its belongingness i. e. whether it is core industrial sector or health and education sectors. A special law is suggested to be enacted or suitable provisions may be provided in the existing Company Law with regard to treatment , accounting and disclosure of human resources in the financial statement of the firms. There may be certain legal problems in treating human resource as an asset since no entity can own its employees and it is one of the basic requirements that something to be recognized as asset should be owned. Currently, there is no generally accepted techniques for valuation of human resources. Many organization think in many different manner. Moreover, employees of a firm are not active to be considered to be an asset by the organization where they are employed. However, these are not very serious issues and the same can be treated with fairness and within the four walls of the law of the land. The experts for developing an acceptable methodology of human resource accounting and treating human resource as an asset are the Professional Accountants like CAs and CMAs and other social scientists who can suitably help the decision makers in formulating suitable legislations and implementation of the same .
It may not be out of place to mention that Denmark Government has already made it a point in the law of the country that all the companies registered in Denmark are required to disclose relevant information on human capital in the Annual Reports of the companies. Moreover, a projection on the requirement of future human capital and the current status of the same must be disclosed. The principles of 3Es i.e. Effectiveness, Efficiency and Economy are the norms of judicious management of an organization and these three aspects are architected by the human capital only. It is worth mentioning that proper accounting of human resource leading to treating it as an asset and disclosing the same in the balance sheet enhances the value and reputation of the firms. This is also expected to motivate people working in the organization that they are legally recognized as asset under the principles of generally accepted accounting principles. Many countries in the world are pondering over the issues for treating human resource as an asset and they have already started to disclose the same in the face of the balance sheet of the firms and giving adequate disclosure in the Annual Reports.
However, the picture in India is quite different from those countries. Only few companies in the core industrial sector are found to be serious about furnishing necessary disclosure on the issues concerning human resources in the Annual Reports.
The author of this write up proposes that financial value attributable to human resource to give it the status of asset should be equal to the excess of net present value of a firm with existing staff over the net present value of the same computed on the assumption of having an average quality of staff.
Value of human resource of IBM shall be more than an average standard firm. The primary issue to define something as asset is its capability to generate future benefits and the people who can generate future benefit should be taken into consideration for getting recognition as asset. Once the capitalizing value is assigned to the existing human resource, then human resource can be recognized as Human Resource Asset or any other suitable term or phrase may be used for it. This would definitely be in the category of intangible assets. The asset can be brought to the books of accounts by passing formal journal entry by debiting Human Resource Assets Account and crediting Human Resource Reserve Account . Human Resource Asset shall appear at the Asset side of the balance sheet and Human Resource Reserve shall be disclosed on the Liability side of the balance sheet. The accounting process as mentioned here is obviously subject to periodic adjustment . India may be one of the pioneers in framing and formulating methodology to treat human resource as a asset and disclosing the same in the balance sheet of the organization.
( The author is Professor of Management, School of Business, Faculty of Management, Shri Mata Vaishno Devi University, Katra, Jammu & Kashmir)
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