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Cost audit has a major role in consumer protection
January, 11th 2007
Consumers, in a liberal economy, are vulnerable to practices such as monopoly or predatory pricing. Curbing these practices requires a harmonised and authentic cost database.


Meet Mr Dhananjay V. Joshi, president of the ICWAI (Institute of Cost and Works Accountants of India). He is a Fellow Member, both of the ICWAI and the ICSI (Institute of Company Secretaries of India). Mr Joshi initiated the formation of `Technical Advisory Board' in the ICWAI and was the first chairman of this Board, which renders technical advice, and gives opinions and clarifications on queries raised by professionals and the industry. Here's his take on a few questions from Business Line.

Is the ICWAI able to attract bright young students?

The undergraduate students enter through the Foundation course whereas the graduate students directly appear for the Intermediate examination. The number of students taking admissions for Foundation is increasing by the day and many of them pass the Intermediate level even before completing their graduation. This clearly indicates that bright, young students are attracted to the cost accounting course. The course can be pursued concurrently with other courses and even during employment. The course, which was considered "part time" in the past, is now seen as "a career path" for the students.

What is in store for the qualified cost accountant at the entry level? Are the skills of Indian cost accountants acceptable in the global arena?

The campus interview for freshly qualified cost accountants indicates a surging demand for them in the manufacturing as well as services sectors. Private sector banks are also recruiting on a large scale through campus selection. It appears from the feedback from such employers that there is a surge in demand for deploying the fresh recruits in financial reporting and management accounting positions. In our new syllabus we have provided for skill building in such a way that even at the Intermediate level there is demand for the students, especially from the IT and ITeS sectors. Our interaction with IT/ITeS employers indicates that they are favourable to our strategy of linking to that sector.

At present, global demand for cost accountants from India is more in the so-called CAPA (Confederation of Asian and Pacific Accountants) region comprising Singapore, Australia etc. In particular, the demand is from services sector.

On the progress in bringing forth costing standards, and enforcing them.

The Cost Accounting Standard Board constituted by the Institute has representation from other sister institutes, government departments, industrial associations, and so on. This Board has so far brought out five standards, the first three are "basic" and the rest "application". Cost Accounting Standard 4 is on Determination of Cost of Production for Captive Consumption.

The CBEC has acknowledged cost accounting standards set by the Institute and has clarified that cost of production of captively-consumed goods will be calculated strictly and in accordance with CAS-4. Industry is also largely benefited as the cost data is authenticated by an independent cost accountant, and the Department also relies on this certification.

One more standard, which is being brought out is "determination of arm's length price in cross-border transaction", wherein standardised cost information plays a key role. We expect this standard to help in a big way in determining profits in transfer pricing arising out of cross-border transactions.

We have taken up with the Government the possible formation of National Cost Accounting Standards Board similar to the one on accounting (NACAS). Our CAS are now getting international recognition and the issue of setting up CAS was also discussed in the recent SAFA (South Asian Federation of Accountants) meeting.

When much of cost information is provided by established ERP (enterprise resource planning) solutions, what is the real contribution of the costing profession?

The basic theme of CMA (cost and management accounting) has moved or is moving away from simple measurement and supply of information to management of processes and creation of value by deploying the information itself. This approach is being spearheaded by the IFAC and is being aligned to the global CMA bodies.

The CMA profession will be focussing on such a shift and would see itself as a strategic user of such an ERP functionality rather than competing with the ERP functionality itself. Besides, such a robust measurement role can be played by ERP solutions only if the CMAs design a management accounting model tailored to the business needs and enable the configuration of the same in ERP, The surge in demand for CMA today in implementing the controlling modules of ERP solutions is a standing testimony to this. The ICWAI also runs programmes for its members in collaboration with renowned ERP vendors.

Does the Institute keep pace with IT (information technology) in its curriculum and CPE (continuing professional education) programmes?

Significant work has been done in keeping pace with the advancements in the field of IT. The existing as well as proposed syllabus has a strong focus on building up IT competency. In fact, many of our coaching centres are equipped with computer labs for imparting to the students basic IT skills, such as using Excel, Word, etc. Programmes are also now run with vendors such as Oracle on ERP at subsidised fees for our members.

Our new IT content is packed at all stages. Even at the entry stage, which is called `Proficiency', certain basic inputs on spreadsheets, Word, etc., are built in. At the next stage certain hours of logging will have to take place along with exposure to ERP solutions.

Similarly, certain higher level inputs are there in the final stage. We also plan to introduce postgraduate programmes on information technology and exploring the possibilities of a tie up with ISACA.

Has the Institute developed a methodology for costing services, such as telecom and entertainment? Not long ago, the ICWAI had demanded that cost audit be made compulsory for services.

We are perceiving a big role for CMAs in the services sector. In fact, the Telecom Regulatory Authority of India (TRAI) has introduced product cost returns called `accounting separation returns' to be submitted by telecom companies. These returns are examined and certified by the CMA in practice and the information is a major input for the regulators. This is also reinforced by the maintenance of cost records and cost audit in the telecom sector. A similar situation is also applicable to the power sector.

The Committee on Subordinate Legislation of the Ministry of Finance, which submitted its report in August 2004, has clearly recommended that Cost Accounting Record Rules (CARR) be framed with priority to industries which have attained strategic importance in the economy, so that correct cost information may be used by the regulatory bodies concerned. The CARR is recommended in banking, insurance, media/broadcasting, health services, education, hospitality services, tourism and airlines.

Is there any significant contribution from the costing profession in the price determination of important products of daily use, such as oil and gas?

The Government itself has recognised the importance of the costing profession in the petroleum sector and has covered it by the cost accounting record rules similar to that for power and telecom. Petroleum companies are required to maintain the cost records. The forthcoming cost accounting standard on joint products and by-products will also standardise the cost accounting practices in this sector.

In a liberalised scenario, does mandatory cost audit continue to be relevant?

It is a wrong perception that cost audit is not relevant in a liberalised scenario as the prices are market driven and not based on cost. It is a very narrow interpretation of the role of cost audit. Cost audit has to play a major role in consumer protection. The consumers, in a liberal economy, are vulnerable to practices such as monopoly or predatory pricing. Curbing these practices require a harmonised and authentic cost database.

Such a database is also essential in pricing of essential goods and regulating the interests of the Government and the public. Considering this, the Standing Committee on Economic Legislation has recommended the extension of cost records and cost audit to various sectors, including fuels, medical and surgical appliances, transportation, industrial machinery, agricultural/earthmoving machinery and defence. Besides, cost audit can play the role of whistle blower in corporate governance framework, as it addresses the value addition or value erosion, as the case may be, in the corporate world.

Cost audit can also play a significant role of resource management. The preamble to the cost audit provisions, as envisaged by T. T. Krishnamachari who moved the legislation several decades back, also drew attention to this aspect. Unfortunately in the din raised by the vested interests against cost audit, these provisions, which are of paramount importance to national interest, are never understood in depth.

What about internal harmony and corporate governance in the Institute? There have been frequent media reports of power tussles in Sudder Street.

The ICWAI is currently facing the pangs of establishing itself as a premier professional body. Being a democratic set-up managed through an elected council, individual members who would like to contribute might have some extreme views which need to be reconciled to arrive at a common growth path. We are in the path of reconciliation and will come out strong at the end.

Why is the Institute worked up with `Works' in its name? Do you want to alienate yourself from manufacturing?

Cost and Works were part of the name several decades back when similar bodies were formed throughout the world to perform the task of cost measurement in the factories which were churning out products for a hungry post-war world. The global, cost-accounting bodies turned into cost and management accounting institutes as the domain itself evolved from cost accounting to management accounting. Besides, the rapid growth of the non-manufacturing sector and the extension of the management accounting into all these made no sense for these global bodies to have the word `Works'. The evolution was so logical and structured as the word CMA included works also in the ambit.

As a professional body which has to compete in globally we do not want to be left out in the race. Many global bodies are trying to enter India under the WTO framework and we cannot allow grass to grow under our feet. We cannot be left out of the explosive growth happening in the services sector. Management accounting should have its logical extension to the service sector. To catch up with global accounting bodies we need to restructure ourselves in terms of form.

The irony here is our call to change our name to Cost and Management Accountant is yet to be heard. It is said that you can wake up a man who is sleeping but not one who is pretending to. We are optimistic and are sure a name-change is not too far off.

What are the KRAs (key result areas) you have set for your tenure, and what has been the performance thus far?

During my tenure I plan to initiate strengthening of the knowledge base of students. The future cost and management accountants of India must be on a par with their global counterparts. The plan is already put in action in the form of revision of syllabus.

The most significant KRA is the acceptance of our members as top-notch, sought-after professionals. This can be measured by the quantity and quality of employment/assignments our members are getting in the corporate sector . Our recent analysis indicates that demand for our members in modern industries and the service sector , be it in India or abroad, is growing by leaps and bounds. So are the assignments offered to our practising members whether in the traditional areas and in the newer fields, such as creating ERP solutions, anti-dumping, business process re-engineering, cost management, etc.

Did cost accountants make use of the opportunity provided by the MCA (Ministry of Company Affairs) in e-filing under MCA-21? And, if so, to what extent?

The ICWAI has been one of the robust players in MCA-21. Many of our members have been approved as Certified Filing Centres and have started accepting e-returns from many companies. Filing cost audit reports through MCA-21 is an exhaustive process and many of our members have picked it up in a short tenure. More than 1000 cost audit reports have already been filed through the e-filing route, which is a creditable number. The ICWAI has also organised various seminars throughout the country on MCA-21.

Does the Institute monitor the performance of its members and enforce the code of conduct? Have there been disciplinary actions? Details.

We have implemented the scheme of `Continuing Education Programme', whereby practising members (members outside practice are also being included) undergo specified hours of training and continuing education as prescribed by the Institute. Close monitoring of performance of our members is a new phenomenon. With the introduction of provision of Quality Review Board (QRB) in the Cost and Works Accountants Act 2006, individual's performance will be under the QRB scanner.

We have elaborate disciplinary rules and code of conduct. As far as the code of conduct is concerned, the disciplinary proceedings according to the provisions of the Act and Regulations are followed, and disciplinary actions, if required, taken.

D. Murali

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