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No. 3/1998

Human resource accounting - interests and conflicts

  The purpose of a recently published CEDEFOP report* is, using case studies, to provide an overview of the main terms within human resource accounting (HRA) and to present the positions of the main stakeholders.

The challenge

Until recently, the "value" of an enterprise as measured within traditional balance sheets, e.g. buildings, production plant, etc., was viewed as a sufficient reflection of the enterprise's assets. However, with the growing emergence of the knowledge economy, this traditional valuation has been called into question due to the recognition that human capital is an increasingly important part of an enterprise's total value. This has led to two important questions:
  • how to assess the value of human capital in addition to an enterprise's tangible assets and
  • how to improve the development of human capital in enterprises. The emergence of methods for accounting human resources aimed at measuring, developing and managing the human capital in an enterprise, can thus be said to reflect the need for improving measuring and accounting practices as well as human resource management.
Defining human resource accounting Human resource accounting (HRA) as an approach was originally defined as the process of identifying, measuring and communicating information about human resources in order to facilitate effective management within an organisation. It is an extension of the accounting principles of matching costs and revenues and of organising data to communicate relevant information in financial terms.

The accounting of human resources can be seen as just as much a question of philosophy as of technique. This is one of the reasons behind the variety of approaches and is further underlined by the broad range of purposes for which accounting human resources can be used, e.g. as an information tool for internal and/or external use (employees, customers, investors, etc.), and as a decision-making tool for human resource management (investments in human resources as well as personnel management in general).

Many unanswered questions

However, providing adequate and valid information on human resources in statistical terms and within traditional balance sheets has proved extremely difficult. Consequently, new approaches introduce financial as well as non-financial information in human resource accounting.

There are still immense problems to overcome before a coherent and reliable measuring technique is established. Part of the dilemma originates from basic questions such as:

  • is HRA only for internal use in enterprises?
  • should HRA have a standard format for comparability purposes?
  • should HRA be included in traditional financial statements?
These basic questions are followed by methodological and technical ones:
  • is it possible to obtain data on human resources which are reliable and comparable across enterprises?
  • will the costs of gathering and processing this information exceed the benefits of doing so?
  • how to establish a coherent terminology?
  • how to link reporting on human resources with improved human resource management?
Yet, despite the many problems and unanswered questions, the reasons for developing HRA methods can be summarised in the following six points:
  • inadequacy of traditional balance sheets in providing sufficient information on enterprise performance,
  • measuring problems deriving from the valuation of human resources,
  • redistribution of social responsibilities between the public and private sectors,
  • security versus flexibility in employment,
  • improved human resource management,
  • formal learning versus in-firm competency acquirement.

The policy dimension

The focus on HRA in enterprises has lead to a growing interest by stakeholders who have started to identify and formulate their positions. The main stakeholders, such as the enterprises, investors, employees, trade unions and governments, are therefore gradually becoming aware of the potential of HRA, albeit from different perspectives.

The basic questions in this perspective are:

  • should HRA be mandatory for enterprises alongside financial statements, i.e. should HRA be regulated by law and/or social partner agreements?
  • if mandatory, what kind of information should be included in such statements?
  • if voluntary, how to secure the interests of, say the employees, at enterprise level?
Governments, notably in the Scandinavian countries, and the European Commission have identified public sector interests in HRA. This ranges from a desire to support further improvement of enterprise competitiveness to an interest in diminishing the public sector funding of vocational education and training and, more generally, the implementation of lifelong learning.

If, and this is still a big IF, the public sector, nationally or internationally, decides to promote HRA, three ways forward can be identified:

  • the voluntary market-based method (the ISO standard method), i.e. develop a consistent framework which can be operational across sectors and countries and promote this through a rewarding and image campaign,
  • the voluntary rewarding method (the Investing in People method in the United Kingdom), i.e. develop a consistent framework supported by rewarding mechanisms once it is introduced and approved at enterprise level (enterprises pay for their training evaluation whether they meet the standard or not),
  • the compulsory method (the Green accounting method in Denmark), i.e. identify disclosure on human resources as a societal concern and prepare (inter-)national regulations.
* "Human resource Accounting: interests and conflicts"
CEDEFOP panorama 5085
Cat. n°: HX-18-98-445-EN-C
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For further information, please contact: Sven-Åge Westphalen / Christine Nychas, Email: /, Tel: (30-31) 490 019/159, Fax: (30-31) 490117


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