A Critical Examination Of Human Resources Accounting As A Tool For Measurement Of Human Capital

A Critical Examination Of Human Resources Accounting As A Tool For Measurement Of Human Capital

CHAPITER ONE:

OVERVIEW

1.1 Study’s historical context

Business companies increasingly invest significant resources and make every effort to choose, re-select, train, and develop its managers so that they are appropriately prepared to handle the difficult duties that result from both internal and external developments. Brain power is a crucial resource in our economy due to the growing technical complexity of modern company and the time needed for employees to acquire skills, experience, and judgment in many crucial areas.

Financial analysis emphasizes the strength of management more than any other criterion when assessing proposals for diversification and takeover. All of these result from the growing understanding that people are the most valuable resource for a company. We understand that people are important to businesses, schools, hospitals, and probably all organizations. We are aware that the ability to provide services with a financial return is what gives human resources their value.

Both internal and external users of accounting information might benefit from the information provided by human resource accounting (HRA). Internal users (like management) can utilize it to make decisions about hiring and utilizing staff members as well as about transfers, promotions, training, and layoffs. It serves as a foundation for developing physical assets in relation to human resources and for assessing, among other things, the costs associated with providing employees with additional education, training, and development. HRA offers helpful data for investment decision-making to outside users (such as potential investors).

People are frequently referred to as assets, yet they are typically considered as costs because there is no reliable mechanism for valuing them, according to Mayo (2006).

The most valuable capital is that invested in people, according to Marshal (1961).

1.2 Description of the issue

Why do some organizations succeed in their goals despite lacking human capital processes if human capital is, in fact, a “best practice”? Why doesn’t everyone follow the human capital idea, to put it another way? The answer is straightforward: while these companies may be profitable now, their ability to sustain their success is compromised by their failure to put human capital concepts into practice.

1.3 Study’s objective

The study’s primary goal is to evaluate human resources accounting as a tool for measuring human capital.

The particular goals are:

1. To determine whether accounting for human resources may be a useful instrument for measuring human capital.

2. To assess if human capital has contributed to organizational improvement.

3. To determine whether human capital plays a significant role in determining individual income as well as the rise and fall of nations.

4. To determine whether companies utilise their people resources.

1.4 Research Issues

Is accounting for human resources a good way to gauge human capital?

2 Can human capital help an organization get better?

3 Does human capital play a significant role in explaining the rise and fall of nations, as well as how much an individual earns?

4 Does the company use the accounting of human resources to assess human capital?