Introduction of human resource accountingHRM

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Introduction of human resource accounting(HRM)

• Ku-Jun Lin
• Associate Professor
• Tam Kang University

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What is human resource accounting?

• To record, report and analysis human resource
  related figures through accounting system
• The result can be use for decision making purpose

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What is the value of human?

• Human is priceless.
• Human capital can be counted.
• How do you calculate the value of an employee in
  the company?
• Minimum value The present value of her(his)
  salary in the future, by considering the
  possibility of early absence.

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Why human resource accounting?

• Human capital becomes the most important asset in
  the corporation to extract value
• Present accounting system ignores the importance
  of human resource value
• Managers lack information about the effectiveness
  and efficiency of human resource investment

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Human capital becomes the most important asset in
the corporation

• More service(human intelligence) oriented company
  than before
• Higher Tobins Q(Price/Equity)
• Higher Return on Assets(ROE)
• The importance of capital shifts from financial
  capital to intellectual capital

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• Intellectual capital including
• human capital,
• organizational capital
• Relation capital(outside)
• Customer capital(outside)
• Process capital(inside)
• Learning and development capital(inside)

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• Characteristics of Human capital
• Hard to imitate
• Causal ambiguous
• Cannot duplicate in a short time

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Present accounting system ignores the importance
of human resource value

• Generally Accepted Accounting Principle(GAAP)
  treats most human capital related costs as
  expenses, instead of assets
• The more the company invests in human capital,
  the less the current net income
• Revenue-Expense(including HR)Net Income

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• Financial ratios, based on financial statements,
  provide little or bias human capital
  profitability information, for example
• ROA based on hard asset
• Return on Investment(ROI) The I represents the
  investment on hard assets
• Assets Turnover Sales/Total hard assets

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• Reasons why GAAP does not allow human capital
  investment becomes assets
• Future benefit uncertainty
• Conservatism
• Ethical issue

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Managers lack information about the
effectiveness and efficiency of human resource
investment

• Lay off decisions
• Does the lost training cost and future
  orientation cost be considered?
• Short term, immediate positive impact on current
  net income VS effect on long term profit
• Impacts on employees feeling which may
  negatively influence company income

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• Investment in human capital decisions
• Where is the beef?
• What is the relationship between human capital
  investment and operation result?
• The communication of company human capital to
  investors.

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The Human capital Architecture

• The classification of Human capital (Please see
  Figure 1 on P.125)
• Not all employees are classified as human capital
• Value VS Uniqueness(Lepak Snell, 1999)
• High value Employees can be considered as human
  capital
• Human capital in quadrant 1are most valuable 123

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Costs related to human capital

• 1. Formation and acquisition costs at the early
  stage of development, eg. Recruiting cost
• 2. Learning costs in the middle stage of
  development, eg, Training cost
• 3. Replacement costs at the final stages of
  development, eg, discharge cost

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Human resource factors that may have influence on
operation result

• Financial(human resource accounting, use
  accounting system to collect data)
• Non financial(use questionnaire)
• Personal background, such as age, gender,
  education, experiences and licenses.
• Personal characteristics, such and personal traits

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My research summary

• If we consider human capital cost as the only
  variable, usually it does not show significant
  influence on operation result in most companies.
• However, if we use an intermediate variable, such
  as customer capital between human capital and
  operation result, usually human capital would
  demonstrate significant influence on operating
  result through the intermediate variable.

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• Some personal background and personal
  characteristic, together with human capital cost,
  do have significant influences on operating
  results
• Capitalizing human capital cost may improve the
  quality of earning.

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The Limitation

• Hard to find specific human resource data
• Case study rather than general study

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Future development

• The influence of mark to market value
  accounting(such as the evaluation of investments)
  on human resource accounting
• R D cost also faces the future benefit
  uncertainty problem, does the accounting
  treatment for R D provide any guidance for
  human resource cost?

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• Thank you for listening
• Q A