What is human resource accounting?
Humans working in an organization is one of the greatest assets and it is a fact that everyone acknowledges this fact, isn’t it? That’s exactly the place Human Resource Accounting comes into the picture, however it’s a totally distinct accounting method that you’ve heard of or observed in the past. According to the definition, it is an accounting technique that involves the assessment, identification and reporting of people resources within an enterprise is done. There are a lot of good reasons to use it However there are a few disadvantages also that people tend to ignore. Don’t worry and we won’t, as we will examine the advantages and disadvantages of human resources accounting, also known as HRA in short. Let’s get started.
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Advantages of Human Resource Accounting
1. Smarter Decisions
In simple terms It is 100 100% fact it is true that Human Resource Accounting (HRA) is a vital tool that helps improve the decision-making process in a business. It gives a clear idea that businesses know what their employees are actually worth. The information can help leaders make educated choices about whom to hire or train and who to develop.
2. Easier Workforce Planning
HRA can assist in coordinating the employees of an organization. Comprehensive information on the skills of employees as well as their training and performance will help to predict future HR needs and steps that must be implemented in advance. This will eventually result in the appropriate number of staff and the appropriate individuals in the proper positions within the organization. This will ultimately be a great aspect for overall growth.
3. Increased Employee Motivation
It is evident that one of the major benefits of HRA is the increase in motivation of staff. When an organization is successful, if employers can demonstrate that they are aware and appreciate the efforts of employees they will also be competent of linking the rewards and pay directly to the performance of an employee. The realization of this boosts motivation dramatically, leaving employees feeling appreciated and motivated to be even more successful. HRA are a key role behind the scenes in creating an environment that is positive and encourages the teamwork.
4. Better Training Programs
Human Resource Accounting allows an organisation to design more efficient plans for training. For instance when it is clear in which area employees excel in or lack and what areas they are weak in, then training can be customized to meet particular needs and improve general performance, don’t you think? This ensures that the that training funds are efficient, and employees are equipped to help them advance their careers.
5. Attracts and Keeps Top Talent
HRA usage can help to improve the image of your company an attractive one to the top talent too. Being honest and open about the value you place on employees’ work can attract highly skilled individuals. HRA keeps your talent already exists by ensuring that they feel valued and properly recognized in the long run. A solid reputation for the value of human resources is a benefit on the job market as it can help you attract and retain the best employees.
6. Clearer Financial Reports
HRA offers a complete and reliable view of the value of human resources which, in turn it improves the accuracy of reporting made for the finances of your business. This broad view lets anyone to understand the true range of your business’s assets and that extends to individuals as well. A better financial report is crucial for investors, stakeholders and regulators as it’s the best method to present a realistic image of the worth of a company and also an accurate estimation of the potential growth.
7. Supports Strategic Planning
In the end, HR Accounting facilitates strategic planning by providing the necessary details regarding what the workforce can and cannot perform. This information can help align HR strategies with general goals of the company. When you do this, by identifying the potential and value of human resource resources, the company are able to take strategic decisions that will boost the performance of your company over the long term.
Disadvantages of Human Resource Accounting
1. Guesswork and No Set Rules
One of the biggest issues that is a major issue with HR Accounting is how subjective it is in assessing the human capital. It is very difficult to establish an exact monetary value to the human resource as compared against physical assets. Utilizing different approaches and assumptions can cause the results to differ greatly, which makes it difficult to assess the numbers of different firms. Uncertainties of this kind could lead to mistakes and compromise the accuracy of the information gathered from HRA.
2. Expensive to Implement
There is a cost associated with using HRA which, in some cases, is costly, especially for small and medium businesses (SMEs). A large amount of money is employed to purchase special tools and software and there is a lot of training that must be completed by HR personnel as well. In addition upgrading your HRA system and constant data collection can be extremely costly for a company.
3. Complicated and Time-Consuming
We can all acknowledge we all agree that HRA is a very complex matter and involves a huge amount of collecting and interpreting information. It is a process that involves hiring costs, training expenses as well as how employees perform and more. It is a significant amount of energy, time, and money, most of which comes out of overhead for businesses and mostly for smaller HR departments.
4. Privacy and Fairness Issues
The legal and ethical issues pertaining to HRA focus on discrimination and privacy. HRA is believed to collect specific information about employees, which is why it’s viewed as an intrusion into privacy and needs to be taken care of and with care. There’s always the issue that treating employees as assets can result in treating them as numbers it always feels unfair and can lead to massive legal issues regarding unfairness and discrimination.
5. Constant Updating Needed
Human Resource Accounting is not an one-time event however, it is in fact an ongoing update process to ensure that the data is accurate. Human resources are constantly changing and this is why the data must be frequently changed to stay up-to-date, which is not less of a problem.
6. No Common Standards
There’s a reason why different businesses may have different methods to assess their human capital, so the results can’t be easily compared. In the absence of standard methods, it’s difficult to gauge the effectiveness against other companies in the field or provide transparent and consistent data to all the stakeholders within the company.
Conclusion
That’s all there is to it. Now you understand why companies, organizations or businesses choose the route of implementing HRA. We’d like to think that today’s blog has provided a variety of details about the whole HRA matter in the most simple method that is possible.
