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Corporate Financial Reporting · Recent Developments in Financial Reporting

Human Resource Accounting and Emerging Reporting Trends

Updated 11 October 2026 · Fact-checked

Human resource accounting (HRA) measures and reports the value of people to an organisation, using cost-based or value-based methods. Emerging trends such as social, ESG and fair value reporting widen disclosure beyond financial results. To solve questions, name the method, apply its formula, and comment on its limits.

Understand Human Resource Accounting and Other Emerging Reporting Trends

Human resource accounting (HRA) treats employees as assets whose cost or value can be measured and reported. Under current Ind AS, internally developed human capital is not recognised as an asset on the balance sheet. So HRA is a management and voluntary reporting tool. It helps in decisions on hiring, training and retention.

HRA methods fall into two groups. Cost-based methods look at what the firm spent on people: historical cost, replacement cost and opportunity cost. Value-based methods look at what people are worth: the Lev and Schwartz present value of future earnings model, the Flamholtz model of rewards, and the Hermanson unpaid excess earnings model.

The Lev and Schwartz model values a group of employees as the present value of their future earnings. You take the expected pay of the group until retirement and discount it at a suitable rate. Its weakness is that it uses pay as a proxy for productivity and ignores factors such as promotion and leaving the firm.

Social accounting reports the effect of an entity on society, such as employment, community spending and pollution. ESG reporting organises such information under Environmental, Social and Governance heads. In India, listed entities report this through the BRSR. Global frameworks such as GRI and ISSB standards are also relevant.

Other trends include greater use of fair value measurement, which brings market-based values into financial statements, and forensic-linked disclosures, such as reporting on frauds, whistle-blower mechanisms and related party dealings. Exams ask you to explain, compare, and apply a simple computation.

Key rules to remember

Lev and Schwartz value of human capital
V = Σ [ I(t) ÷ (1 + r)^t ], for t = 1 to (retirement age − present age)
I(t) is expected annual earnings of the group. r is the discount rate. Add the discounted values for all years.
Historical cost of human resources
Cost = Recruitment + Selection + Training + Development costs incurred, less amortisation
Amortise over expected service life. It is simple but ignores current worth.
Replacement cost
Replacement cost = Cost of recruiting, training and placing a substitute today
Shows what it would cost to replace the person now.
Opportunity cost (concept)
Value = Contribution from the best alternative use of the employee
Used when people are scarce and can be put to other uses.
Hermanson unpaid excess earnings (concept)
Human asset value = Excess of employee earnings over normal return, capitalised
Compares earnings with the return expected from the firm's physical assets.

How to solve Human Resource Accounting and Other Emerging Reporting Trends questions

Use this method for any theory or numerical question on HRA or emerging reporting trends.

  1. 1Read the question and mark the verb: explain, compare, compute, or discuss.
  2. 2Identify the method or framework asked: cost-based, value-based, social, ESG or fair value.
  3. 3For a computation, list the data: earnings, years to retirement, discount rate, costs incurred.
  4. 4Apply the formula year by year and show each discounting step in a neat table of figures.
  5. 5Add the totals and state the final value in rupees with proper units.
  6. 6Comment briefly on one advantage and one limitation of the method.
  7. 7For theory answers, give a definition, then points with a short reason each, then a concluding line on relevance in India.

Quickest way: Four-line HRA answer frame

When to use it: Use when time is short and the question asks you to explain or compare methods.

  1. Classify as cost-based or value-based in the first line.
  2. Give the core idea in one sentence.
  3. List one merit and one demerit.
  4. If a number is needed, discount cash flows with a present value factor and add.

Common mistakes in Human Resource Accounting and Other Emerging Reporting Trends

  • Claiming Ind AS requires HR assets on the balance sheet.

    The word 'asset' in HRA suggests formal recognition.

    Fix: State that HRA is a voluntary, management tool; internally generated human capital is not recognised as an asset under Ind AS.

  • Discounting earnings for the wrong number of years.

    Students count to the retirement age but not from the current age.

    Fix: Years = retirement age − present age. Check the count before discounting.

  • Mixing up cost-based and value-based methods.

    Replacement cost sounds like a value.

    Fix: Remember: cost-based uses spending (historical, replacement, opportunity); value-based uses worth (Lev and Schwartz, Flamholtz, Hermanson).

  • Treating ESG and BRSR as the same thing.

    Both deal with sustainability disclosure.

    Fix: ESG is the broad concept; BRSR is the specific Indian format for listed entities.

  • Giving no limitations in a discuss question.

    Students stop at definition.

    Fix: Always add a limitation, such as subjectivity in the discount rate or difficulty of measuring social benefits.

Worked examples

Example 1

Using the Lev and Schwartz model, find the value of a group of employees who will each earn ₹6,00,000 a year (group total ₹30,00,000) for the next 3 years and then retire. Use a discount rate of 10%. Present value factors at 10%: year 1 = 0.909, year 2 = 0.826, year 3 = 0.751.

Show the solution
  1. Group earnings per year = ₹30,00,000 for 3 years.
  2. Year 1: 30,00,000 × 0.909 = ₹27,27,000.
  3. Year 2: 30,00,000 × 0.826 = ₹24,78,000.
  4. Year 3: 30,00,000 × 0.751 = ₹22,53,000.
  5. Total = 27,27,000 + 24,78,000 + 22,53,000 = ₹74,58,000.

Answer: Value of the human resource group = ₹74,58,000.

Example 2

Explain how social accounting and ESG reporting differ from HR accounting, and comment on their relevance for Indian listed companies.

Show the solution
  1. HRA values people inside the firm, using cost or value methods, mainly for internal decisions.
  2. Social accounting reports the firm's effect on society, such as employment, community spending and pollution.
  3. ESG reporting groups this under Environmental, Social and Governance heads, so that investors can compare firms.
  4. In India, listed entities report such information through the BRSR, and global frameworks such as GRI and ISSB add comparability.
  5. Limitation: social benefits are hard to measure in rupees, so much of the disclosure is narrative and non-financial.

Answer: HRA measures employee value for internal use; social and ESG reporting disclose wider impact to stakeholders. For Indian listed companies, ESG disclosure through BRSR improves transparency and investor confidence, though measurement remains subjective.

Exam tips

  • Learn the split of HRA methods into cost-based and value-based; it is the easiest scoring list.
  • For Lev and Schwartz sums, draw a table of year, earnings, factor and present value.
  • In MCQs, watch for statements that say HR assets must be recognised in the balance sheet; these are wrong.
  • Link ESG answers to BRSR so your answer shows Indian context.
  • Close theory answers with one limitation to show application, not recall.

Practice questions from Recent Developments in Financial Reporting

Human Resource Accounting and Other Emerging Reporting Trends in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Human Resource Accounting and Other Emerging Reporting Trends: frequently asked questions

What are the main human resource accounting methods?

Cost-based methods are historical cost, replacement cost and opportunity cost. Value-based methods include the Lev and Schwartz model, the Flamholtz model and the Hermanson unpaid excess earnings model.

What is the Lev and Schwartz model?

It values employees as the present value of their expected future earnings until retirement, discounted at a chosen rate. It is simple to compute but uses pay as a proxy for productivity.

Is human resource accounting mandatory in India?

No. Internally generated human capital is not recognised as an asset under Ind AS, so HRA is used as a voluntary management and disclosure tool.

How is ESG reporting done in India?

Listed entities disclose environmental, social and governance information through the BRSR. Many also refer to frameworks such as GRI and the ISSB standards.