November 6, 2018

HR as an Asset

The past decade has seen a transition of start-ups from being product-based to service-based. The product based startup industry has now almost exhausted and the focus is now shifted to service-based start-ups. Consequently, there has been a rise in the demand for human resources. As, before there were more of product based startups, physical assets like plants, machinery, etc. were of utmost importance. In contrast, now as the shift has been towards service based, the knowledge and attitude of the employees have gained more importance. Human resources have truly proven to important for the company as it is solely responsible for the effective utilization of all the physical as well as financial resources. Better the quality of human resources of a company better would be its management and utilization of its resources. Hence, human resources contribute to the overall net worth of the company. Some companies fail to manage their human resources efficiently through conventional accounting methods which results in the new position called Human Resources Accounting.

HR as an asset

Human resources accounting basic definition would be identifying data of the human resources of the organization, measurement of data in terms of cost and value. Communication of this information to the interested party. Human resources are indispensable and only with the help of human resources, physical and financial resources could be utilized effectively. Human resources should be added to the balance sheet while considering human resources as an asset.

While talking about human resources as an asset, the definition and the characteristics of an asset comes in mind. Also, if human resources fit into the definition of assets and possess its characteristics.

The definition of an asset includes of possessing future service potential, being owned by the enterprise and maintained by the company itself. Well, talking about future service potential, human resources definitely possess this characteristic as they can’t render their total service in one accounting year. Even if there’s a labor turnover, ‘minimum stock' of resources are maintained by the firm in the expectation of future operation. When it comes to the point of being owned by the enterprise, the American Accounting Association defines an asset as an 'economic resource devoted to business purposes within specific accounting entity, and are aggregates of service potential available or beneficial to expected operations'. This shows us that the primary concern being of economic significance. Here also it satisfies the definition. Lastly, about being maintained by the enterprise, human resources have to maintained just like any other physical resource. This is primarily done by various development and training programs.

For example, when it comes to making its employees happy, Google believes in nothing less than the best. It favors ability over experience and hires only the smartest people. Several things are different about Google’s HR approach. The most outstanding thing about the tech giant is its mix of salaries and perks that are meant to keep its employees more than motivated. Moreover, nothing is sufficient in today’s world. You have to do things that place you much higher above the mark to beat the competition and get noticed even in HR. This shows even a big company like Google focuses a lot of the employee satisfaction because they realize the potential of the HR and know that it’s a very important asset which should also be maintained like the other.

Thus, through this discussion, we could conclude human resources is truly a boon to the company and should be treated as an asset. Only proper management is required for human resources to an asset for a company. Without proper management, not only would human resources seem like a burden, but also the other necessary resources. Proper management could make seem human resources of any company its asset.

Do stay tuned for the next blog which will talk against this, HR as a liability! Do tell us what you think about the current blog in the comments section too.

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