Man-made accounting is the only way to assess and evaluate the financial performance of an organization. However, there does not seem to be an accounting procedure or rule for evaluating human resources which is the principal generator of all the development and growth. In the present day world, Human Resource Accounting (HRA) has been identified as a necessity and is gaining importance every day in the corporate world. The main objectives of HRA are: identification and protection of the employees and their skills and motivating them towards the achievement of goals. Neglected people are hurdles in the process of achievement of organizational goals and so should be given due importance. This article explains the need and ways of HRA.

Human resource accounting comprises real accounting, life accounting, new accounting and intangible assets accounting. The concept of HRA is old and not a new one. In 1970, HRA was introduced by BHEL and SAIL but it did not gain much popularity. Later, it was also introduced by Satyam and Infosys.

Human Resource Managers have presently recognized the importance of HRA because the growth, development and ultimate result depends only on the people or workers. The main power is nothing but the real power. A lot depends on the efforts put in by the people. While investing, if a list of employees is prepared, it will help the investors in deciding how much and what to invest.

It is common knowledge that man-devised accounting plays an important role in calculating the financial performance of organizations. However, the people who organize and strive for the production and profits are not yet recognized due to these accounting systems. The use of financial accounting is generally focused on material objects. Hence, there is a need for calculation of human skills, which is nothing but HRA. For financial accounting, certain principles need to be followed but for HRA, what principles are to be followed? One such principle is to categorize the people who work. The categorization may be done taking age, earnings, skill, intelligence, education, experience, production, gender, hours of work, etc., into consideration. To this list, we can also add the investment and returns.

Accounting World Magazine, HR Accounting, Human Skills, EVA, Economic Value Addition, Present Value Method, Human Resource Accounting, Current Purchase Power Method, CPPM, Reward Evaluation Model, Capital Assets, Return On Capital Employed, Accounting Standards, Public Sector Enterprises.