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Impacts of human resource accounting on the profitability of a firm.
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Impacts of human resource accounting on the profitability of a firm    1
Impact of human resource accounting on the profitability of a firm
Research Title
The suggested research topic of this paper is to analyse the impact of the human resource accounting on the profitability of a firm.
Research Problem
The research problem in this case is to analyse the impact of the human resource accounting on the profitability of a firm. This research paper analysis the human resource accounting and how its impacts the profitability of the firm.
Research Objectives
The research objective is to analyse different aspects of human resource accounting, what is the effect of the human resource accounting and how does human resource accounting impact the profitability of the organization.
Research Questions
The research question is “The impact of the human resource accounting on the profitability of a firm”.
Literature Review
Human resource can be said as the individuals who make the workforce of an organization. It takes into consideration the skills, knowledge, talents and energies of an individual which are used to produce and deliver the goods and services to the target consumers. Human resource is one of the most important resource of an organization which runs the organization and is the main reason for the success of an organization. (Syed, 2009).
The use of human resource accounting came in 1960’s and has gained its importance since then as it also emphasize on the social and environmental concerns of the organisation. The organizations are also shifting their focus from product aspect to the service aspect which has rekindled the interest of the organizations towards human resource accounting. Different organizations adopt different methods to account for human resource, some organizations adopt the valuation method whereas some adopts intangible approach (Pandey, 2014)
The human resource accounting is the process which emphasize on identifying, recording and reporting of the investments that are done by the organization on human resource, which is not accounted in the conventional accounting. (American accounting association, 1973)
Every authors have different views regarding the reporting and accountability of human resource management. The authors states that publishing the information about the human resource will help in making the financial statements more meaningful and will help in predicting the future performance of the organization (Jawahar lal, 2009). As per Sveiby (1997), human resource is acquired by the company in order to generate the revenues and make the organization successful, thus human resource should be used when the company is valued by capitalizing the human resource. As human resource is the major resource which drives the organization and helps the organization to be successful and attain competitive edge. Today, to stay competitive and ahead, the organizations are investing heavily on their human resource capital in different ways like training and development. These costs are usually expensed and are not reflected in the balance sheet of the company. As per Carper, 2002, the three major components for human resource accounting includes:
(1) Identification of human resources as assets; (2) Measurement of asset data about human resources; and (3) Communication of this information to interested parties.
So to account for the human resource capital, it is important that the gap between the market and the book value of the enterprise is identified and clarified. For this, the human resource capital will be evaluated.
The profitability of the organization is said to the profits that the organization makes from the business activities of the company. It is considered as one of the most important factors which defines the efficiency and the performance of the company. There are many factors which affects the profitability of the firm. The efficiency of the firm is measured by profitability. One of the concerns that affects the impact of human resource on profitability of the firm is difficulty in measuring the human capital. Some of the tools like economic value added, performance measurements helps in making the link between the future growth and profitability of the firm and its link for the human resource capital.
The way that the organization handles and considers its human capital highly affects the profitability of the firm. With the effective treatment of the human resource within the organization, the human resource feels motivated and strive hard to improve the performance of the organization.
As per Barney, 1991, with the...