an empirical study about implementation of hr practices

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    An empirical study of awareness & implementation of Human Resource Accounting as atool of retention in Auto Sector

    Abstract:

    One of the eminent roles of human resource accounting system is to assist the management of theorganization to plan and control the use of human resources effectively and efficiently. As HRA is aprocess of depicting the information needed to acquire, allocate, develop, conserve & evaluate thehuman resources. In todays competitive world the need of human capital is increasing incredibly,which has enhanced the overall responsibi lity of its HR Professional. In this research we are goingto examine the various areas of human resource accounting and its various relative factors on thehuman capital of the organization. Under this study we are focusing upon the strategic roles of HRprofessionals as they not only have to act as HR advisor to senior management but also have to

    ensure their effectiveness. However the role of Human resource professionals is in the process ofrapid evolution, to be a broader, more conceptual and of course they have to act as a change agent.HRA is a tool which further broadens the horizons of the HR Professionals. In this research variousaspects of HRA is being measured and discussed in details. The limitation of this study is itssample which is confined to the specific area of Chandigarh.

    Key Words: Human Capital, HR Professional, Competitive, Evolution, Change Agent.

    Introduction of the study:

    Success of corporate undertakings purely depends upon the quality of human resources. It isaccentuated that; Human element is the most important input in any enterprise. The investmentsdirected to raise knowledge; skills and aptitudes of the work force of the organization are theinvestments in human resource. In this context, it is worthwhile to examine the human resourceaccounting practices in corporate sector in India. Human Resource Accounting is The process ofidentifying and measuring data about human resources and communicating this information to

    interested parties.1

    HRA furnishes cost or value information for making management decisions about acquiring,allocating, developing and maintaining human resources in order to attain cost-effectiveness and itallows management personnel to monitor effectively the use of human resources. Human resourceaccounting also provides a sound and effective basis of human asset control which helps in thedevelopment of management principles by classifying the financial consequences of various

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    practices.

    HRA may be understood as the measurement and reporting of the cost and value of people inorganizational resources. But if we followed the Companies Act, 1956 it does not demandfurnishing of HRA related information in the financial statements of the organization. The Institute ofChartered Accountants of India too, has not been able to bring any definitive standard ormeasurement in the reporting of human resources costs. In addition to facilitating internal decisionmaking processes, HRA also enables critical external decision makers, especially the investors inmaking realistic investment decisions. Investors make investment decisions based on the total

    worth of the organization. HRA provides the investors with a more complete and accurate accountof organizations total worth, and therefore, enables better investment decisions. For example,conventional financial statements treat HR investments as expenditures. Consequently, theirincome statement projects expenditures to acquire place and train human resources as expensesduring the current year rather than capitalizing and amortizing them over their expected service life.

    1. The American Accounting Associations Committee on Human Resource Accounting (1973)

    The balance sheet, thus, becomes distorted as it inaccurately presents the total Assets as well asthe net income and, thereby, the rate of return which is the ratio of net income to the total assets.HRA helps in removing this distortion. Furthermore, in a business environment where corporatesocial responsibility is rapidly gaining importance, HRA reflects the extent to which organization

    contributes to societys human capital by investing in its development. Finally, in an era whereperformance is closely linked to rewards and, therefore, the performance of allgroups/departments/functions needs to be quantified to the extent possible, HRA helps inmeasuring the performance of the HR function as such. A considerable growing trend towards themeasurement and reporting of human resources particularly in public sector is noticeable during thepast few years. BHEL, Cement Corporation of India, ONGC, Engineers India Ltd., National ThermalCorporation, Minerals and Metals Trading Corporation, Madras Refineries, Oil India Ltd.,Associated Cement Companies, SPIC, Metallurgical and Engineering consultants India Limited,Cochin Refineries Ltd. etc. are some of the organizations, which have started disclosing somevaluable information regarding human resources in their financial statements.

    For valuing human resources, different models have been developed. Some of them are

    opportunity cost Approach, standard cost approach, current purchasing power Approach, Lev andSchwartz present value of future earnings Model Flam holtzs stochastic rewards valuation Modelsetc. Of these, the model suggested by Lev and Schwartz has become popular. Under this method,the future earnings of the human resources of the organization until their retirement is aggregatedand discounted at the cost of capital to arrive at the present value.

    Objectives of the study:

    The study aims to achieve the following objectives

    To understand the awareness and implementation of human resource accounting concept inthe various companies of Auto sector at Chandigarh location.To study the relationship between disclosure of human capital information in the annualreports of various companies Auto sector and investment decision making of users.To explore the concept of HRA as a tool of retention for employees after their monetaryvaluation for disclosure.

    Review of Literature:

    A number of researches have done in the field of Human Resource Accounting it includes, WilliamC. Pyle (1970), Voth John Charles Eugene (1975), Trussell, R. Dobbins, (1976), NavalPostgraduate School Monterey CA (1987), Malik (1990), Eric G. Flamholtz and Eric. D. Main(1999), R.Parweshwaran and K. Jothi (2005), Shah and Khedkar (2006), Raunak Narayan (2010),Duraipandian and Jain (2012).

    William C.Pyle (1970) emphasized that the in every organization the capable employees should beidentified, trained, organized and secured. He considered these unmeasured human assets arebecoming progressively the most important assets of the organization. The firm where service andbrain work are more vital than physical assets. Such industries are usually identifiable by a highratio of stock price to book value. Voth, John Charles Eugene (1975) put light in the system ofhuman resources accounting, He stated that HRA was developed to identify, measure and compare

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    N MinimumMaximum MeanStd.

    DeviationVariance Skewness Kurtosis

    Statistic Statistic Statistic Statistic Statistic Statistic StatisticStd.Error

    StatisticStd.Error

    EXPERIANCE 34 1.00 3.00 1.8529 .55772 .311 -.067 .403 .253 .788

    employees or prospective employees as financial investments.

    Trussell, R. Dobbins, (1976) find that HRA is basically concerned with the identification andmeasurement of data to the HR department of organization and disclosure of the same to theinterested parties, Naval Postgraduate School Monterey CA (1987) argued that HRA is all aboutmeasuring the cost and value of the people to the organization. He has done his research onPortuguese Navy as these very personnel intensive and his research goal is to provide formal andcoherent approach to its human resource accounting.

    Malik (1990) had an empirical study in the area of Human resource accounting and DecisionBehavior which emphasized that HRA information has its impact on investors decisions makingand Managerial decision making as well. Flamholtz and D Main, (1999) mainly witnessed thetransformation of the economy from manufacturing to service, they argued that manufacturingindustry is based upon all tangible assets whereas the paradigm has shift from manufacturing toservice and todays economy is more relying upon knowledge and information i.e. intangible assets.

    R.Parweshwaran and K. Jothi (2005) explained the various internal and external benefits anorganization is going to have with the implication of HRA concepts and discussed various methodsorganization can use to measure their human assets.

    Shah and Khedkar (2006) analyzed that there are various techniques to measure the intangibleassets such as balance scorecard, Competency Models, Benchmarking, Business worth, theyargued that knowledge its self is not easy to manage, but if the same can be captured andconverted into an asset, indeed the performance can be improved and more profits can begenerated. Raunak Narayan (2010) discovered the various approaches, issues and challenges anorganization have to face while using the concepts of Human resource Accounting.

    Duraipandian and Jain (2012) reveals that due to globalization the competition is growing at a veryfaster rate which is ultimately demanding more competent manpower, due to the which HRdepartment have to perform the strategic role instead of mere administration role. They explained ifthe company is paying Rs. 75000/- as the fully loaded salary which includes salary, wages,overtime, compensation etc, to an employee the organization will expects minimum Rs. 75000/- ofreturn from the employee in the form of increased sales, increased productivity, customersatisfaction , which ultimately leads to the increase in the profit of an organization.

    Researchers have studied the various attempts on Human resource accounting in differentcountries. However, not much research has been undertaken on the effect of HRA implementationand awareness in current scenario with the valuation of human capital then it can be used as a toolof retention surely which is very important now days. The present study will investigate the saidrelationship with the respect to the Auto sector of the Chandigarhlocation.

    Research Methodology:

    In the present attempts, researchers study the above stated objectives in the various Auto sector.For this present study we chose the sample size of 34 from Globe Automobiles, Joshi AutoZone,Jaycee Autos Pvt. ltd. The study mainly concentrates at Chandigarh city and the data used for theresearch evaluation is primary collected through questionnaire filled by the respondents who areworking in the capacity of Manager, Asst. Manager, Executives, Officers, Advisor of variousdepartments in the selected companies.

    Findings & Analysis

    Descriptive Statistics - Table No 1

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    AWARENESS 34 1.00 2.00 1.4706 .50664 .257 .123 .403 -2.113 .788

    IMPLEMENTATION 34 1.00 2.00 1.2647 .44781 .201 1.117 .403 -.804 .788

    IMPORTANT 34 1.00 2.00 1.5000 .50752 .258 .000 .403 -2.129 .788

    DISCLOSURE 34 1.00 4.00 2.2059 1.00843 1.017 .878 .403 -.222 .788

    DECISIONMAKING 34 1.00 4.00 2.5882 1.01854 1.037 .569 .403 -1.303 .788

    GRAPHS 34 1.00 4.00 2.5588 1.05000 1.102 .503 .403 -1.286 .788

    MEASUREMENT 34 1.00 5.00 2.4412 1.07847 1.163 .854 .403 -.387 .788

    COMPENSATION 34 1.00 5.00 2.0588 .81431 .663 2.035 .403 5.760 .788

    EMPLOYEE 34 1.00 4.00 2.0294 .57658 .332 2.021 .403 7.735 .788EMPLOYER 34 1.00 2.00 1.5588 .50399 .254 -.248 .403 -2.064 .788

    WAYOFHARING 34 1.00 4.00 1.8824 .53737 .289 1.124 .403 7.061 .788

    RETENTION 34 1.00 4.00 2.5000 1.02247 1.045 .633 .403 -1.061 .788

    MOTIVATION 34 1.00 4.00 2.1765 .93649 .877 1.039 .403 .386 .788

    Valid N (list wise) 34

    Group Statistics

    HRA

    IMPLEMENTATIONN Mean

    Std.Deviation

    Std. ErrorMean

    HRA AWARENESS 25 1.3200 .47610 .09522

    9 1.8889 .33333 .11111

    Independent Samples Test - Table 2

    Levene'sTest for

    Equality ofVariances

    t-test for Equality of Means

    HRAAWARENESS

    F Sig. t df

    Sig. (2-tailed)

    MeanDifference

    Std. ErrorDifference

    95%ConfidenceInterval of

    theDifference

    Lower Upper

    Equalvariancesassumed

    Equalvariances not

    assumed

    9.625 .004 -3.291 32 .002 -.56889 .17288-

    .92103-

    .21675

    -

    3.88820.398 .001

    -.56889

    .14633 -.87375-

    .26403

    We undertake the statistical methods as mentioned earlier in the current study and presenthe findings in this section. We start by computing the basic statistics for all opinions ofespondents individually in the Table no 1 to get an insight into the data through mean, standardeviation, variance, skewness (statistics and standard error) and Kurtosis (statistics and standardrror). We have given the 4 options in the research instrument as 1-strongly agree, 2-agree, 3

    isagree and 4- strongly disagree. The above table shows that mean is always more comparing tohe minimum level which shows the favorable position. The calculated standard deviation has alsoound always less from mean which signifies the less variance from mean.

    ypothesis No 1

    hether Human Resource Accounting is well approached in various selected Auto Sector -

    0 HRA is not well approached in selected Auto Sector

    1 HRA is well approached in selected Auto Sector

    For

    esting the Hypothesis no 1 we examined two variables of HRA Awareness and HRAmplementations through Independent T test and calculated significance is below from idle level

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    Model R R SquareAdjusted R

    SquareStandards errors of

    estimates

    1 .570a .324 .303 .85339

    f .005, which accepts our null hypothesis and rejects the alternative hypothesis.

    ypothesis No 2

    Whether the disclosure of HRA in Annual reports will help users in Investment decisionmaking

    HO HRA disclosure in Annual reports and Investment decision making are closelyassociated

    HI HRA disclosure in Annual reports is not related with investment decision makingaction

    Correlations - Table No 3

    HRA Disclosure inAnnual Reports

    Users will usedisclosure of HRA

    in InvestmentDecision Making

    HRA Disclosure in AnnualReports

    Pearson

    Correlation

    1 .587**

    Sig. (2-tailed) .000

    Sum ofSquares and

    Cross-products

    33.559 19.882

    Covariance 1.017 .602

    N 34 34

    Users will use disclosureof HRA in Investment

    Decision Making

    PearsonCorrelation

    .587** 1

    Sig. (2-tailed) .000

    Sum ofSquares and

    Cross-products

    19.882 34.235

    Covariance .602 1.037

    N 34 34

    **. Correlation is significant at the 0.01 level (2-tailed).

    o test the Hypothesis no 2 in the current research attempt the statistical tool correlations has beensed for making a study of closely association between the variable disclosure of HRA in annualeports and tool of investment decision making. The received Pearson correlation value is .587 athe level of .01 which is significant and shows the strong relationship between the variables. Hence

    t also proves or accepts our null hypothesis and rejects the alternative hypothesis.

    ypothesis No 3

    Does Human Resource Accounting effetely acts as a tool of employees retention in selected Autoector -

    H0 HRA recognizes as a tool of employees retention

    H1 HRA does not recognize as a tool of employees retention

    Model Summary - Table No 4

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    ANOVA - Table No 5

    ModelSum ofSquares

    df Mean Square F Sig.

    1

    Regression 11.195 1 11.195 15.372 .000a

    Residual 23.305 32 .728

    Total 34.500 33

    a. Predictors: (Constant), HUMAN VALUATION

    b. Dependent Variable:

    HUMAN RETENTION

    Coefficients - Table No 6

    Model

    Un standardizedCoefficients

    StandardizedCoefficients

    t Sig.

    BStd.Error

    Beta

    1

    (Constant) 1.146 .375 3.057 .004

    HUMANVALUATION

    .622 .159 .570 3.921 .000

    a. Dependent Variable: HUMAN RETENTION

    Hypothesis 3 has been evaluated on the basis of Regression analysis, which shows here in thetable no 4 to 6 where the dependent variable is the Retention of Employee and the independents/ constant value was taken as Motivation of the Employees. The significance is less than .005which accepts the null hypothesis and rejects the alternative hypothesis.

    Conclusion

    In an organized and systematic manner, this research paper presents the various relativeaspects of Human resource accounting. Firstly the awareness of HRA and its status ofimplementation have been analyzed by the researchers. Secondly this research is focused upon

    whether the organizations if start implementing HRA as a tool; will they be able to retain theirhuman capital. In the last, if organizations start valuing their human capital does this effect theinvestment decision making. Although results found through this research was quite unexpectedas its been considered that HRA is very old approach and the various researchers have alreadybeen tested its efficiency. The ultimate benefit after this research is that now the path for thefuture scope, of consecutive study is reopened by the researchers for the organizations and theindividual who are working in this area of study.

    The system of HRA would no doubt, pave the way for increasing productivity of humanresources, because of the fact, that a monetary value is attached to human resources. Thehuman talents in terms of devotion & skills considered as valuable assets and if allotted a placein the financial statements of the companies would indeed boost the morale, loyalty and initiative

    of the employees. Help in creating a sense of belonging towards the organization and would actas a great incentive, gives rise to increase productivity levels, retained and motivated humancapital.

    References

    American Accounting Associatio., A Statement of Basic Accounting Theory , Evanston, IL:AAA, revised ed., 1970, p. 35.Bullen L. Maria Clayton State University, Eyler Kel-Ann, Wesleyan College, Journal ofInternational Business and Cultural Studies, Human resource accounting and internationaldevelopments: implications for measurement of human capital.Duraipandian. R. Dr, Jain Deepali, The International Journals Research Journal of

    Commerce and Behavior Science, Return On Investment Vol. 1, Feb 2012, P. 11-14.Narayan Raunak, University of Calcutta, Asian Journal of Management Research Humanresource accounting: A new paradigm in the era of globalization, , P.237-244Parameswaran. R, Jothi. K, The Chartered Accountant, Human Resource Accounting, Jan2005, p.867-874Sharma Shalini, Shukla R.K, Application of Human Resource Accounting in Heavy

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    Industries S-JPSET : ISSN : 2229-7111, Vol. 1, Issue 2Vivien Beattie, Sarah Jane Smith, (2010) "Human capital, value creation and disclosure",Journal of Human Resource Costing & Accounting, Vol. 14 Iss: 4, pp.262 285