human resource audit &

8/7/2019 Human Resource Audit &

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HUMAN RESOURCE AUDIT &

ACCOUNTING

BY:-

JATIN NAGPAL(66)

TARUN LAL

RAVI KUMAR(100)MEGHA PANWAR(104)


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HUMAN RESOURCE AUDIT

It is a systematic evaluation of personnel policies,

procedures and practices to determine effectiveness

of personnel management. Basically it covers three

things:

Measurement and evaluation of personnel

programmes, policies & practices.

Identification of gap between objectives and results Determination of what should or should not be done

in future.


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Why Human Resource/Personnel Audit?

Increasing size of the organisation and personnel in

most organisations

Changing philosophy of management towards human

resources

Increasing strength and influence of trade unions

Changing HR philosophy

Increasing dependence of the organisation on thehuman resources system and its effective functioning.


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Purpose For Keeping Records

To keep an orderly account of progress.

To facilitate the preparation of the statement of the

true conditions.

To enable the making of comparisons.

To facilitate the detection of errors and frauds.

Legal requirements

Miscellaneous purposes


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Fundamental Principles For Record

Keeping

Justification

Verification

Classification

Availability of required information


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Significance of HR Audit

Supply the information required by themanagement & trade unions to reviewpersonnel policies

Supply the information required by variousagencies.

Provide the information about manpower

inventory for manpower planning. Identify training & development needs.

Revise pay scale & benefits from time to time.


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Types of Personnel Records

Job application & test scores.

Job description & job specifications.

Interview results. Medical reports.

Payroll

Training records


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Objectives of H R Audit

Review organisational system & human

resource sub system.

To find out the effectiveness of variouspersonnel policies.

To review the personnel system in comparison


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Benefits of a HR AuditBenefits of a HR Audit

Helps align HR goalsHelps align HR goals

Reduces human resource costsReduces human resource costs

Finds better ways for HR to contributeFinds better ways for HR to contribute

Provides specific, verifiable dataProvides specific, verifiable data

Ensures timely complainEnsures timely complain

Stimulates uniformityStimulates uniformity

Discloses how well managers are doingDiscloses how well managers are doing Reviews and improves information systemReviews and improves information system


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Steps in Conducting HR AuditsSteps in Conducting HR AuditsSteps in Conducting HR AuditsSteps in Conducting HR Audits

Defining theDefining the

scope of thescope of the

auditaudit

Choosing theChoosing the

researchresearch

approachapproach

Selecting researchSelecting research

design and datadesign and data

collection methodcollection method

Analyzing data,Analyzing data,

evaluating, andevaluating, and

preparing reportpreparing report


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The Scope of HR AuditsThe Scope of HR AuditsAlignment withAlignment with

Corporate StrategyCorporate Strategy

HR strategy must be consistent with

corporate strategy and continually

examined

Managerial ComplianceManagerial Compliance

Managers must comply with HR

policies, procedures and legalrequirements

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Employee SatisfactionEmployee Satisfaction

Human resource departments should

attempt to meet employee objectives

where feasible


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Research Approaches to AuditsResearch Approaches to Audits

ComparativeComparative Simplest form of research

Uses another division or company as a model or

may use benchmarks as indices

ComplianceCompliance Reviews past practices

Reviews documentation to ensure managers are

complying with policies and laws

ManagementManagement--byby--objectivesobjectives

Creates specific objectives to assess performance

dimensions

Balanced scorecard looks at multiple perspectives


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Research Design & Data CollectionResearch Design & Data Collection

Interviews

Surveys

Records analysis Human resource experiments


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InterviewsInterviews

Interviews with employees and managers

Exit interviews

Interviews with departing employees togauge their impressions of a firms strengths

and weaknesses, especially relating to HR

systems and policies


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SurveysSurveys

Surveys

May be used to supplement interviews

Attitude surveys Systematic assessment of employees

opinions about various work-related factors.


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Attitude SurveysAttitude Surveys

Areas ofAreas ofConcernConcern

EmployeeEmployee

attitudes aboutattitudes about

supervisorssupervisors

PerceivedPerceived

effectiveness ofeffectiveness of

HR departmentHR department

EmployeeEmployee

attitudesattitudes aboutabout

their jobstheir jobs


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Records Commonly ReviewedRecords Commonly Reviewed

Safety and Health RecordsSafety and Health Records

Productivity RecordsProductivity Records

Grievance RecordsGrievance Records Compensation RecordsCompensation Records

Job Placement/ Selection RecordsJob Placement/ Selection Records

Human Rights Compliance RecordsHuman Rights Compliance Records

HR Implementation RecordsHR Implementation Records

Employee Files and RecordsEmployee Files and Records


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Human Resource Accounting

According to American Association of Accountants

(AAA), HRA is a process of identifying and

measuring data about human resources and

communicating this information to the interestedparties

Eric Flamholtz

Accounting for people as organizational resources. It

is the measurement of the cost and value of people for

the organization


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Objectives and Purposes of Human Resource

Accounting

Objectives

Recognition of value ofall resources controlled/ used by the

entity (Primary Objective)

Improvement of Human Resource Management (Quality andQuantity of Goods can be Increased)

Effective and Efficient management of people

Purposes

Internal Decision Making

External Decision Making


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Internal Decision Making - on alternative investment

decisions

E.g. Direct Recruitment Vs Internal Promotion

Retirement Vs Retention

External Decision Making - To evaluate the true worth

of the firm for investor decision making


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ADVANTAGES

It throws light on the strength & weaknesses of the existing

workforce in an organization.

It provides valuable feedback to managers regarding the

effectiveness of HR policies & practices. It helps potential investors judge a company better on the

strength of the human assets utilized therein.

It helps management in taking appropriate decisions regarding

the use of human assets in an organization.


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LIMITATIONS

It is not easy to value the human assets in an organisation.

HRA is full of measurement problems.

Employees & unions may not like the idea, because HRA may

lead to division among the ranks of employees. There is no empirical evidence to support the idea that HRA is

an effective tool to measure the economic value of people to

the organisation.


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Valuation Approaches of Human Resource

Measurement is arbitrary and there are mainly 2

approaches;

-Cost based approaches

- Earnings based approaches

Cost Based Approaches

1. Historical Cost Approach

2. Replacement Cost Approach3. Opportunity Cost Approach


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Historical Cost Approach

The cost of recruitment, selection, development are all

capitalized and amortized over the useful life time of the

employee. This amortization may be dealt according to the

situation.

Benefits: Easy to operate, Conforms with the matching

principle, Similar to the treatment of other fixed assets.

Shortcomings: Estimation of the useful life time may not be

easy, The value of humans are generally increasing over time -

but this method gives a declining picture, This method doesnt

actually measure the value but undermines it.


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Replacement Cost Approach

The cost to replace the existing human resources are estimated.

All costs incurred to attain the current level of competence of

an existing employee. Created from scratch

Benefits: Is present/ future oriented

Disadvantage: Not always possible to obtain such a measure

(identical replacement), It is hence subjective


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Opportunity Cost Approach

Is based on economic concept which overcomes the deficiency

in replacement cost app. Measured through a competitive

bidding process within the entity.

Steps:1. The entity is divided into investment centers

2. The investment centre managers bid for scarce

employees they need within the entity

3. The maximum bid price may obtained by the

capitalization of the excess profits generated by the

employee


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Earnings Based Approaches

Expected realisable value method: The elements of expected

realisable value such as productivity, transferability &

promotionability can be measured through personnel research,

appraisal technique & other objective methods.

Discounted net present value of future earnings: Rensis Likert

proposed three sets of variables- casual, intermediate &

output- which help in measuring effectiveness over a period of

time.

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