HR Accounting There are various ways of ascertaining the value of Human Resources in an organisation.

Model 1 : The basis of this approach is what has been tried and tested in several companies, including SAIL, and is in conformity with the model proposed by Flamholtz in 1972. According to this, HR value is defined as the " the value of the current wages payable to employees currently on the payroll for the remaining years of their tenure with the company. Assumptions : The quality of manpower is critical to the success of a business ; human resources constitute an important raw material in their own right. Therefore, it is necessary to regularly monitor the skills level of the people so as to upgrade them whenever necessary. This cannot be done alone; once the HR are measured and a value determined, it gives you control. Steps in this model : STEP I Employee Mapping into Service States STEP II Determination of the number of years of tenure in each service state STEP III Estimate the wage rates relevant to each service state. STEP IV Estimation of the HR value.

Advantages of this model : First is the link with corporate strategy, not in terms of day-to-day operations, but in terms of our expansion and diversification plans. For instance, while tapping different markets for funds, a corporate requires a credit rating and an HRA in place will enable a corporate to secure a better grade from credit rating agencies and a better rate on debt instruments. Second, in a technologyintensive business, it brings to light the value of the R&D workers' value who will make all the difference tomorrow.

Model 2 : This is an alternative model based on the premise that a business firm is an economic entity with all the characteristics of a living organism. Assumptions : 1. Commercial law does, indeed, recognise an incorporated business firm as a distinct legal entity. But it misses out the fact that a business firm is an amalgam of men, machines, and materials; it is the organic component of this amalgam which breathes life into the firm and imparts to it the attributes of a 'going concern'. HR value is thus the value addition made by the organic component(men ) to inorganic components. Evidently, a business firm devoid of human resources is a dead assemblage of physical assets. The HR value of a firm is,

therefore, the difference between the firm as a 'going concern' and the net realisable value of its assets. 2. The measurement proposed is that of the HR value for the organisation as a whole, and not of a single individual or a homogeneous group of individuals. the premise is that an individual has no value independent of the organisation of which he is a part. It is the congregation of the various groups that generates HR value in an organisation. Steps in this model : Click each step to explode further. STEP - I =========== ===> STEP - II =========== ===> STEP - III

Advantages of this model : The HRA model is in conformity with traditional accounting practices, and is easy to implement. It does not use a surrogate measure of HR value, but calculates them through specific formulae. The degree of subjectivity is also within tolerable limits.

Generally Accepted Accounting Principles (USA)

Generally accepted accounting principles (GAAP) are the accounting rules used to prepare financial statements for publicly traded companies and many private companies in the United States. Generally accepted accounting principles for local and state governments operates under a different set of assumptions, principles, and constraints, as determined by the Governmental Accounting Standards Board (GASB). In the United States, as well as in other countries practicing under the English common law system, the government does not set accounting standards, in the belief that the private sector has better knowledge and resources. The GAAP is not written in law, although the U.S. Securities and Exchange Commission (SEC) requires that it be followed in financial reporting by publicly traded companies. The US GAAP provisions differ somewhat from International Financial Reporting Standards though efforts are underway to reconcile the differences so that reports created under international standards will be acceptable to the SEC for companies listed on US markets.

Basic objectives
Financial reporting should provide information that is: useful to present and potential investors and creditors and other users in making rational investment, credit, and other financial decisions. helpful to present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts. about economic resources, the claims to those resources, and the changes in them. [edit]

Fundamental qualities
To be useful and helpful to users, financial statements must be: Relevant: relevant information makes a difference in a decision. It also helps users make predictions about past, present and future events (it has predictive value). Relevant information helps users confirm or correct prior expectations (it has feedback value). It must also be available on time, that is before decisions are made. Reliable: reliable information is verifiable (when independent auditors using the same methods get similar results), neutral (free from bias), and demonstrate representational faithfulness (what really happened or existed). Comparable: information must be measured and reported in a similar manner for different enterprises (allows financial statements to be compared between different companies). Consistent: the same accounting methods should be applied from period to period and all changes in methods should be well explained and justified (). [edit]

Basic concepts
To achieve basic objectives and implement fundamental qualities GAAP has four basic assumptions, four basic principles, and four basic constraints. [edit]

Assumptions
Economic Entity Assumption assumes that the business is separate from its owners or other businesses. Revenues and expenses should be kept separate from personal expenses. This applies even for partnerships and sole proprietorships. The entity concept does not necessarily refer to a legal entity. Going Concern Assumption assumes that the business will be in operation for a long time. This validates the methods of asset capitalization, depreciation, and amortization. Only when liquidation is certain is this assumption not applicable. Monetary Unit Assumption assumes a stable currency is going to be the unit of record. The FASB accepts the nominal value of the US Dollar as the monetary unit of record (unadjusted for inflation). Periodic Reporting Assumption assumes that the business operations can be recorded and separated into different periods (most common periods are months, quarters and years). This is required for comparison between present and past performance. [edit]

Principles
The historical cost principle requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities. This principle provides information that is reliable (removing opportunity to provide subjective and potentially biased market values), but not very relevant. Thus there is a trend to use fair values. Most debts and securities are now reported at market values. The revenue recognition principle requires companies to record when revenue is (1) realized or realizable and (2) earned, not when cash is received. This way of accounting is called accrual basis accounting. The matching principle. Expenses have to be matched with revenues as long as it is reasonable to do so. Expenses are recognized not when the work is performed, or when a product is produced, but when the work or the product actually makes its contribution to revenue. Only if no connection with revenue can be established, cost can be charged as expenses to the current period (e.g. office salaries and other administrative expenses). This principle allows greater evaluation of actual profitability and performance (shows how much was spent to earn revenue). Depreciation and Cost of Goods Sold are good examples of application of this principle. The full disclosure principle. Amount and kinds of information disclosed should be decided based on trade-off analysis as a larger amount of information costs more to prepare and use. Information disclosed should be enough to make a judgment while keeping costs reasonable. Information is presented in the main body of financial statements, in the notes or as supplementary information. [edit]

Constraints
Cost-benefit relationship states that the benefit of providing the financial information should also be weighed against the cost of providing it. Materiality states that the significance of an item should be considered when it is reported. An item is considered significant when it would affect the decision of a reasonable individual. Industry practices states that accounting procedures should follow industry practices. Conservatism states that when choosing between two solutions, the one that will be least likely to overstate assets and income should be picked.

Inflation accounting
Assessing a company's performance after adjusting for the effects of inflation. Historial

cost accounting does not accurately reflect the changing value of money and assets. For example, if you bought an item for $10 and then sold it for $15, historical cost accounting would calculate your profit to be $5. If, however, it costs you $20 to replace that item, then you have really made a loss of $5, which would be shown by the inflation accounting method. inflation accounting Definition Showing the effects of inflation on financial statements, an FASB requirement for large companies. Related Research Articles from the InvestorGuide.com University Saving Have extra money lying around? This article tells you why you should save and how much you should save, with specific emphasis on creating an emergency fund, and when to invest in high-risk, high-return ventures. Income and Expenses Information on necessary steps in any budgeting process. Topics include determining your income, determining your expenses (whether they are fixed committed expenses, variable committed expenses, or discretionary expenses), and comparing the two. Goals and Progress Continuing the discussion of our simple 7 step budgeting process, this article includes information on how to set goals, and consequently how to achieve them.