Corporate Reporting Framework in India:

A Case of HRA Reporting

Presented By:

Nimisha GuptaMBA-HR(09-11)

By Pragnesh Shah (Journal of Accounting and Finance,Vol.23,No.1, 2008)

Flow of the Presentation

Introduction

Framework of

Corporate Reporting

in India

History of HRA in India

HRA Valuation

and Disclosure practices in India

Conclusion

Introduction

• Human element is the most important input in any corporate enterprise.

• The investments directed to raise knowledge; skills and aptitudes of the work force of the organization are the investments in human resource.

• Of late, HR function has assumed a strategic dimension

Framework of Corporate Reporting in India

• In India Corporate Reporting is mandatory

• Governed by the Companies Act 1956

• ‘True and fair view’ of the affairs of the company

• Does not explicitly provide for disclosure on Human assets in the financial statements of companies.

• It is upto the organization to decide how much, what and in which form information they want to disclose voluntarily

History of HRA in India

• The commencement of HRA practice in India was a result of the Initiative taken by BHEL, in 1974-75

• Initially the Public sector organizations took a lead in HRA valuation and reporting in India.

• Now knowledge based organizations like Infosys, GTL and some finance sector organizations have joined them

Organizations practising and reporting HRA in India

• BHEL• ACC• CCI• CFSL• ELIL• EIL• GTL• HMTL• HPCL• HZL• IDPL• INFOSYS

• KRL• MECON• MMTC• MRL• NTPC• OIL• ONGC• PEC• ROLTA• SPIC• STC• SAIL

Only 28 companies have been found disclosing HRA information in India

Companies following HRA in India

Pubic sector Private sector Total

21 7 28

• Very few private sector companies

• CFSL in 1989-90

• Post-liberalization all 4 private cos. were from service and knowledge based IT sector.

• A no. of companies have stopped HR valuation and reporting

Period of acceptance of HRA practice

Particulars HRA practice accepted in

Pre-liberalization

Post- liberalization

Public sector 21 -

Private sector 3 4

HRA Valuation and Disclosure practices in India

Valuation Practices:

• Valuation Model

• Discount Rate

• Cataloguing of Employees

Reporting Practices:

• Disclosure of HRV

• Disclosures related to profitability and efficiency

Human Resource Valuation Model

HR Valuation Model selected by Indian Companies

Particulars Model Accepted

Not Repor-ted

L&S Model

L&S Model with refinements suggested by Flamholtz, Jaggi and Lau

OwnamendedModel

No. of Companies

15 6 1 3

• CFSL,GTL,HPCL,HZL,IDPL, INFOSYS, KRL, MECON, MMTC, NTPC,ROLTA,SAIL, SPIC and STC in first category

• Cos. Like ACC,CIL,EIL,MRL,OIL and PEC are the six cos. in the second category• BHEL has developed its own model based on L&S model.• ELIL,HMTL and ONGC not reported

Discount Rate

Discount Rate applied by different companies in IndiaSr. No. Percentage No. of Cos.

1 10 1

2 10.5 1

3 12 6

4 14 1

5 15 4

6 Varying 5

7 Not reported 7

Total 25

• BHEL,HZL,MMTC,NTPC,ELIL, and STC apply 12% DR considering the risk free rate of return

•EIL,ONGC,OIL,MECON,CCI,KRL,MRL, SAIL, use DR equal to the cost of capital

•GTL,HPCL,INFOSYS,ROLTA use different DR every year equal to the cost of capital

•Different Cos, from same industry i.e oil industry apply different DR

Cataloguing of Employees• No uniformity in the cataloguing

of employees

• Age-wise and designation wise or

• Educational qualifications and designation wise or

• Age and educational qualification wise

Efficiency Indicators• Calculation of ratios to check the

profitability and efficiency of the resources applied

• Dicsclosures:– HRV– HRV:Fixed Assets– Turnover:HR– Turnover: total resources– Employee cost:HRV– Rate of return on HRV

• In all 18 variables

Conclusion• No statutory requirement under Companies Act 1956 regarding HRA

reporting

• Almost all Companies follow L&S model of HR valuation

• Even after following same base method of valuation, Different discount rates are used by different companies

• BHEL provided leadership not only in initiation of HRA in India but also by providing maximum information under the head ‘Human Resource Accounting’

• HRV , efficiency and productivity disclosures are hardly comparable amongst Cos. Due to lack of standardization in reporting

• Comparatively little attention is given to variables which can be of relevant use to decision-makers

“ HRA has progressed at something less than a snail’s pace in the past two

decades”

- Turner(1996)