President’s Page May 2009,
It is with deep regret I inform you of the sad demise of Shri R. J. Goel, Former President of the Institute on April 18, 2009. Shri Goel was the President of the Institute for the year 1998-99. His demise is a great loss to the Institute. On behalf of the Council and on my personal behalf, I express our deepest sympathies and condolence to the bereaved family. The recently concluded G-20 summit at London is proof of the reaffirmation of all world leaders to work together for global prosperity, financial stability and greater business transparency. All the right noises at the global conference about strengthening the IMF with a one trillion dollar stimulus package, weeding out tax havens and setting up a supra national financial stability unit is likely to boost public confidence and help revive beleagured economies. The conference also highlighted how the balance of economic power is shifting from the West to the Eastern giants like China and India and that today the world depends on such a large, stable, resilient and mature economy of India to bail it out of the present economic crisis. The corporate sector is one of the major driving forces of economic development of the country. The growing importance of corporate sector demands greater transparency and availability of corporate data in terms of comprehensiveness, reliability and timeliness. The corporate sector is studied for various aspects like its size and composition, growth & restructuring and financial performance focusing on capital structure, profitability measures and debt repayment capacity to ascertain financial vulnerability of Indian companies. The post World War II decline of American enterprises’ competitiveness and performance was attributed to the use of inappropriate planning, control and decision making mechanisms. The failure of management accounting practices to adapt quickly to the needs of the "new" enterprise could be attributed to two primary reasons. First, there was a new and powerful accounting profession after World War I that stipulated rigid financial reporting rules. These rules carried a high compliance cost that prohibited the development of management and control systems for more effective decision making. Second, accounting educators increasingly encouraged the use of financial accounting information for managerial decision-making, and indoctrinated the mindset of future business managers.There has been a burgeoning of new management practices for improved decision making subsequently. These include activity based costing and management, the balanced scorecard, quality and benchmarking etc. However, an unsettled issue is whether these emergent practices have complemented or substituted traditional management accounting practices such as budgeting, cost volume profit analysis, and variable costing. One view suggests that these emergent management practices have played a prominent role in revitalising the discipline of management accounting by acting as substitutes for the financially orientated mindset that plagued post World War II corporations. These new management practices now explicitly incorporate non-financial information and recognise strategy in management processes to improve decision making. Another view suggests that comparing traditional and emergent management practices require a more holistic view, as both sets of practices tend to complement one another. The choice and selection between traditional and emergent managerial practices is therefore particularly relevant for the business manager in the new millennium, as ultimately this decision could determine an organisation’s survival and success. The present competitive economic environment has made all the organizations more conscious about the need to bring efficiency and economy in their operations. “Cost Leadership” and “Total Cost Management” is the present day mantra. Cost control and cost reduction is an on-going exercise for the management to gain competitive edge over others and for survival. The Companies Act 1956 provided for statutory maintenance of cost accounting and cost audit. In the changed economic scenario, it was found to be necessary to review the existing provisions of cost accounting and cost audit under the Companies Act, 1956 and to make it more beneficial to various regulators, government departments/bodies to protect the interest of consumers and investors and to protect the industry from unfair trade practices (like anti-dumping, subsidies & counter-veiling measure, cartels, etc.) under WTO agreements. I have been keeping the readers informed about the progress of the Expert Group that was constituted by the Ministry of Corporate Affairs (MCA) to attain this objective and informed the readers that the Expert Group had submitted their report to the Ministry. As I informed the readers earlier through these pages, the report has considered all the relevant issues concerning the profession of cost and management accountancy and its effectiveness to make the Indian industry competitive. The discussion of the preceding paragraphs would enable the readers to consider the recommendations of the Expert Group in its right perspective. The Report is now available on the MCA website as well as our website. I had the privilege of addressing large number of members at discussion meets organized by SIRC, NIRC and WIRC on April 4, 13 and 18 respectively. I look forward to more such meetings with the members and other stakeholders to explain the different aspects of the Report. The MCA has asked for comments from different stakeholders on the findings and recommendations of the Expert Group. I request all our members to study the report in detail, join discussion meetings being organized by the Regional Councils and Chapters to discuss the different aspects of the recommendations and send us their observations and suggestions. I take this opportunity of informing the members that the Council has now decided that all the cost accounting standards that have been issued by the Institute shall be mandatory with effect from period commencing on or after 1st April 2010 for being applied for the preparation and certification of Cost Accounting Statements. Since there is no statutory requirement for the application of such Cost Accounting Standards for the preparation and certification of Cost Accounting Statements, in case the cost accountant certifying such statement is of the opinion that the relevant standards have not been complied with for the preparation of the Cost Statements, it shall be the duty of the cost accountant to make a suitable disclosure/qualification in his audit report/certificate. The Institute has been making great strides in the International area and ICWAI signed a MoU with Institute of Management Accountants, USA which will enable members of ICWAI to get direct membership of IMA-USA. A member of IMA-USA can enrol as a member of ICWAI only if he/she has acquired the IMA qualification from a place outside India. However, such member would not be elligible to get a certificate of practice pr voting rights. The detailed procedure of applying for membership would be available on the website. The IFAC Professional Accountants in Business (PAIB) Committee held their meeting at Hong Kong on April 23-24, 2009 and the Committee had extended a special invitation to me and Mr. A. N. Raman, Central Council Member and Member of the Task Force of PAIB Committee. The contribution of ICWAI in the working of the PAIB Committee was acknowledged and greatly appreciated. Readers will find the current issue of the Management Accountant interesting as it carries the cover feature on Special Economic Zones (SEZs), a concept both hailed as an engine of growth and also mired in controversy.
With warm regards
Kunal Banerjee
President
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