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Importance of HRA

 

In any organization, the most valuable input is the human element. The success or failure of the company depends on the quality, calibre, capability and character of the employees working in it. So in business enterprise, a well expertised and loyal employee may be much more valuable than a stock of merchandise. It is worth recalling what Alfred Marshall said long ago that “the most valuable of all capital is that invested in human beings”

 

Even though this much of values is possessed by the human resources, it is unfortunate that till now there is not even a single generally accepted system to value and record the human resources as an important assets. So the balance sheet does not Exhibit the value of human resource as the most vital asset while capital invested in other assets are shown. This is one of the severe limitations of present day financial statements which prevents the user of those statements from making effective use of them.

 

In the face of communication and technological changes, if the management could succeed in preventing the educated, trained and efficient employees from leaving the company or increasing their professionalism, an immense benefit could be achieved by the organisation.

 

With the help of recording and transmitting human resource capital, the management will have access to a valid and reliable measure of expenditure on equipping the personnel with requisite know ledge and operating skills.

 

The ultimate aim of the financial accounting is to provide detailed information about the financial aspect to the decision makers. And at the same time, the conventional system fails to generate relevant data about one important asset of the organisation i.e., human asset. It is termed as intervening variables. It refers to the loyalties, attitude, motivation, high morale, performance goals, collective capacity of the effective interaction, health of the organisation and decision making. The decision makers and executors should know to what extent such assets are either appreciated or depleted during a particular period.

 

The outcome of this process fails to reflect the level of business performance. In the real sense, it is always a failure to measure the economic value of people by the management. For this reason, the value of human resources is not to be considered. In order to overcome this difficulty, measuring and reporting the human resources would protect the management from liquidating human resources or obtaining more profitable investment in human resources in a period of profit squeeze.