1、s greatest asset. However, the employees value is rarely reported on the balance sheet. Human resource accounting （HRA） is an attempt to solve this problem.A unique benefit for the human resource development professional is found in HRA. A byproduct of human resource accounting is that it has the ef
2、fect of legitimizing: education and development programs to management. However,there are some basic theoretical issues that must be examined before one can decide to advocate the use of HRA. What Is Human Resource AccountingHuman resource accounting, as defined by the American Accounting Associatio
3、n, is a process of identifying and measuring data about human resources and communicating this information to in- terested parties （Caplan, et. al., p. 2）.who are the interested parties? There are two basic groups that could use this kind of information一investors and managers. Human resource account
4、ing could provide more adequate information to investors about the present state of the organization. Rhode, Lawler, and Sundem （1976） state that it has been demonstrated that investors have changed their decisions about investments when human resources information is known. However, they set forth
5、the idea that it is still questionable as to whether this information enabled investors to make better investment decisions.Managers are the second major group that could potentially use HRA. The information provided through HRA would give managers more accurate information about the cost of personn
6、el policies as well as provide feedback concerning their own particular management styles.Hilton （1979） and Rhode et. al. both advocate that managers are currently not evaluated in the area of managing human resources. Therefore, they can ignore the consequences of their decisions from the human res
7、ources standpoint if there is greater financial reward in favoring the physical assets or financial assets that are also under their control, and for which they are currently held accountable. Thus, HRA directs the attention of managers to the human resources of their department. It also provides us
8、eful information to measure, evaluate and improve the condition of the human organization （Caplan, et. al., p. 7）.Dahl （1979, p. 44） proposes that the central idea of HRA is that human resources constitute an investment for a firm, rather than an expense; that is, employee costs should be capitalize
9、d rather than expensed. Nadler （1979, p. 265） takes this idea one step further in asserting that training is indeed an expense, but education and development costs are investments. A characteristic of an investment is that some risk is involved. The higher the risk, the greater the rate of return. Y
10、es, a person may leave the firm, but he/she may also stay at a much greater value to the company. What Are the Basic Problems?The first, and foremost, task for the advocates of HRA is to demonstrate a usefulness of the information provided by HRA. Later, this usefulness must be measured against the
11、cost involved in developing an adequate, equitable system.If the definition of an asset is the future economic benefits, the rights of which are owned or controlled by a firm （Johnson and Gentry, 1974, p. 2）, one must question whether human resources are, in fact, assets. In the United States today,
12、 it is illegal for a company or a person to own another human being. People may leave their place of employment at any point in time. How can a firm be viewed as owning or controlling its people一a prerequisite for defining an asset?Hermason argues that there is a precedent found in accounting practi
13、ces which indicates that it is logical to consider human resources as an asset. The issue, defined by Hermason, is not the legal rights involved but rather a firms Operational right to receive benefits.If one accepts Hermasons views, then one must confront the issue of measurement. How does one go a
14、bout placing a value on an individuals head? How does one place a dollar value on commitment to the employer, or ones ability to work as a team? The subjectivity involved poses a major problem to human resource accounting.One must answer the questions of what is reasonable and what is useful. Tsay （
15、1977） points out that different methods of HRA should be applied depending upon who will be using the information and for what purpose that person will be using the information. The historical cost method could be used to give external people （investors） more information about the current value of t
16、he companys human resources. If the information is to be used internally by managers, Tsay proposes that human resources should be accounted for by the method most appropriate to the problem which is being solved. Whatever valua-tion basis is acceptable for conventional assets can also be used for h
17、uman resources, and the advantages and disadvantages of that particular valuation basis will apply with equal force to both classes of assets （Caplan, p. 4）.Methods of Human Resource AccountingThere are two basic methods of HRA set forth in the literature. They are the historical cost theory and the
18、 replacement cost theory. The historical cost method seems to be the favored method at the present time for two reasons: a） As a method, it is most similar to conventional accounting practices, and b） The Barry Corporation, one of the first companies to use HRA, used this method in its work.Hilton l
19、ater used this method in his research in an internal audit department of a large insurance company in British Columbia.The basic theory behind the his-torical cost method is that human resources value can be determined by accumulating the cost of the investment （Caplan et. al., Rhode et. al.，and Hil
20、ton）. Measurement problems in this method are twofold，One must decide what to include in the historical cost records, and one must decide which costs are to be capitalized and which are to be expensed. （If one accepts Nadlers idea of expensing training costs and capitalizing education and developmen
21、t costs, as well as his definition of training, education and development, the second problem is alleviated.）The greatest danger of this theory is that the manager and the investor （as well as the employee）may view this value as a measure of the potential usefulness of an employee. This is not what
22、the historical cost value represents. It is simply a valuation of past costs. Unfortunately, the potential usefulness of the historical cost method is somewhat restrained by the fact that past costs are not necessarily useful in making decisions relating to the present or the future （Caplan, et. al.
23、，p. I27）.The value of the historical method is that the rate of return on investments arid turnover costs can be determined. In addition to this, a formal framework for human resources planning and for recognizing the importance of human resources development is defined （Rhode, et. al. ）.Additional
24、limitations of the historical cost method include: a） People can learn things that will be useful in their jobs outside of their jobs, and these ex- periences will not be accounted for. b） Individuals who experience training programs may demonstrate differing degrees of the ability of implementing t
25、he training. c） Individuals may develop a patent or process that is worth far more than their historical cost. d） An employee may return from training unable to function on the job at all. The replacement cost method is another method of HRA. Flamholtz suggested that there are three areas involved i
26、n replacement casts. They are: a） the cost of acquiring new people for existing positions, b） the cost of training these recruits to the appropriate level of performance, and c） the cost of moving existing position holders to new positions or out of the organization.One of the advantages of this the
27、ory is that it is based on relatively solid, factual information-recruiting costs and training costs. The Comptroller of the Currency （U.S. government） currently uses a version of the replacement cost method James Wingrove, Director of Personnel Development, cites three additional advantages of this
28、 method. He states that this system facilitotes program scheduling, allows people to use what they learn shortly on the job, and people know what to expect with regard to curriculum.Limitations of this theory are related to the solid data it is based upon. Recruiting and training costs are used to m
29、easure human resource value, but it does not take into account commitment to the firm, or the ability to work as a team. It also does not take into account that some people are paid far more than they are worth and some are paid far less than they are worth. Wingrove points out another disadvantage.
30、 He says that some people were learning information that they did not need to know. This problem has been minimized by narrowing the required courses and broadening the optional programs in specialized areasWhile the historical cost method and the replacement cost method run closely parallel to gene
31、rally accepted accounting principles, greater value is expected in theories that will alter these principles to include human resources as an essential asset of a company. For HRA to develop to its potential, it must account for qualities such as commitment, morale, and the ability to work as a team
32、, which are qualities unique to human beings. Hazards of Human Resource AccountingThere are three areas that pose hazards to the use of HRA as a positive decision-making tool. These areas involve: a） the managers, b） the employees, and c） the process itself. Managers may use HRA as a means of manipulating the employee. He/she may decrease the human resource value of an employee as a form of punish
