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Human asset accounting and human resource audit

The Focus should be on the development of employees for a specific purpose

Jan 01 - 14, 2001

A real loyal, dedicated, skilled efficient and productive human resources availability to an organization are indeed much valuable assets but not reflected on the balance sheet. Human assets accounting or human resource accounting may be defined as the measurement and reporting of the cost and value of people as organizational resources. It involves accounting for investment in people and their replacement costs, as well as accounting for economic value of people to an organization.

Can something that is not owned by the organization be regarded as an asset is a concern within the relative terminology of the accountancy, whereas accounting conventions and standards treat the employee, the real human capital inventory as a variable cost of operation (production), with no value. This idea is challenged and suggested ways of measuring the value of an employee to the employing organization. Question arises what would be the satisfactory and commonly acceptable measure to overcome accounting concepts to establish a fair value to encourage the perception of employees as an asset.

The concept of "investment" in employees; the human capital of the organization, push forward a view that one is looking for a profit to be gained from the investment and therefore the focus is on the development of employees for a specific purpose to gain monetary benefits. Optimizing of profits would result only if the organization develops clear and comprehensive strategies and initiatives for the training and development of its employees. Investment in professional training is often treated as an industrial relation activity, and not as an essential investment decision like for the plant or technology. When we consider human assets accounting, the under lined idea is, we are considering the human inventory stock of a company incorporated available to the organization to perform the activities. A company is a person or persons associating with other, associations of persons for trade. The Company Ordinance 1984 provides and lays condition to disclose the fair and true position of the state of affairs of the company, required to be certified by auditors, and concealment of any material fact is treated as violation and a punishable offence. The inventory cost, its basis of valuation, the investment in shares; its marketable cost, and all that is necessary for financial evaluation is required to be disclosed, except the people, the human capital conducting the affairs of that company without which the company in factual terms is nothing but merely a title. The organizations of universal reputations are recognized besides other factors, due to the persons working for the same, but this hard fact is missing from the Balance Sheet and financial statements. Trade and industrial historical studies indicate the human capital contributions for their respective organization without which the recognization to world repute would not be possible.

Human Resource Auditing

The term human resource auditing borrows its title and rationale from accountancy, it also makes use of the system and methods of the social and scientific information. Human Resources Management Audit, measures of human resource outputs and effectiveness under the given circumstances and the degree of utilization of the human resources in the best possible manner conducive to the organization. The audit of human assets is analytical rather than prescriptive. It aims, to encourage professional managers and executives to develop their own ways of measuring performance against targets and objections developed from the experience and needs of their own particular unit, department and section. Executives be encouraged to revise, adapt and apply the various diagnostic methods which are best suited to their own circumstances.

A cost based financial manpower decision can provide a form of scenario analysis whereby various different inputs and outputs can be compared with the assistance of the computer spreadsheets this analysis will organize the numerical and cost dimensions of human resources decisions in such a way which can emphasizes contingencies and probability, rather than prescription and certainty. This analysis will compel the executives to clarifying their own understanding on the way in which human capital are used and their value to the organization assessed. Human resource audit is one of the method of gathering factual information of management controls and activities based on an unbiased assessment of objective evidences rather than subjective opinion.

Due to expansions and competition in the business, trading, and manufacturing cost, the management in particular intend to reduce the cost of production without deteriorating quality, which is possible by eliminating waste, avoiding breakdowns, bottlenecks and by utilizing fully the human resources, along with other factors of production, for which human resource audit can be a useful tool and assistance for better and improved management controls. It is an independent appraisal study of various management levels to ensure the fulfilment of the organizational objectives, policies, procedures. Human resource audit in its scope is beyond the conventional audit. The human resource audit is more clearly defined as a method to evaluate the efficiency of human resource at all levels throughout the organization, in order to ascertain whether sound management prevails throughout, and to recommend its effectiveness where such is not the case.

Human resource audit can help the organization to improve its systems and working and can assist;

(i) how to obtain the desired working efficiency out of the available human resources,

(ii) can suggest ways and means to the organization how to achieve the target objectives,

(iii) to improve the entire communication system,

(iv) can assist the organization in constructing the basic policy frame work in the correct directive,

(v) human resources audit in relation to possible products/service and labour market scenarios.

Leading organizations today recognize that their human capital are as critical to their long term success as their physical and financial assets.