Human Resource Accounting:

Human Resource Accounting is a method to measure the effectiveness of personnel

management activities and the use of people in an organization.

Approaches to Human resource accounting was first developed 1691 the next stage was
during 1691-1960 and third phase post-1960. There are two approaches to HRA. Under the
cost approach, also called human resource cost accounting method or model, there is a)
Acquisition cost model and b)replacement cost model. Under the value approach there are a)
present value of future earnings method, b) discounted future wage model, c) competitive
bidding model.

Historical cost approach

This approach is also called as acquisition cost model.This approach is developed by
Brummet, Flamholmay tz and Pyle but the first attempt towards employee valuation made by
a foot ware manufacturing company R. G. Barry Corporation of Columbus, Ohio with the
help of machingon university in the year 1967 . This method measures the organization’s
investment in employees using the five parameters: recruiting, acquisition; formal training
and, familiarization; informal training, Informal familiarization; experience; and
development. this model suggest instead of charging the costs to p&l accounting it should be
capitalized in balance sheet.the process of giving an status of asset to the expenditure item is
called as capitalization. in case of human resource it is necessary to amortize the capitalized
amount over a period of time. so here one will take the age of the employee at the time of
recruitment and at the time of retirement. out of these a few employee may leave the
organization before attaining the superannuation. This is similar to physical asset e.g.:- If
company spends one lakh on an employee recruited at 25years he lives the organization at the
age 50. he serves the company for 25 years but actually his retirement age was 55years. the
company has recovered rupees 83333.33 so the unamortized amount of rupees 16666.66
should be charged to p&l account i.e.

100000\30=3333.33
3333.33*25=83333.33
100000-83333.33=16666.67

This method is the only method of human resource accounting which is based on sound
accounting principals and policies.

[edit] Limitations

 The valuation method is based on false assumption that the dollar is stable.
 Since the assets cannot be sold there is no independent check of valuation.
 This method measures only the costs to the organization but ignores completely any
measure of the value of the employee to the organization (Cascio 3).

It is too tedious to gather the related information regading the human

values.

[edit] Replacement Cost approach

This approach measures the cost of replacing an employee. According to Likert (1985)
replacement cost include recruitment, selection, compensation, and training cost (including
the income foregone during the training period). The data derived from this method could be
useful in deciding whether to dismiss or replace the staff.

[edit] Limitations

 Substitution of replacement cost method for historical cost method does little more
than update the valuation, at the expense of importing considerably more subjectivity
into the measure. This method may also lead to an upwardly biased estimate because
an inefficient firm may incur greater cost to replace an employee (Cascio 3-4).

[edit] Present Value of Future Earnings

Lev and Schwartz (1971) proposed an economic valuation of employees based on the present
value of future earnings, adjusted for the probability of employees’
death/separation/retirement. This method helps in determining what an employee’s future
contribution is worth today.

According to this model, the value of human capital embodied in a person who is ‘y’ years
old, is the present value of his/her future earnings from employment and can be calculated by
using the following formula:

E(Vy) = Σ Py(t+1) Σ I(T)/(I+R)t-y

T=Y Y

where E (Vy) = expected value of a ‘y’ year old person’s human capital T = the person’s
retirement age Py (t) = probability of the person leaving the organisation I(t) = expected
earnings of the person in period I r = discount rate

[edit] Limitations

 The measure is an objective one because it uses widely based statistics such as census
income return and mortality tables.
 The measure assigns more weight to averages than to the value of any specific group
or individual (Cascio 4-5).

[edit] Value to the organization

Hekimian and Jones (1967) proposed that where an organization had several divisions
seeking the same employee, the employee should be allocated to the highest bidder and the
bid price incorporated into that division’s investment base. For example a value of a
professional athlete’s service is often determined by how much money a particular team,
acting in an open competitive market is willing to pay him or her.

[edit] Limitations
  The soundness of the valuation depends wholly on the information, judgment, and
impartiality of the bidder (Cascio 5).

[edit] Expense model

According to Mirvis and Mac, (1976) this model focuses on attaching dollar estimates to the
behavioral outcomes produced by working in an organization. Criteria such as absenteeism,
turnover, and job performance are measured using traditional organizational tools, and then
costs are estimated for each criterion. For example, in costing labor turnover, dollar figures
are attached to separation costs, replacement costs, and training costs.

Corporate Governance:

Definition
It is common to suggest that corporate governance lacks definition. As a subject, corporate
governance is the set of processes, customs, policies, laws, and institutions affecting the way
a corporation is directed, administered or controlled. Corporate governance also includes the
relationships among the many stakeholders involved and the goals for which the corporation
is governed.

Many of the "definitions" of corporate governance are merely descriptions of practices or

preferred orientations. For example, many authors describe corporate governance in terms of
a system of structuring, operating and controlling a company with a view to achieving long
term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers,
and complying with the legal and regulatory requirements, apart from meeting environmental
and local community needs. However, there is substantial interest in how external systems
and institutions, including markets, influence corporate governance.

There is a popular tendency to view shareholders as the owners of public corporations which
affects some "definitions" of corporate governance. For example, the report of India's SEBI
Committee on Corporate Governance defines corporate governance as the "acceptance by
management of the inalienable rights of shareholders as the true owners of the corporation
and of their own role as trustees on behalf of the shareholders. It is about commitment to
values, about ethical business conduct and about making a distinction between personal &
corporate funds in the management of a company." It has been suggested that the Indian
approach is drawn from the Gandhian principle of trusteeship and the Directive Principles of
the Indian Constitution, but this conceptualization of corporate objectives is also prevalent in
Anglo-American and most other jurisdictions.

The concept of shareholders as owners of a publicly-traded corporation is complex.

Ownership applies to property rights, which leads to some ambiguity in relation to a
corporation where shareholders unambiguously own shares but do not normally exercise
ownership rights of the assets of corporation. This distinction is fundamental to the legal
person concept that defines the existence of corporations.
[edit] Corporate governance models around the world
There are many different models of corporate governance around the world. These differ
according to the variety of capitalism in which they are embedded. The Anglo-American
"model" tends to emphasize the interests of shareholders. The coordinated or multi-
stakeholder model associated with Continental Europe and Japan also recognizes the interests
of workers, managers, suppliers, customers, and the community.

[edit] Legal environment - General

Corporations are created as legal persons by the laws and regulations of a particular
jurisdiction. These may vary in many respects between countries, but a corporation's legal
person status is fundamental to all jurisdictions and is conferred by statute. This allows the
entity to hold property in its own right without reference to any particular real person. It also
results in the perpetual existence that characterizes the modern corporation. The statutory
granting of corporate existence may arise from general purpose legislation (which is the
general case) or from a statute to create a specific corporation, which was the only method
prior to the 19th century.

In addition to the statutory laws of the relevant jurisdiction, corporations are subject to
common law in some countries, and various laws and regulations affecting business practices.
In most jurisdiction, corporations also have a constitution that provides individual rules that
govern the corporation and authorize or constrain its decision-makers. This constitution is
identified by a variety of terms; in English-speaking jurisdictions, it is usually known as the
Corporate Charter or the [Memorandum and] Articles of Association. The capacity of
shareholders to modify the constitution of their corporation can vary substantially.