Introduction of human

resource accounting(HRM)

Ku-Jun Lin
Associate Professor
Tam Kang University
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What is human resource accounting?

 To record, report and analysis human

resource related figures through
accounting system
 The result can be use for decision
making purpose

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What is the value of human?

 Human is priceless.
 Human capital can be counted.
– How do you calculate the value of an
employee in the company?
• Minimum value = The present value of her(his)
salary in the future, by considering the
possibility of early absence.

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Why human resource accounting?

 Human capital becomes the most

important asset in the corporation to
extract value
 Present accounting system ignores the
importance of human resource value
 Managers lack information about the
effectiveness and efficiency of human
resource investment

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Human capital becomes the most
important asset in the corporation
 More service(human intelligence)
oriented company than before
– Higher Tobin’s Q(Price/Equity)
– Higher Return on Assets(ROE)
 The importance of capital shifts from
financial capital to intellectual capital

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 Intellectual capital including
– human capital,
– organizational capital
• Relation capital(outside)
• Customer capital(outside)
• Process capital(inside)
• Learning and development capital(inside)

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 Characteristics of Human capital
– Hard to imitate
– Causal ambiguous
– Cannot duplicate in a short time

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Present accounting system ignores the
importance of human resource value

 Generally Accepted Accounting

Principle(GAAP) treats most human capital
related costs as expenses, instead of assets
 The more the company invests in human
capital, the less the current net income
 Revenue-Expense(including HR)=Net Income

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 Financial ratios, based on financial
statements, provide little or bias human
capital profitability information, for
example
– ROA: based on hard asset
– Return on Investment(ROI): The “I”
represents the investment on hard assets
– Assets Turnover: Sales/Total “hard ”assets
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 Reasons why GAAP does not allow
human capital investment becomes
assets
– Future benefit uncertainty
– Conservatism
– Ethical issue

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Managers lack information about the
effectiveness and efficiency of human
resource investment
 Lay off decisions
– Does the lost training cost and future
orientation cost be considered?
– Short term, immediate positive impact on
current net income VS effect on long term
profit
– Impacts on employee’s feeling which may
negatively influence company income
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 Investment in human capital decisions
– Where is the beef?
– What is the relationship between human
capital investment and operation result?
– The communication of company human
capital to investors.

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The Human capital Architecture

 The classification of Human capital

(Please see Figure 1 on P.125)
– Not all employees are classified as human
capital
– Value VS Uniqueness(Lepak & Snell, 1999)
– High value Employees can be considered
as human capital
– Human capital in quadrant 1are most
valuable 123
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Costs related to human capital

 1. Formation and acquisition costs at

the early stage of development, eg.
Recruiting cost
 2. Learning costs in the middle stage of
development, eg, Training cost
 3. Replacement costs at the final stages
of development, eg, discharge cost

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Human resource factors that may have
influence on operation result
 Financial(human resource accounting,
use accounting system to collect data)
 Non financial(use questionnaire)
– Personal background, such as age,
gender, education, experiences and
licenses.
– Personal characteristics, such and
personal traits
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My research summary

 If we consider human capital cost as the only

variable, usually it does not show significant
influence on operation result in most
companies.
 However, if we use an intermediate variable,
such as customer capital between human
capital and operation result, usually human
capital would demonstrate significant
influence on operating result through the
intermediate variable.
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 Some personal background and
personal characteristic, together with
human capital cost, do have significant
influences on operating results
 Capitalizing human capital cost may
improve the quality of earning.

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The Limitation

 Hard to find specific human resource

data
 Case study rather than general study

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Future development

 The influence of mark to market value

accounting(such as the evaluation of
investments) on human resource
accounting
 R & D cost also faces the future benefit
uncertainty problem, does the
accounting treatment for R & D provide
any guidance for human resource cost?
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Thank you for listening

Q&A

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