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Appendix - A
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Views of Shri Vinod Jain, Chairman, Committee on Management
Accounting, ICAI and Member of the Expert Group set up by
Government of India, on the draft report of the Expert Group,
expressed during a meeting of the Expert Group held on
13.12.2008 at ICAI, New Delhi.
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1. Shri Vinod Jain, while speaking on the issue of applicability of Cost
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Accounting Record Rules/Cost Accounting Report Rules (CARRs), said
that such Rules should be applicable to a class of companies engaged
in production, processing, manufacturing or mining activities only when
there is involvement of public interest and the Regulators require
details of utilisation of material, labour or other items of cost to
monitor, regulate, administer the prices and for other purposes as a
matter of statutory requirements.
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2. There is no need to amend and apply these rules to all classes of
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companies in view of the fact that these rules were made applicable
sometimes in 1965 to administer the prices in post independence
India. However, since then sea-change can be noticed in the business
environment of the country. There is over all fierce competition in the
market and the principle of survival of fittest is now applicable. The
companies have already become cost conscious and cost effective
themselves and they have already adopted Cost Accounting principles
and practices as well as modern technology and latest tools like
ERP/SAP to survive in the competitive world. There should be a Self-
Regulatory approach rather than imposition in the provision of
applicability of CARRs. Hence, it is felt that there should not be any
change as far as the case of applicability of CARRs is concerned, from
the existing one.
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3. The provisions of CARRs should be applicable to those organizations
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only where there is a question of subsidy, anti-dumping, administered
prices, requirements of Regulatory bodies or in such industries where
in view of public interest the Government consider it appropriate to
prescribe compulsory maintenance of cost accounts.
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4. With regard to maintenance of Cost accounting records, it is felt that,
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such records may be maintained as an integral part of financial records
whereby, it should be possible to derive all kinds of relevant cost
accounting data from integrated records only which should suffice the
requirements of all statutory provisions. Usually, a separate set of cost
accounting records may not be necessary. However, the management
is free to design and adopt various kinds of forms/formats according to
their own size, scale, type and the purpose etc., as an internal
practice.
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5. There should not be any legal mandate on the applicability of Cost
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Accounting Record/Report Rules (CARRs) i.e., on the maintenance and
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the Cost Audit rather the Companies should be educated properly
about the importance of costing system so that they voluntarily adopt
the same for improving internal efficiency of the management. The
burden of compliance audit should not jeopardize the day-to-day
management function. The management should be left free to
concentrate more on operational aspects rather than on compliance
formalities.
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6. With regard to confidentiality of cost data, we are of the opinion that
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the nature of cost data is very sensitive and the confidentiality of cost
data is to be ensured. The cost auditor may submit a small report to
the Government – MCA and a detailed report to the company
Management. The cost auditor’s report may contain a report as well as
findings for the information of management. There should be detailed
guidelines/formats as to how to prepare the Cost auditor’s report in a
structured form for the use by the management of the company. No
part of Cost auditor’s report be disclosed to public at large. However, if
the Board of Directors feels appropriate, they may disclose some
indicators of Cost as part of their annual report.
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7. The provisions of CARRs should be applied based on a multiple criteria
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on the basis of investment in Fixed Assets and the annual turnover. All
those companies in whose cases the investment in fixed assets is upto
the limits as prescribed for small and medium enterprises should be
exempted from the purview of applicability of CARRs.
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8. It is worth mentioning that ICAI would like to be closely associated
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with ICWAI in the matter of formulation of Cost Accounting Standards
to make them fully convergent with IFRS and ensure smooth transition
to new Costing system in tune with future accounting scenario in India.
ICAI technical competence and resources are available for use by the
Government and society. It is very important to use ICAI resources as
financial accounting concept have undergone a comprehensive change
and its impact on cost accounting and cost Audit will be significant.
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9. It is also felt necessary that instead of applicability of CARRs, the
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companies should follow Cost Accounting Standards. Rather than
applicability of Rules, there should be provision and applicability of
principles of accounting as far as the case of maintenance of Cost
Accounting records is concerned. Such Cost Accounting Standards
should be formulated keeping in view:
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(a) GAAP – Indian as well as International;
(b) IFRS;
(c) International Accounting Standards;
(d) Indian Accounting Standards; and
(e) Best International Practices as adopted by PAIB.
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10. There should not be any conflict/contradiction between the Cost
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Accounting and Financial Accounting Standards. Just like ICAI has
issued Accounting Standards and Auditing Assurance Standards, there
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is urgent need to formulate not only Cost Accounting Standards but at
the same time, there should be formulation of Cost Auditing and
Assurance Standards also. This will ensure both uniformity and
standardization of principles and practices in the sphere of Cost
Accounting and the Cost Audit.
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11. The CASB of ICWAI along with ICAI should issue:
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(a) Guidance Notes
(b) Monographs
(c) Research Reports/Study
(d) Statements
(e) Standards
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12. The Guidance Notes issued by CASB of ICWAI in association with ICAI
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should be mandatory in nature.
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13. At the initial stage the Cost Accounting Standards may be
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recommendatory in nature and later on they should be graduated to
become mandatory.
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14. There should be more emphasis on the maintenance of integrated
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accounting system to facilitate easy compilation of cost information
and reduce cost of compliance.
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15. The appointment of Cost auditor should be made by Board of Directors
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without seeking prior approval from the Central Government. The Cost
Auditor should be rotated after 3 – 5 years. It is not necessary that the
Cost Auditor should be appointed in Annual General Body meeting of
shareholders. It is worth mentioning that the report of Cost Auditor will
be used by the internal management in strategic decision making.
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(Vinod Jain)
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