COST/BENEFIT ANALYSIS OF HUMAN RESOURCE ACCOUNTING ALTERNATIVES.

This article presents an analysis of the three dominant theories of Human Resource Accounting (HRA), Historical Cost, Replacement Cost, and Discounted Cash Flow, and the inherent advantages and disadvantages of each theory as they relate to both internal and external reporting techniques. The article is divided into three major sections, referenced to the theories, with a brief explanation of the methodology and requisite inputs to each system followed by the expected associated costs and benefits to be derived upon installing any of the systems into a small engineering consulting firm. The historical cost model focuses upon the investment made in human assets. The characteristic which distinguishes a business investment from a current expense is futurity. The advantages of a Replacement Cost Model of accounting for human resources are that it gives external users current value information which should be easy to understand and use in the evaluadon of financial statements. The Discounted Cash Flow Model is probably the best conceptual model of the three. Its basic premise is that of quantifying the future service potential of an asset.