Amity Journal of Management Amity Business School Vol. V, No. 2, December, 2017 Amity University, (ISSN 2347 – 1832)

HUMAN RESOURCE ACCOUNTING DISCLOSURES PRACTICES IN INDIAN COMPANIES

Divya Sharma 1 Dr. Rajendra K. Khatik 2

ABSTRACT

Human resource accounting is a branch of accounting .This paper analyses disclosure practices in Indian companies during the selected period of the study. Five public sector and five private sector companies that disclose the information related to human resource accounting in their annual report have been selected. For the purpose of study disclosure index method and correlation-test was used.

Keywords – Human Resource Accounting Disclosure, Human Resource Accounting (HRA)

INTRODUCTION like salaries, wages etc. are used to be shown in the profit and loss account. Human beings play the most significant role for the achievement of productivity in an “One assets is omitted and its worth I want enterprise. They are well above machinery, to know, material, building, technology, money etc. That assets is the value of men who run the because human resource is the only assets show” that could make all the above mentioned assets effective and useful. Human Resource These lines clearly indicates that the value of is defined as "The people and staff that men (human resource) is not measured and operate an organization along with the reflected in the accounts of business financial and material resources of an enterprises. Although the success of the organization”. Human resource accounting business to a greater extent depends upon may be considered as such an accounting the abilities ,efficiencies and power of these system recognizes the human resources as an people who actually run the business. assets and record it in the books of accounts According to Caplan E.H. and Landetich after measuring its value Such accounting "People are the most important assets of an may generate and present valuable and organization yet, the value of this asset does significant information relating to human not appear in the financial statement. This resources. information has not even been for Two types of resources are used in every management purpose" Human resource business enterprises: (i) Physical and accounting (HRA) includes all these human financial resources and (ii) human resources. resource information in their financial The acquisition and uses of physical and statement. financial resources as well as the results From the above it may be concluded that thereof are clearly reflected in the financial HRA comprises the following three aspects- statement: because the traditional accounting system fully records such acquisition uses i. Human resources should be considered and results: however the acquisition of as assets or not; human resources and the results of its uses ii. If recognized as an assets, then how did not find a place in the accounting system; should it be valued; moreover, the expenses relating to its uses iii. The information show in the final report 1. Research Student, Jiwaji university, of an organization for communicating to Commerce and business studies, Gwalior the interested parties. 2. Assistant Professor, Jiwaji university, Commerce and business studies, Gwalior

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Human Resource Accounting (HRA) in companies like Ltd., India Minerals & Metals Trading Corporation Ltd., HRA is a recent phenomenon in India. Ltd., Ltd., Leading public sector units like OIL, Ltd., Cement Corporation of BHEL,NTPC,MMTC,SAIL etc. have started India, ONGC, Ltd, National reporting ‘Human Resources’ in their Thermal Power Corporation Ltd., Minerals Annual reports as additional information and Metals Trading Corporation, Madras from late seventies or early eighties. The Refineries Ltd., Indian companies basically adopted the Corporation Ltd., , model of human resource valuation Associated Cement Corporation , advocated by Lev and Schwartz Technologies Ltd., Hindustan Copper Ltd., (1971)."Pundits of today, asset that while the Rota, , Satyam Computer etc., have other forms of capital including material, started disclosing some valuable information equipment, tools and technology, only regarding human resources in their financial represent inert potentialities, it is human statements. Thus it is observed that Human capital that converts this potential and Resource Accounting Disclosure (HRAD) in energies for the creation of wealth. The Annual reports of Indian companies Indian Companies Act does not provide any provides useful information to the scope for furnishing any significant management, shareholders, Public and even information about human resources in government. Thus in the contemporary financial statements. HRA has not been scenario, there is an urge to know about introduced so far in any legislation and human resource accounting, before following thereby Human Resources are not yet human resource accounting each and every recognized as 'assets' neither in the Balance company should know about HRA. The sheet nor in the Annual Report of many of present study is an attempt to identify the the Public or Private companies in India. nature and characteristics of HRA, to analyze Even in the new Companies Act 2013, there the ability of users to make wise decisions is no specific provision regarding the with the help of HRA, to examine the accounting and reporting requirement of perception of management and employees Human Resource in Annual Report of Indian on HRA, to determine the contribution of Companies. The Institute of Chartered HRA on the financial statements of Indian Accountants of India (ICAI) has issued companies and to analyze the profitability Accounting Standard (AS) on various aspects with human resource accounting disclosures of accounting but it is not possible for ICAI in Indian Companies. to bring any exact accounting standard for Success of corporate companies undertaking measurement and reporting of human purely depends upon the quality of human resource of an organization. This was the resources. It is accounted that: human greatest drawback relating to HRA. element is the most important input in any However there is a growing trend towards corporate enterprise. The investment the measurement and reporting of human directed to raise knowledge; skills and resources in Indian companies. Sensing the aptitudes of the work force of the benefits from valuing and reporting the organization are the investment in human human assets, many Public companies have resource. In this context, it is worthwhile to voluntarily disclosed all relevant information examine and human resource accounting related to human resource in their books. In practices in business sectors in India. recent years some Private companies also The practice of identifying and measuring have started to disclose information about data about human resources has been their work force along with the financial developed in many Indian companies. The statement. HRA has become a separate growing trend towards the measurement and section of Annual accounts of Indian reporting of human assets in corporate

annual report is particularly noticeable 8. It provides a basis for planning of among public sector companies. Success of physical assets vis-à-vis Human corporate companies undertaking purely Resource. depend upon the of human resources. 9. To profile an organization and improve It is accentuated input in any corporate its images. enterprise. The investments directed to rise Some organizations are using the concept knowledge of the organization are the of HRA in India due to various benefits investment in human resource accounting arising out of the valuation of their key practices in business sectors in India. manpower. The practice of identifying and measuring OBJECTIVE OF THE RESEARCH data about human resources has been developed in many Indian companies, like The main aim of the present research is to the growing trends towards the study of human resource accounting measurement and reporting of human assets practices followed by the public and private in corporate annual report is particularly sector and company However; the following noticeable among public sector companies. are the aims are- The Indian public and private sector 1. To study the human resource accounting organization which are presently reporting and examine and identify the issues and human assets valuation are the following: problems. BHEL, SAIL, CCI, ONGC, EIL, NTPC, 2. To examine and discuss about the MMTC, Madras Refineries, OIL, ACC, advantage, problems or importance of Cochin Refineries, Tata Consultancy, Satyam human resource accounting. Computer Ltd, Ranbaxy 3. To analyze human resource accounting Why companies evaluate their human practices followed by the Public sector resource/ assets? undertaking. 1. It furnishes cost/ value information for 4. To highlight and discuss the human making management decisions about resource accounting practices followed accounting, allocating, developing and by the private sector undertaking. maintaining human resource in order to 5. To make a comparative study on the attain cost –effectiveness. human resource accounting practices 2. It allows management personnel to being followed by both public and monitor effectively the use of Human private sector undertaking in India. Resources. 6. To offers suggestions for effective 3. It provides a sound and effective basis of implementation of human resource human assets control that is whether the accounting practice both in public and assets is appreciated, depleted or private sector undertaking. conserved. RESEARCH METHODOLOGY 4. To improve Human Resource The study discussed about the objective and Management. process of HRA in Indian context. Study has 5. To focus on employees as assets. been confined to the selected five public 6. To retain qualified workforce. sector undertaking which are following human resource accounting practice. Besides 7. The ratio of Human capital to non – the period of study has been restricted to the Human capital indicates the degree of financial report of the selected undertaking labour intensity of an organization. for five years from April 2013 March 2017.

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The main aim of this study is to show human Chart: 1 variable for human resource related resource accounting practices in India. Information by selected public sector companies The list of companies is given below— S. Disclosure of BHEL ONGC HPCL EIL SAIL Table of selected companies No. Variable No. Public Sector Private Sector (1) Value Added 1 1 1 1 1 (2) Number of 1 1 1 1 1 1. BHEL limited Employees Ltd. (3) Eva 1 0 0 0 1 2. ONGC TATA consultancy (4) Value of HR 0 0 0 0 1 limited services (5) Value of HR 0 0 0 0 1 Per employee 3. HPCL limited Infosys technologies (6) Value Added 1 0 0 1 0 limited per employees (7) Valuation 1 1 1 1 0 4. SAIL limited Associated cement model used companies Ltd. (ACC) (8) Discount rate 1 1 1 1 1 5. EIL limited Hindustan Unilever applied (9) Age Wise 0 0 1 1 1 Ltd. Distribution (10) Group Wise 1 1 1 0 1 Distribution COLLECTION OF DATA (11) Gender wise 0 0 0 0 0 The present study is based on the secondary distribution data which is collected from the published (12) Turnover per 1 0 0 0 0 final reports of the selected companies, Employee government publications, newspapers, (13) Employee 0 0 0 0 0 Cost journals, magazines, unpublished PHD Total 8 5 6 6 8 thesis, M. Phil. dissertation different Identification websites, books, statement etc. of variable SAMPLING DESIGN 1– Disclosure 0 – Not Disclosures

Samples are taken through both public and Figure: 1 Graphical Representation of private sector companies. The selected Disclosure by Public Sector Companies companies have been reported as established companies with huge market share. DATA ANALYSIS AND INTERPRETATION The collected data have been classified and tabulated in the form of table and graph. Statistical techniques have been used with the help of suitable software like MS excel, (SPSS), and human capital information system (HCIS). Many specific statistical techniques have been used to analyze the data more Interpretation: From the figure 1 it has been specifically, these comprised of summary examined that among public sector statistics, correlation and t- test of factor companies BHEL or SAIL disclose the analysis. majority that is 8 types of information (61.5%) out of total 11 information's. %). Afterwards HPCL & EIL disclose the 6 types

of information which accounts for (46.15%). Interpretation: From the figure 2 it has been ONGC provides the5 types of information examined that among public sector (38.46 %). So BHEL and SAIL are better in companies. It can be seen that Infosys following disclosure norms as compared to provides maximum that is 11 types of other public sector companies. information (84.6%) out of 13 listed information. On second No. TCS disclose the Chart: 2 variable for human resource related Information by selected private sector 6 types of information (46.15%) than comes companies after Infosys. ACC and HUL provide 2 types of information which accounts for ( 15.38% ) S. Disclosure of INFOSYS ACC TCS RIL HUL and RIL provide only 1 type of information No. Variable that related to Human Resource Accounting. (1) Value added 1 0 1 0 0 (2) No. Of 1 1 1 0 0 Figure: 3 Comparison Graphical Employees Representation of Disclosure between (3) Eva 1 0 0 0 1 Public Sector Companies & Private Sector (4) Value Of HR 1 0 0 0 1 companies (5) Value Of HR 1 0 0 0 0 Per Employee (6) Value added 0 0 0 0 0 per employees (7) Valuation 1 0 1 1 0 used model (8) Discount rate 1 0 1 0 0 applied (9) Age wise 1 0 0 0 0 distribution (10) Group wise 1 0 1 0 0 distribution (11) Gender wise 1 0 1 0 0 Figure 1.3 shows Human resource distribution accounting disclosures practice by various (12) Turnover per 0 0 0 0 0 employee private and public sector companies. The (13) Employee 1 1 0 0 0 table helps to understand which company cost provides more information regarding its Total 11 2 6 1 2 human resource. It can be seen that Infosys identification provides 11 types of information (84.6%) out of Variables. of 13 listed information which is maximum. BHEL or SAIL disclose the 8 types of Figure: 2 Graphical Representation of information (61.5%), HPCL,EIL,TCS disclose Disclosure by Private Sector Companies the 6 types of information ( 46.15%) than comes ONGC ,it provide the 5 types of information (38.46 %) and ACC or HUL provide 2 types of information ( 15.38% ) and RIL provide only 1 type of information that related to Human Resource Accounting. Testing of Hypothesis Ho: There is no significance difference between average disclosures of selected companies.

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H1: There is significance difference between R = average disclosures of selected companies. Computation of mean R = Class ϰ f ∑fϰ R = 0-3 1.5 3 4.5 3-6 4.5 4 18 R = 6-9 7.5 2 15 Correlation ® = 0.87 9-12 10.5 1 10.5 Calculation of ‘t’ test

t = × Mean = = = = 4.8 t = × Standard deviation Class x f d(ϰ = ) t = × 0-3 1.5 3 - 3.3 10.89 32.67 t = × 1.73 3-6 4.5 4 - 0.3 0.09 0.36 6-9 7.5 2 + 2.7 7.29 14.58 9-12 10.5 1 +5.7 32.49 32.49 t = ×1.73 t = 0.05=3.077 = t = 0.05

One sample t-test was conducted to test the SD = = = SD = hypothesis the value of R01 test is 3.077 ( Less than 0.05 ) there for be accept the SD = 2.83 alternative hypothesis there is significant CV = = 58% different the disclosures of selected Correlation means that between two series or companies and rejected the null hypothesis. group of data there exits some casual FINDINGS connection , correlation analysis developed by Francis Galton and Karl Pearson. Acc limited provide more information regarding its Human resource. Acc limited Calculation of coefficient of correlation should include value of human resource. between public and private company Value of human resource per employees. ϰ d(ϰ= ) d2 y d(ϰ= ) d2 dϰ.dy Group wise distribution, Gender wise distribution, turnover per employee etc .in its 8 1.4 1.96 11 6.6 43.56 9.24 final report. 5 - 1.6 2.56 2 -2.4 5.76 3.84 1. There is no clarification regarding Human 6 - 0.6 0.36 6 1.6 2.56 0.96 valuation model used and discount rate 6 - 0.6 0.36 1 -3.4 11.56 2.04 applied by Acc limited in its final report. 8 1.4 1.96 2 -2.4 5.76 3.36 So company should disclose clearly for the better understanding. 33 d2-7.2 22 d2=69.2 dϰ.dy 2. BHEL and SAIL Ltd. should also report = 19.44 for value of human assets, Value of Public company (ϰ) human resource per employee, age and = mean = = = 6.6 gender wise distribution in its final report. Private company 3. Infosys must consider the role of = mean = = = 4.4 employees when intra shifting occurs

(means transfer from one department to the comparison between public and private other). companies HRA disclosure practices. 4. Company must also consider and evaluate The analysis of disclosure of human resource the team work of employees periodically. accounting in India reveals that ONGC is having better performance, while HPCL, 5. By adopting Lev& Schwartz Model ACC, TCS have concerns in disclosure company need not ignore the security, practice of HRA. Moreover INFOSYS, BHEL, bargaining power, skill and experience of TCS, RIL, are also adopting human resource personnel and accounting in different way. For example, 6. Value addition should be regularly Infosys discloses human resource accounting monitored and enhanced in an acceptable in annual report by heading intangible form. assets. While ONGC discloses in Note and SUGGESTIONS separate statement that is human resource accounting and HPCL discloses in individual Suggestions from the study are based on the statement that is human resource accounting. analysis of secondary data. Suggestions are The results are carried out with the help of t- given in the form of an action plan to be test and Pearson Correlation after analyzing applied by every organization. Some the performances of government sector and suggestions for further research are: non-government sector organizations with 1. To suggest certain improvement over the respect to HRA disclosure practice. current value practices. REFERENCES 2. To discover some upcoming new 1. American Accounting Association methods of disclosure of human resource Committee of Accounting for Human accounting on present scenario. Resources, Report of the Committee on 3. Evaluate the role of human resource Human Resource Accounting, 1973. The accounting in achieving quality Accounting review Supplement to vol. improvement. XLVIII, 169-171. 4. Evaluate the role of human resource 2. Enofe AO, Dr. Mgbame C, Sunday accounting for reducing costs in the Otuya, Human Resources Accounting organization. Disclosures in Nigeria Quoted Firms. Research Journal of Finance and

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