Cost accountancy: tapping the untapped potential

G N Venkataraman
Posted: Monday, Nov 09, 2009 at 2255 hrs IST

Be it the Satyam scam or the issue of the ‘gas price war’ between the Ambani brothers, the Air India strike due to cost cutting measures following heavy losses or even the Delhi Transport Corporation (DTC) claiming heavy losses as its reason for raising ticket prices with astonishing anomalies or the matter of increasing price of your daily commodity, milk. Cost accountants explain the reasons for price increase and can make it amply clear whether you are charged much or duped by a product manufacturer. The costing of MRP or the product cost has to be fixed through some genuine standardized processes or procedures. We are the one who do cost and management accounting, financial accounting, MIS, internal audit, taxation, cost audit, valuation, compliance, etc. to serve industry and consumers in the interest of the nation. The advent of excise audit, VAT audit, concurrent audit, borrowers accounts for banks, etc. has further opened up the scope of cost accountants in practice. However service industries like banking, insurance, health services, media, broadcasting, entertainment, education, hospitality, tourism, airlines, etc. are yet to witness benefit of cost and management accountancy.

Cost accountants not only give correctional price to consumers but also competitive edge and operational efficiency to industry, locally as well as globally. It is an established fact that cost audit can provide relevant reports to the board of directors to strengthen its oversight function. But the greatest problem is that the profession has not received the required legislative support to look into strategic problems of economy, cost cutting, price management, taxation, etc. on a larger scale in general. Dwarfed by the myopic vision of the authorities and non-competitive attitude of the industry, we have been provided with 44 industries spanning from sugar, paper, refrigerators, cement, steel, electronics products, plantation products, etc. in a discriminatory pick and choose method. We are allowed to work within the limited scope of sections 209(1)(d) for statutory cost accounting in selected industries and 233 (B) for mandatory cost audit of companies as and when ordered by the government under the purview of the Companies Act, 1956.

Even after 62 years of independence and fifty years of enactment of the CWA Act, the government has neither been able to optimize our professional potential nor place us on a level playing field. That’s why out of 47,000 members of ICWA, most of the cost accountants (almost 97 percent) are...

not in practice. This alternatively has made ample scope for cost accountants for employment in various industries. They are highly paid and in commanding positions holding top management posts, viz., chairman, managing director, finance director, financial controller, chief accountant, cost controller, marketing manager, chief internal auditor, etc. in various government and private organizations, PSEs, MNCs, etc. ICWA members have competed against the best and won laurels for their competency, delivery of work and dedication besides contributing in international forums to set standards in cost & management accounting.

Cost accountancy edge over financial accounting Cost accounting promotes study and adoption of scientific methods to secure maximum efficiency in industrial, commercial and other spheres, as compared to financial accounting. Financial accounting mainly draws conclusions on the basis of post facto data long after the operations are put through and expenditure is incurred enabling score keeping or at best statistical analysis. The competence of a financial accountant therefore remains inadequate for the purpose of regulating production operations and processes of production.

The role of members of the profession which was originally envisaged to verify and determine cost of manufactured goods during Second World War has been vastly enlarged to cover assistance in framing the strategic decisions for planning, execution and monitoring of improvement in operational efficiency in all fields like financial resources, human resources, material management, production management, research and development, logistics and marketing management.

In today’s global economic scenario post the Lehman Brothers debacle, cost cutting and cost management is a major issues. In the post-meltdown scenario issues like restructuring, downsizing, layoffs, closure of branches, winding up of subsidiaries, termination of employees, collaborators, and franchisees are the talk of the day.

In this hour of capital crisis and acute financial challenges, cost cutting/ management has become a necessity. But this exercise has to be done with a human face. “Cut the cost but not the throat” should be the line of action for companies seeking to overcome the slowdown/meltdown and this can be delivered only with the expertise of the cost & management accountant.

This is the final article of a 5-part series on enhancing key business related professions...

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