The

Management
PRESIDENT
Chandra Wadhwa
VICE PRESIDENT

Accountant
Kunal Banerjee
CENTRAL COUNCIL MEMBERS
Dr. Sanjiban Bandyopadhyaya,
S. R. Bhargave, A. S. Durga Prasad,
« Official Organ of The Institute of Cost and Works Accountants of India
M. Gopalakrishnan, A. N. Raman,
Ashwin G. Dalwadi, V. C. Kothari,
G. N. Venkataraman,
Volume 42 No. 12 December 2007
Suresh Chandra Mohanty,
Somnath Mukherjee, Hari Krishan Goel,
Editorial 933 Industry
Balwinder Singh, B. M. Sharma,
GOVERNMENT NOMINEES President’s Communique 934 A Study of Receivables Management
Subhash Chander Vasudeva, R. K. Jain, of Indian Pharmaceutical Industry
Cover Features
Pawan Kumar Sharma, Jaikant Singh, T. S. Rangan by Dr. Hitesh J. Shukla 991
PAIBs: Meeting the Challenges of
SECRETARY
Performance and Conformance Government Notifications/
Dr. Debasis Bagchi
by Graham Ward 936 Circulars 867
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A. P. Kar Pushing the Art of Management Legal Notes & Notifications 964
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the management accountant, December, 2007 931

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932 the management accountant, December, 2007

 Editorial
Can the world meet climate challenges?
Social consequences of greenhouse gas emissions
(GHG emissions) are not borne mainly by the
emitters but those who are often the least powerful
including future generations – yet unborn and
having no voice at present. The emitters are often
among the most powerful individuals, companies
and countries. There is now a wide consensus –
says IMF World Economic Outlook (published:
October 2007) – that “climate change is occurring,
will continue into the foreseeable future and is
likely to intensify”.
Unfortunately, the socio-economic impact of
emitting GHG that drives the climate change
process is not borne fully by the emitters but shared
across the world with low income countries the
worst sufferers. These issues will be further
explored in depth in the next (April 2008) World
Economic Outlook, says IMF. This also raises
significant problem of global coordination – a vital
factor that we must consider while formulating our
global perspectives, more so when CMAs have
the onerous task of assessing the cost impacts of
such climate changes – shared inequitably across
the world.
The main CHG emissions by human activity are:
Carbon di-oxide-77%, Methane-14%, Nitrous
oxide-8%. The atmospheric concentration of GHG
measured in terms of Carbon di-oxide equivalent
has increased from 300 parts per million (ppm) in
1750 to 430 ppm now and is increasing by 2 ppm
per year. Between 1906 and 2005 global average
temperature increased by 0.7% and according to
one estimate further warming by 0.2% would occur
over the next two decades and with no mitigation
policy GHG emissions may lead to average global
temperature increase of between 1.1% and 6.4%
(above pre-industrial level) by 2100. The greatest
temperature increase is projected in Asia, North
America and Europe. The global rainfall pattern
the management accountant, December, 2007
is likely to change making many dry areas drier
(including Africa, South Asia, Middle East). Flood
risk is projected around 0.2 to 0.6 metres in this
century – more with accelerated glacial melting.
In addition, frequency and severity of extreme
weather events like, hurricane, flood and drought
are expected to play havoc with the economies of
Africa, Asia and the Caribbean.
To sum up, the effects are likely to be disastrous
in terms of: negative impact on output &
productivity particularly confronting low
industrialized & predominantly agriculture
dependent countries while more prosperous
countries in the North are likely to benefit from a
temperature increase between 1degree to 3 degree
Celsius; increased costs from sea level
rise(according to one estimate 1 meter increase
would reduce GDP by 10% in countries like
Bangladesh, Egypt, Vietnam etc.); increased risk
of widespread migration and conflict; costs arising
out of mitigation of carbon emissions and higher
energy costs; deterioration of fiscal position arising
out of weakening of traditional tax base on some
aspects of mitigation & adaptation; balance of
payment problems owing to reduced export of
goods & services; non-market effects associated
with loss of bio-diversity and erosion of ecological
system etc.
In all these domains Cost & Management
Accountants have a great role to play in view of
their core competency areas, provided of course
their tools and techniques are driven by the global
comprehension of the crisis that already confronts
us. The need of the hour is mitigating the extent
of climate change by reducing GHG emissions and
adapting our policy percepts and investment
behaviour to reduce economic and social impact
of climate changes.
933
 l President’s Communique l
My dear Professional Colleagues,
On the path of Karma Yoga (the works without desire and attachment) no work once
begun is ever futile or waste not it is tainted due to errors and aberrations by sins or
impediments. Even a small practice of this path of Karma Yoga delivers the sage of fear
and misfortune.Chapter II Sloka 40
Taking a cue from this sloka, the path of Karma Yoga for making our Institute as the
premium professional body and to improve the brand image of the profession has taken
by the new Council.
Global Summit: It is a happy coincidence that holding high the banner of globalization
the Institute is organizing at New Delhi a Global Summit on Repositioning Manage-
ment Accountants from 10 to 12 January 2008. The co-hosts of this Summit are ICMA-
Bangladesh, ICMA- Sri Lanka, ICMA-Pakistan while the technical partners are CMA-Canada, CMA-UK and Insti-
tute of Management Accountants (IMA)- USA . It is going to be a historical event that will go a long way in elevating
the position of Cost & Management Accountants (CMA) in our country and their relocation on the world map. I
welcome you all to this Global Summit and earnestly request you to make this Summit a glorious historic event by
your financial and intellectual contributions.
NACAS: I got an opportunity to attend the meeting of National Advisory Committee on Accounting Standards
(NACAS) at Mumbai. In this meeting the adoption of International Financial Reporting Standards (IFRS) and laying
down a road map for achieving the convergence with IFRS was discussed. Keeping in mind the introduction of IFRS
it has been decided to include in the forthcoming Council meeting an item for finalizing the modalities for drawing
a road map of Convergence of IFRS in which technical preparedness for industry and for Cost Accounting profes-
sionals to be taken up.
Co-ordination Committee: It gives me immense pleasure to share with you that the ICWAI-ICAI-ICSI Co-ordination
Committee Meeting was held on 22nd November, 2007 at New Delhi.The Meeting was chaired by me and was
attended by Shri Sunil Talati, President, ICAI, Ms. Preeti Malhotra, President, ICSI, Shri Kunal Banerjee, Vice
President, ICWAI, Shri Ved Jain, Vice-President, ICAI, Shri Keyoor M Bakshi, Vice-President, ICSI, Shri G N
Venakataraman, Shri V C Kothari, Shri S R Bhargave Shri Somnath Mukherjee Central Council Members of ICWAI,
few Central Council members of ICAI, ICSI, Secretary of ICAI, ICSI and Senior officers of the three Institutes. In
this meeting matters relating to formation of Multi Disciplinary Partnerships among various professionals, exploring
possibilities for holding joint Seminars and Programmes by all the three Institutes, setting up of infrastructure and
other facilities for the Appellate Authority have been discussed. The Coordination Committee has taken a decision
to set up a Core Group consisting of Senior officers of the three Institutes to work out modalities relating to the nitty-
gritty of Multi Disciplinary Partnerships, their formation, firm names etc and holding of joint programmes. Thereaf-
ter the Committee would deliberate on the feedback given by the Core Group.
ICWAI National Award for Excellence in Cost Management 2007: A screening committee headed by Shri Satish
Chawla, Vice-President, Ranbaxy Laboratories Ltd and 10 other members was constituted for finalizing question-
naire on the ICWAI National Award for Excellence in Cost Management-2007. The Committee decided to send this
year, 10,000 questionnaires to attract good response and spread a message across the corporate world about the
Institute’s activities and the significance of the award. I hereby appeal to all the members in employment and in
practice to use their contacts to popularize the Award among Industry.
Other activities
A decision was taken in Cost Accounting Standards Board meeting to flag 39 topics as Cost Accounting Standards
for Non-services sector under two caterories viz., Components of Cost and Cost Accounting methodology and
Procedures. Similarly for the Services Sector a concept document on Cost Accounting Standards will also be prepared.
It was also decided to constitute the task forces for preparation of drafts on 8 Cost Accounting Standards at the
earliest by all the four regions. It was also decided to finalize the draft of Cost Accounting Standards on Joint Product
and By-Product.

934 the management accountant, December, 2007

 l President’s Communique l

The first meeting of the committee on Benchmarking has taken a decision to constitute a Sub-Group under the
Chairmanship of Shri K K Sharma Jt. President, Birla Corporations Limited to bring out publication on Benchmarking
for Cement Industry. This Committee also decided that another sub-group will be constituted for Paper Industry
Cost Audit Assurance Standard Board meeting has taken a decision to bring out the standards to be followed by the
members in practice and other stakeholders for conducting Cost Audit, Excise Audit, Service Tax Audit etc, In
addition, this committee will also bring out 4 Management Accounting Guidelines on:
1. Implementing Benchmarking
2. Adopting and Implementing Shared Services
3 Implementing Corporate Environmental Strategies
4. Tools and Techniques of Environmental Accounting for Business Decisions.
The Corporate Laws committee of the Institute has taken a decision to insert 8 pages in Management Accountant
journal on Legal/FEMA/RBI updates. The same was successfully implemented and an overwhelming response has
been received from members in employment and practice on the utility of these insertions.
The Taxation Committee has initiated the number of steps for facilitating greater role of Cost Accountant in GST
including follow up with Ministry of Finance.
A decision was taken in the Professional Development Committee to take up with the left over states where VAT has
not been opened up our practicing members
Training, Educational Facilities & IT Committee is making all out efforts to implement the New Syllabus w.e.f.
01.01.2008. In addition, the Manual for Practical Training for ICWAI students is also being finalized. I hope that the
new syllabus will be implemented as per the schedule.
A two-day Programme of all the Chairmen of Chapters, NIRC Regional Council members and Central Council
Members of NIRC was organized on 24th & 25th November, 2007 in New Delhi. Shri Namo Narain Meena, Hon’ble
Minister of State for Environment & Forests, Government of India inaugurated the Programme. Prof. M.B.Athreya,
Management Consultant, Shri P.S. Rathore, Speaker on Positive Thinking, and Shri H.P. Kumar, CMD, NSIC addressed
the participants. Myself attended this programme on both the days and had good interaction with individual Chapter
Chairmen and enquired about their Chapters’ activities.
As appealed to you earlier through this communiqué kindly send your individual e-mail ids to Shri S.C.Gupta, Joint
Director at gupta@myicwai.com as the Institute is compiling a data base of all members.
Come, join us in our never-ending march for excellence. Wishing you success, prosperity and happiness in your
personal and professional life.

Chandra Wadhwa
President

the management accountant, December, 2007 935


PAIBs: Meeting the
Challenges of
Performance and
Conformance
Graham Ward*
T
hank you very much for inviting
me to speak to you today. It is a
great pleasure to be here for this
event, which has enabled me to
experience a new aspect of the United
States and most importantly, has given
me the opportunity to meet with
management accountants from all
across your country. Over 50 percent
of the members of IFAC’s 159 member
bodies are employed in business. A
personal priority of mine over the past
eighteen months has been to meet with
as many professional accountants in
business as possible, for two primary
reasons. First, I have wanted better to
understand your interests, your
challenges and your needs so that we
at IFAC can be more responsive to you.
At the same time, I also wanted to make
you aware of the IFAC initiatives that
are focused specifically on and for you.
Before I do that, I would like to
recognize Paul Sharman, IMA
President, for his leadership at both a
national and an international level in
supporting and raising the profile of
professional accountants in business.
Paul has participated in our annual
*CBE, MA, FCA, President, Inter-
national Federation of Accountants.
This is an extract from the speech of
IFAC President at the Annual
Conference of IMA-USA in 2006.
936
Cover Feature
Chief Executives’ meeting and has
provided significant input and insights.
The Institute of Management
Accountants (IMA) has long been a
leader of and champion for professional
accountants in business and industry.
The IMA also has a long history of
support of and participation in the
international profession. It has been an
active member of IFAC since 1980 and
its representatives have served with
distinction on the IFAC Professional
Accountants in Business (PAIB)
Committee, which is dedicated to
supporting and raising awareness of the
vital role that you play. Specifically, I
would like to recognize Bradley
Kaplan, who joined the IFAC PAIB
Committee in January 2006, and
William Brower, who served on the
committee from 2001 to 2005. I
congratulate Bill on being elected your
Chairman from 1 July 2006.
The service of these professional
accountants and of other volunteer
members of IFAC boards and
committees is vital to achieving our
objectives and to supporting
professional accountants in all sectors
of the economy worldwide. It is also
through your support and that of IFAC’s
member bodies in 120 countries around
the world that we are able to achieve
our global mission, which I will state
for you now:
the management accountant, December, 2007
To serve the public interest, IFAC
will continue to strengthen the
worldwide accountancy profession and
contribute to the development of strong
international economies
establishing and promoting adherence
by
to high-quality professional standards,
furthering the international
convergence of such standards and
speaking out on public interest issues
where the profession’s expertise is most
relevant.
In achieving this mission, IFAC is
focused on developing high quality
standards and guidance that serve the
public interest and on ensuring that
professional accountants in all fields
have access to the resources that they
need to fulfill their roles and to
contribute to economic growth and
stability. Within IFAC, four
independent standard-setting boards
develop international standards: the
International Auditing and Assurance
Standards Board, which develops
international standards on auditing,
assurance and quality control; the
International Ethics Standards Board
for Accountants, which establishes
IFAC’s international Code of Ethics for
Professional Accountants; the
International Accounting Education
Standards Board, which sets standards
and guidance on the pre-qualification
and continuing professional
development of all professional
accountants; and our International
Public Sector Accounting Standards
Board, which sets International Public
Sector Accounting Standards, designed
to improve the transparency and
accountability of public sector financial
reporting. In addition, IFAC has
established committees to address the
needs of accountants in developing
nations and to support the work of small
and medium practices.
A major IFAC committee, which
was established more than 25 years ago
to support the work of management
accountants, is our Professional

Accountants in Business Committee.
The professional accountants in
business constituency is one that is
central to the development and growth
of our profession. The diversity of this
constituency is, I believe, one of our
unrecognized strengths and IFAC has
been working to get it recognised.
Because professional accountants in
business work in a wide variety of roles,
at every level of organizations across
all industry sectors, we collectively
have a perspective that extends well
beyond “the numbers.” Professional
accountants in business – or PAIBs as
we call them at IFAC – understand the
drivers behind a business and,
therefore, play a fundamental role in
contributing to the creation of
shareholder value. Few other
professionals have such a diverse and
significant role in the day-to-day
operations of businesses and of other
organizations.
My topic today is meeting the
challenges of performance and
conformance. But to comment on this,
I need to begin with what it is that we
are expected to perform.
Keeping Pace with Change
First, we are expected to keep up
with change and to perform
accordingly. As professional
accountants, our value to society and
our effectiveness is determined in great
part by our ability to address the
changing environment in which we
operate. The last twenty years have
witnessed a massive transformation in
business organizations, driven by
intense competition, the globalization
of markets and the continual need to
redefine strategies, structures and
processes. Changes in political regimes,
new conceptions of management
controls, the effect of globalizing forces
on commercial affairs, shifts in notions
of effective knowledge management, of
governance and of ethics, and
technological advances have affected
the management accountant, December, 2007
Cover Feature
all areas of our profession including,
most notably, management accounting.
Let us consider for a moment the
changing nature of the finance function
and the effect on professional
accountants in business. In efficiently
providing the goods and services that
society wants, high performing
organizations competing globally
demand a unified service delivery
model based on achieving a common
technology platform, common business
processes and common data. To deliver
this, finance function initiatives include
global strategies for centralizing
process-based activities, under either or
both of the shared services and
outsourcing umbrellas. This involves
dealing with challenges such as process
improvement and possible relocation to
lower cost regions.
This trend calls for smaller finance
functions, but more effective PAIBs.
“World-class” organizations have a
finance cost well below one percent of
revenue. On the supply-side, firms such
as IBM and Accenture have expanded
their business process outsourcing up
the value chain to include more
strategic activities, and there is ongoing
high demand from companies for
outsourcing their routine accounting
services to external, and often overseas,
service providers.
As well as achieving greater process
quality and efficiency, and cost
reduction, reorientation of the finance
organization has the potential also to
support value creation in organizations.
A key objective is to deliver enhanced
analysis, insight, and involvement in
decision making. To be successful, to
remain relevant and to be considered
vital in the value creation of
organizations, PAIBs need to challenge
their roles and participation in their
organizations and be prepared to review
and change structures, accountabilities
and incentives. Above all, we may need
to dig deeper to understand what
customers of finance require from the
finance organization and how business
partnering can be most effective in a
variety of contexts. This is true whether
we work in a large corporation or in a
small or medium enterprise.
PAIB’s are frequently taking central
positions in the role of framing,
supporting and executing decisions in
organizations and are involved in such
areas as strategic management, research
and product development, brand
management, human resource (HR)
measurement and reporting, and
operations and supply chain.
Managing for Growth
In corporate strategy, a second area
of PAIB performance, PAIBs are
increasingly expected to be involved in
developing strategies for managing
value and growth. Their involvement
can include such activities as
developing a robust decision process,
advising on major investments, product
development, acquisitions and
divestments. PAIBs can also use a range
of investment appraisal techniques and
more advanced approaches such as
active portfolio management and option
pricing to improve decision making in
the uncertain environments that usually
characterize the research and product
development functions. PAIBs can also
be active in working with marketers and
others to assess brand and marketing
effectiveness, working with HR
managers to help connect investments
in people to the performance of the
business and working at the operational
interface on continuous improvement
initiatives to improve both quality and
efficiency.
Meeting the Challenge of
Globalization
The effect of globalization on
organizations is a major area of
consideration in corporate strategy and
one that PAIBs cannot afford to ignore.
Globalization has brought with it a
937

number of well-documented and
profound shifts, affecting both
organizations and the accountants they
employ – from economic liberalization,
relocation of economic activity, both to
other geographies, such as China and
India, and within geographies, to
technological advances and significant
demographic changes. To make any
business a global business means more
than finding new customers or suppliers
in other countries. It requires an
openness to change among both the
owners and the management team. This
change requires taking well-informed
risks, opening up the company’s culture
and making a serious commitment to
ongoing learning. It is for this latter
reason that IFAC’s Education
Standards Board has mandated a
requirement for all professional
accountants, including those in
business, to undertake continuing
professional development. None of this
change happens spontaneously, but
requires planning and clear leadership.
Hence, the planning of these internal
changes should be part of the planning
for international activities.
As organizations expand their
global activities to exploit competitive
opportunities, businesses large and
small are coming under increasing
scrutiny. Organizations will only be
able to build the trust of a range of
stakeholders through greater openness,
transparency and accountability. The
challenge then for professional
accountants in business is to serve as
an ethical gatekeeper – to be a
champion of integrity, transparency and
expertise – the three core values of
IFAC. IFAC’s Code of Ethics for
Professional Accountants, which is
applicable to all professional
accountants, including those in
business, industry, government,
academia, and public practice,
embraces these core values. It is
through these values and through a
commitment to ethics, transparency and
938
Cover Feature
accountability that we build the trust
that is so vital in business today,
whether at the global, regional, national
or local level.
The IFAC Board has recognized
that PAIBs are the front-line
professionals who could and should be
an accelerator for ethical business
practice and a brake on inappropriate
actions taken by their organizations,
with that brake extending, in some
situations, to whistleblowing.
Acknowledging that is it often
extremely difficult for a PAIB, in
isolation, to know what is the
appropriate action in a particular
situation, the International Ethics
Standards Board for Accountants has
begun a project to provide greater
guidance for accountants in business
with respect to whistleblowing. You can
expect to see this published in 2007.
This new guidance will also help
professional accountants in business to
carry out one of your most important
responsibilities: setting the tone at the
top in your organization. Earlier this
year, the PAIB Committee issued an
exposure draft, Guidance for the
Development of a Code of Corporate
Conduct, proposing guidance to assist
professional accountants and others in
establishing and implementing codes of
conduct in their organizations. The
publication draws greater attention to
the need for corporate codes of conduct
and provides practical guidance on the
scope and implementation of such
codes. The goal of the proposed new
guidance is to support sound corporate
governance policies worldwide. The
proposed guidance highlights the
benefits of an effective code of conduct
and identifies the professional
accountant’s role in the development,
monitoring, reinforcement and
reporting of such codes in their
organizations. To assist in the creation
of codes of conduct, the guidance
includes information on presentation
and content, on organizational and
the management accountant, December, 2007
management challenges and on
implementing a code of conduct in a
global organization.
Effective codes of conduct are a
vital component of an organization’s
control system. This new publication
will enable professional accountants,
who have a significant role in internal
control and risk management, to work
with senior management to develop and
review such codes, which, in turn, will
help to support the control, direction
and evaluation of their organizations’
performance.
Focusing on Decision Making
A fourth area of performance for
PAIBs, which is separate from,
although related to, strategy and trust
is decision making. To ensure effective
decision making, one must have access
to the best available information from
a variety of sources.
To help PAIBs to obtain access to
information that can help them to meet
these challenges, the PAIB Committee
has spearheaded the development of a
web-based knowledge resource, called
the “IFAC KnowledgeNet for
Professional Accountants in Business”.
The new KnowledgeNet is a unique
web project that aims to publicize and
consolidate the valuable information
produced by IFAC and its member
bodies for the benefits of professional
accountants worldwide. It will enable
member bodies to offer their
professional accountants one-stop
access to increased, relevant and high
quality information resources,
including helping them to deal with
ethical leadership and public interest
challenges such as corporate
responsibility. Current plans are for the
KnowledgeNet to be launched in early
October 2006. I would like to take this
opportunity to thank the Institute of
Management of Accountants for their
support of and involvement in every
step of the development of the
KnowledgeNet. I do believe that this

new resource will be a very valuable
source of information for members of
the IMA and for professional
accountants in business around the
world.
PAIBs will be able to access the new
KnowledgeNet when looking for
information or guidance on key issues
which they face, such as enterprise
governance. Enterprise governance is
an area of increasing focus for
organizations and for PAIBs. Indeed,
it is an area in which PAIBs must be
adroit if they are to meet the challenges
identified above: keeping pace with
management and environmental
changes, addressing globalization,
managing for growth and improving
their decision making.
Enterprise governance considers
both the conformance and performance
aspects of the organization and
emphasizes that the two need to be kept
in balance. Following corporate
scandals, such as Enron and
WorldCom, the emphasis has been on
improving standards of corporate
governance. While it is critical to
consider and further enhance such
standards, there is a danger that
companies might lose sight of the need
to create wealth and to ensure that they
are pursuing the right strategies to
achieve this. At the heart of enterprise
governance is the argument that bad
corporate governance can ruin a
company, but good corporate
governance cannot, on its own, ensure
its success.
Enterprise governance balances this
important debate on corporate
governance by recognizing that:
l Good corporate governance is a
hygiene factor – it can prevent
failures – but it does not guarantee
success;
l Effective strategy and execution is
essential for success; and
l Enterprise governance is a
the management accountant, December, 2007
Cover Feature
framework that encapsulates both.
To provide professional accountants
in business with guidance on
governance issues, from both a
conformance and performance
perspective, the PAIB Committee, in
conjunction with the Chartered Institute
of Management Accountants in the
United Kingdom, published a report,
Enterprise Governance – Getting the
Balance Right. It explores the emerging
concept of enterprise governance,
which incorporates organizational
performance into a business
governance framework, especially in
terms of decision making, strategy
formulation and execution. The report,
which is available on the IFAC website
(www.ifac.org), argues how both
perspectives must be in place in order
to support high performance in
organizations. This publication
highlights the role of PAIBs in these
processes.
As part of the project, we undertook
27 case studies from 10 countries in 10
different sectors. We considered what
goes wrong in companies and, more
important, what must be done to ensure
that things go right.
The countries covered included the
UK, US, Canada, Australia, France,
Italy and Hong Kong. Although the
report looked at companies such as
Enron and WorldCom, it also
considered success stories such as
Southwest Airlines in the US and
Tesco, the grocery chain in the UK.
No single issue dominates corporate
governance failure, rather a
combination of interrelated issues. Key
issues included failure of:
l Culture or tone at the top. Those
at the top of a company, by their
own poor example and failure to
uphold high ethical standards,
allowed a culture to flourish in
which secrecy, rule-breaking and
fraudulent behavior became
acceptable. In some cases,
performance incentives created a
climate where employees would
seek to generate profit at the
expense of the company’s stated
standards of ethics and strategic
goals. In terms of culture, Enron
provides a good example – although
the company professed values of
respect and integrity, employees
quickly learned that the only thing
that really mattered was how much
profit they could report.
l CEO dominance that often
bordered on the celebrity. The
report found numerous examples of
dominant and charismatic CEOs
who were able to wield
unchallenged influence and
authority over other executives and
board directors, for example, at
WorldCom and Vivendi.
l Boards of Directors, especially
weak boards or those that failed
to take necessary actions at the
right time. This includes failing to
adopt a questioning and
independent approach to the
material presented by management.
l Deficient internal controls. This is
a logical outcome of the above three
factors and, in the case of Enron,
allowed too much emphasis on
reported earnings growth.
Inexperienced staff were let loose
without any of the usual corporate
checks and balances.
The report also found that, in the
extreme cases, heavy pressure to
achieve aggressive earnings targets
combined with poorly-designed
rewards packages could only have one
eventual outcome.
Strategic failures came down to
poor choice and lack of strategic clarity,
poor strategy execution and slow
response to abrupt changes or fast
changing market conditions. The most
significant issue arising from the case
939

studies was unsuccessful mergers and
acquisitions.
The report also looked at success
stories. Strategic success demonstrated
by companies such as Southwest
Airlines, the UK retailer Tesco, Li and
Fung in Hong Kong, and Unicredit
Group in Italy depended on the
following:
l Choice and clarity of strategy and
effective strategy execution;
l Competency in mergers and
acquisitions, especially in terms of
well-executed post-deal integration;
l Responsiveness to environmental
shifts, customer requirements and
information flows to management
to support the decisions that need
to be made and presented in an
appropriate way; and
l Effective risk management so that
there is a performance focus to risk
management, so that it is not simply
a peripheral activity focused on the
prevention of physical and financial
loss at an operational level.
Thus, enterprise governance
provides an integrated framework to
help companies to focus on both the
value-creating drivers that move a
business forward and the need to ensure
adequate control and oversight. The
IFAC report provides guidance to
organizations on adopting enterprise
risk management, to ensure that
strategic risks are considered at all times
in the strategic process and to pull
together all the elements required to
integrate the consideration and
management of risk with the everyday
management of the business. The report
also provides advice on how to improve
the acquisition process.
Within the framework of enterprise
governance sits internal control, not
only on the conformance side but also
contributing significantly to
performance through the provision of
relevant, proactive information that
determines whether strategic objectives
940
Cover Feature
can be achieved. The PAIB Committee
is currently developing an information
paper that will review current
developments and some of the latest
thinking in the area of internal control,
while setting out the context of recent
US legislation. It will discuss a number
of key internal control frameworks,
such as the Committee of Sponsoring
Organizations of the Treadway
Commission, or COSO, in the US,
Turnbull Guidance in the United
Kingdom, and the Criteria of Control
or CoCo in Canada, as well as the effect
of recent legislation such as the
Sarbanes-Oxley Act.
COSO’s Internal Control Integrated
Framework (1992) and Turnbull’s
Guidance on Internal Control (1999)
both take a much broader approach to
internal control than Sarbanes-Oxley,
in terms of scope, objectives and
approach. They focus on all controls
covering the company’s entire range of
activities and operations, not just those
directly related to financial reporting.
An interesting fact emerged from the
recent UK Turnbull Review, which
stated that:
It was felt that those companies that
viewed internal control as sound
business practice were more likely to
have embedded it into their normal
business processes, and more likely to
feel that they had benefited as a result,
than those that viewed it primarily as a
compliance exercise.
The PAIB Committee’s new paper
will advocate a principles- and market-
based, risk-focused approach, in
recognition of the need for an
organization to develop an internal
control system particular to its internal
and external environment. We
encourage those organizations required
to comply with Section 404 of Sarbanes
Oxley to do so within a broader
enterprise governance framework –
thus ensuring that the business benefits
outweigh the, often substantial,
perceived costs of compliance. A
the management accountant, December, 2007
principles-based, non-prescriptive
approach has rightly been advocated in
recognition of the need for
organizations to develop an internal
control system particular to their own
specific internal and external
environments.
The preference is for an internal
control system that sits within an
enterprise risk management approach,
enabling organizations to manage risk
upwards as well as downwards. There
is consensus that internal control needs
to be embedded within the
organization, with all employees fully
informed as to how it affects their roles
and their requirements in terms of
monitoring and reporting. The
importance of the tone at the top and of
the culture and ethical framework
throughout the organization is fully
acknowledged and is considered
essential to the successful
implementation of an internal control
system.
To help professional accountants
worldwide to meet these and other
challenges, IFAC’s PAIB Committee
has this year begun developing a series
of principles-based good practice
guidance statements. This development
is one that is happening through the
leadership and support of the IMA. The
guidance will promote and support
consistent and high quality practice
across the global community of PAIBs.
Covering topics in the areas of
management control, costing and
corporate finance and financial
management, this new guidance will
also help to raise understanding of the
role of the PAIB. It will recommend
objectives in relation to the role of the
PAIB and define key principles, which
are widely accepted features of good
practice and which support the
achievement of the objectives of the
PAIB, and will provide practical
guidance to support application of the
principles.
In conclusion, it is important to

recognize that business has a central
role in driving economic and social
welfare but that it requires high quality
information for the effective
management of resources and sound
corporate governance to achieve these
objectives. PAIBs, as the primary
providers of business information and
reporting, play a crucial role in
contributing to the growth and the
development of business.
Our recent publication, The Roles
and Domain of the Professional
Accountant in Business, was developed
to build understanding of the diverse
roles, competencies and value PAIBs
contribute to organizations. Pointers
from this document include:
l As managers of value, PAIBs
should understand that delivering
sustained shareholder and
stakeholder value (or “best value”
as it has sometimes been described
in the public sector) is the main goal
when assessing alternative options.
PAIBs have a key role in developing
strategies for managing value and
growth and in moving other
functions towards these goals;
l PAIBs have a responsibility to
ensure that the organization
understands fully its key
performance drivers and that these
are communicated in both internal
and external reporting; and
l PAIBs should ensure there is a
relentless pursuit of efficiency and
effectiveness from the investment
base, particularly in areas such as
capital expenditure, working capital
management, brand management
and R&D.
Specifically, the IFAC PAIB
RETIREMENT
Smt. Ratna Sengupta, OSD(P), retired from the
Services of the Institute on 30th November 2007
after a long and eventful tenure.
the management accountant, December, 2007
Cover Feature
Committee’s role is to enhance the role
of PAIBs by helping them to think and
to act strategically and globally and to
develop the necessary knowledge and
competencies to deliver sound decision
making in organizations. PAIBs need
to be in a position to deal with the
increasing complexity of managing
business. For example, the move to
modular design and platform
development, to enable organizations
to deal with considerably shorter
product and service life cycles, requires
a more sophisticated approach to
planning, costing, risk and control.
The challenges for both IFAC and
its member bodies, such as the IMA,
are to sustain the relevance and
reputation of professional accountants
in business, continually to investigate
and adopt new concepts and new
learning models and to increase
awareness of the PAIB’s capabilities.
There are awareness gaps, in closing
which IFAC is having a significant
effect, for example, in improving
accounting information in the public
sector and highlighting the role of
PAIBs in driving economic activity and
their contribution to the governance
agenda. This is coupled with IFAC’s
role in supporting trust and credibility
in both the wider accountancy
profession and in capital markets,
which is central to its mission of
protecting the public interest.
Over the past few years, IFAC has
stressed its public interest objective.
While some might think that that
objective is confined to public practice
and auditing, that is an unacceptably
narrow conception of what is in the
public interest and of our profession’s
contribution to it. The public interest is
In November, 2007 issue (Page 911) in Schedule 5 to the
Annual Accounts of the Institute the nomenclature
‘Diamond Jubilee Prize Fund’ should be read as ‘Diamond
Jubilee Prize Fund-Donated by Shri V. Kalyanaraman’
served when organizations produce
products and services that have a value
greater than the resources consumed in
production. Economic growth and
development is in the public interest.
So when we talk about the public
interest, PAIBs are front and centre in
meeting it.
IFAC’s leadership, its Board and the
members of the IFAC PAIB Committee
all recognize the role of PAIBs in
protecting the public interest and in
contributing to economic growth and
stability. Through their daily work in
organizations around the world, PAIBs
contribute to the growth of their
businesses and organizations and to
greater economic prosperity for all. I
would like to thank the Institute of
Management Accountants for its 87
years of dedication to supporting the
work of professional accountants in
business and for its active involvement
in IFAC over the past 25 years. It is
through relationships such as ours that
we can continue to focus attention on
the vital work of management
accountants and provide them with the
resources, guidance and information
that they need to ensure high quality,
reliable reporting by their
organizations. As the Chinese proverb
says, “Careful accounts make for long
friendships.” I trust that the long
friendship between IFAC and the IMA
will continue, for the next quarter
century and beyond, and that together
we will help to support professional
accountants in business as they ensure
that there are careful accounts.
Thank you very much for your
attention and for your great
commitment as members of our great
profession.q
CORRIGENDUM
941

Pushing the Art of
Management Accounting
This is an IFAC article of merit
Despite the many strides the profession has made over the years, some still believe
that management accounting practices haven’t taken as strong a hold in
organizations as they should. The author describes the challenges that are slowing
the adoption of critical management accounting tools in broader business
Alexander Mersereau*
M
anagement accounting
practice has developed
substantially over the past
century, but recent studies suggest that
the practice is no longer making the
strides that it once did. Unless
management accountants take a hard
look at the effectiveness of current
practice, this situation isn’t likely to
improve. In some companies, radical
changes are needed to the structure of
the finance function, the nature of the
interactions management accountants
have with other managers and the
performance metrics used to guide the
function itself.
The good news
The early part of the 20th century
was a period of rapid development for
the field, when scientific management
sought to identify what costs should be
and economic organizations began to
use budgets and relate returns to levels
of investment. However little
development occurred in the following
years and, by the early 1980s,
management accounting had reached a
point of stagnation. H. Thomas Johnson
and Robert S. Kaplan,writing in 1987,
declared: Today’s management
accounting information, driven by the
procedures and the cycle of the
organization’s financial reporting
system, is too late, too aggregated and
CMA, FCMA, D.Sc., is a professor at
HEC Montreal.
942
Cover Feature
too distorted to be relevant for
managers’ planning and control
decisions... Management accounting
reports are of little help to operating
managers as they attempt to reduce
costs and improve productivity.
This call for renewal was widely
hee ded. Their book Relevance Lost:
The Rise and Fall of Management
Accounting became a best seller for the
editor of Harvard Business School
Press and set off a wave of innovation
and interest in the management
accounting profession worldwide.
Among the numerous technical
innovations that came from this period
were activity-based cost management,
the Balanced Scorecard, benchmarking,
life cycle costing, target costing,
economic value added measures and
strategic cost management.
Management accounting was also
able to build upon innovation in other
fields such as Total Quality
Management, Six Sigma, Kaizen and
Business Process Reengineering. The
development was rapid and interest
spread well beyond the management
accounting community.
Peter Drucker, writing in the
Harvard Business Review in 1990,2
declared that “the most exciting and
innovative work in management today
is found in accounting.”
Fifteen years later, it’s a good idea
to ask ourselves what has happened to
this reform. On one hand, the new tools
the management accountant, December, 2007
that came from that period are evidently
in use. Advanced management
accounting practices such as ABC and
non-financial performance measures
are included in all major management
textbooks. Studies of activity-based
cost management (ABC) have reported
generally positive user perceptions of
benefits. Most of the larger companies
appear to have experimented with
Balanced Scorecard (BSC) techniques
and studies have linked elements of
scorecard use to higher profitability.
Economic value added (EVA) research
has reported positive results. On the
other hand, despite these positive
results it would appear that the adoption
of advanced management accounting
practices once again has slowed.
Slipping standards
Studies estimate that the use of ABC
has fallen and is now below 20%, and
the percentage of those considering
implementing ABC has also fallen. Of
companies that have introduced
activitybased techniques, only a
minority claim that it is embedded in
their organization.
Strategic cost management
techniques, such as attribute costing,
seem little known outside academia.
The majority of firms adopting EVA
measures apparently don’t use them
significantly. Balanced Scorecard
researchers have concluded that most
users make little attempt to link their
non-financial performance to strategy
and that only a small minority attempt
to validate the cause and effect linkages
included in their models. Moreover,
Balanced Scorecard practice seems to
have developed an independent
momentum, excluding the finance
function altogether in some
organizations. There is even pressure
for management accountants to do less.
In his autobiography, Jack Welch
complained: “The budget is the bane
of corporate America (and) never
should have existed” and research that
would enable organizations to move
beyond budgeting is underway.

Therefore, it isn’t surprising that
despite the wave of innovation in
management accounting in the late
1980s and early 1990s, a recent study
by IBM consulting reported that less
than half of managers received role-
specific information to support ad hoc
decisions. Fewer still received frequent
operational metrics related to processes
under their control and very few could
obtain information across functions,
processes and geographies. A similar
study by Accenture/Economist
Intelligence Unit reported a significant
gap between potential and actual
practice.
These indications of a slowing pace
of management accounting change may
be due to a range of factors. In some
cases, new management accounting
tools aren’t adapted to organizational
strategy or structure and can’t be used.
And in some cases, innovation has
failed due to implementation-related
factors.
However, the main problems aren’t
tchnical or structural; they lie in the
need for a better management of the
management accounting process itself.
Getting involvedAt the heart of the
management accounting process is a
communications system, or a set of
communications systems, that provide
information to managers. The ability of
management accountants to improve
the scope, timeliness or quality of the
information they provide depends on
how well they understand and manage
these systems.
There are three main areas in
Pushing The Art Of Management
Accounting management accounting
systems in which communication
problems can occur, which are
illustrated here using the tale of The
Three Monkeys.
The three monkeys that most people
know are Speak No Evil, Hear No Evil
and See No Evil. In this medieval
Japanese illustration, a trio of monkeys
is depicted with one having his hands
the management accountant, December, 2007
Cover Feature
over his mouth, another covering his
ears and a third his eyes. The original
use of this image seems to have been
to illustrate wisdom. The three wise
monkeys, as they were referred to,
counselled the disciplined avoidance of
evil. Conversely in modern times the
image of the three monkeys has been
used to emphasize stupidity and
negligence, or the unwillingness of
people to get involved. Here they are
used in the latter sense to illustrate the
need for management accountants to
become more involved in this
communications process.
The management accounting
communications process begins with a
set of inputs to the accounting
information system. This data is then
encoded into information using a
language (accounting) and transmitted
to a recipient. Here is our first monkey,
the speaking one. The management
accountant can’t possibly observe,
measure and report on everything. She
must select from a wide field what to
report, how to report it and when. To
do this well, she must anticipate how
this information ought to be used, have
a language at her disposal that
succinctly codifies the key data
observed, and have a communication
medium that reaches the intended
audience efficiently and effectively.
The next leg of the communications
process is the receipt of the information.
Here we confront the second monkey,
the hearing one. Managers must be able
to correctly decode the reports they
receive. They must therefore be familiar
with the concepts used in the
accounting models that are used to
prepare the reports and understand what
the variances in the numbers signify.
Finally, managers act on the
information received. How they will act
depends on how they interpret the
message. This is a separate challenge
and introduces the third monkey, the
seeing one.
Individuals interpret and act on
information using personal decision
rules that they have learned over time.
A large part of any manager’s decision
strategy will be guided by how he views
his organization and his role in it, and
personal and corporate objectives are
never completely aligned.
The actions that a manager takes as
a result of receiving information
(including actions taken in anticipation)
and the consequences of these actions
should be of great interest to the
management accountant. These
consequences become part of the world
she must observe. This is the first
monkey all over again, and so the cycle
continues.
Big picture providers How do some
organizations meet the challenges
illustrated by the three monkeys? Let’s
look again at the first monkey, the
speaking one. To be able to
communicate to managers, accountants
must have a clear picture of the strategic
importance of the phenomena they
observe, and they must have a clear idea
of how operating decisions are made.
Some of this can be learned in
university but most of it comes from
day-today experiences within
operations. This requires frequent
contact between Articles Of Merit
management accountants and other
managers.
However, the cycles of monthly,
quarterly and annual planning and
reporting are punishing and accountants
regularly work overtime during these
periods. To overcome these barriers,
some organizations encourage contact
by physically locating accountants with
other managers. Some deliberately
place accountants on interfunctional
working groups and many ensure that
management accountants have either
dotted or solid line accountability to
operating managers. Some
organizations have adopted a structure
in which some management
accountants don’t have routine
reporting responsibilities.
943

A complicating factor is how
management accountants are
themselves received when dealing with
operations personnel. Over the years in
some quarters accountants have earned
a reputation for bringing an unbalanced
and overly financial point of view to
problem solving, which has diminished
their position in the hierarchy. Some
managers have characterized financial
managers as among those with the least
mental flexibility, the most closed
minds and the least willingness to take
risks.
While some of the blame for this
impression can be attributed to poor
public relations, the selection and
training of accountants remains a
significant issue. Management
accounting requires practitioners with
a “big picture” point of view who are
able to challenge operating managers
as peers. Formal education may
actually have a negative effect on
recruitment. Several studies have
suggested that accountants may follow
a training regime that is too highly
oriented to the financial aspects of their
work and not sufficiently directed to the
behavioural side. Others have observed
that the financial bias to the educational
component has the regrettable
consequence of attracting candidates to
the profession who are more
comfortable with a formula-based
approach to decision making and less
at ease with the ambiguities that
characterise managerial work.
Educating others Let’s turn now to
the hearing monkey, which refers to the
ability of managers to understand the
accounting reports they receive. When
financial accounts are prepared and
distributed externally, accountants are
permitted to assume that the reader is
trained in accounting. This isn’t the case
inside the organization, where a vast
majority of managers haven’t
completed any significant formal
accounting training, and those who
944
Cover Feature
have will have forgotten much of what
they learned.
Some organizations are attempting
to overcome this problem by supple-
menting or replacing financial reports
with symbols or colours (green for OK,
yellow to signal issues and red to
announce a real problem). While such
systems have the advantage of
simplicity, questions need to be asked
about the overall content of such
communications. What does yellow or
green really mean? What about the grey
areas in between? And in the political
context of organizations, how might
these ambiguities be exploited for
personal benefit?
Rather than reducing the content of
accounting messages to one of three
possible states, accountants need to
help end users become more proficient
in reading accounting reports. Some
organizations have built accounting
pushing the art of management
accounting training modules for their
managers that help them understand the
specific reports they receive.
Management accountantshave an
important role to play in preparing and
delivering training materials. In today’s
complex managerial environment
technical functions, especially
accounting, need to become more than
suppliers of information. They must
become a kind of a school where
managers can receive training. Yet in
many organizations, accountants are
too busy to become trainers and internal
reward systems likely discourage such
activities. Here the training activity
itself needs to be repositioned to make
it attractive to accountants.
As the scope of management
accounting messages widens to include
nonfinancial performance indicators,
management accountants acquire an
additional challenge. Many managers
have difficulties visualizing the cause
and effect relationships that link value
drivers to financial returns. Yet this is
the management accountant, December, 2007
the key knowledge needed to manage
value, and training is often required to
help managers understand better the
cause and effect relationships that
underlie shareholder value.
The third monkey, the seeing one,
refers also to the manager, this time to
the conflict that exists between
shareholder values and the interests of
individual managers. Increasing
functional specialization means that
managers are increasingly disconnected
from shareholder values. Many
managers are strongly committed to the
organization without being committed
to the financial goals that drive it.
Management accountants have a role
to play in instilling financial discipline
and conveying financial values to
nonfinancial managers. One method is
to require operating managers (rather
than accountants) to systematically
prepare and present the financial
analysis of their business unit.
Shareholder value training is also
important.
At the same time that the
management accounting function must
pay greater attention to the
effectiveness of its internal
communications processes, other
demands are arising. There is
increasing pressure to reduce the
overall cost of the finance function as
a percentage of revenues. There are
increasingly time consuming demands
for more detailed external reporting.
While these latter goals are important
and must be achieved, putting the
priority there only increases the risk that
internal accounting communications
will fail to achieve their objectives and
that management accounting system
change will be further delayed.
The way forward Improving
management accounting begins with a
commitment to change.
For many organizations, this is a
huge step. Accountants have been
found to be the first to resist accounting
 Cover Feature

change, and the failure of various ABC of their communications processes. l Does this training explain the links
and scorecard projects has been linked Such a diagnosis would include the between financial and operational
to the unwillingness of accountants following questions: events?
themselves to see the project through. l What changes to management l Does this training explain why
Many accountants are afraid that radical accounting practice have you financial goals are important?
l Are operating managers required to
change might endanger existing initiated in the last two years?
systems and processes. l How many people are committed to systematically prepare and present
To ensure that change is permanent, real change? the financial analysis of their unit?
commitment to change must come from l Do accounting personnel regard l Do performance measures other than
the top and must be sustained. themselves as members of the cost and timeliness exist for the
As the previous examples illustrate, operating team?
management accounting function?
improving the management accounting l How much time do management
function often requires structural l What priority is given to these
accountants spend with
reorganization. If everyone is metrics and how are they used?
nonfinancial personnel?
l
consumed by the routine reporting The more management accountants
Are management accounting
cycles, there will be no one left to can respond positively to these
personnel physically located in such
assume emerging roles in areas such as questions, the better organizations will
a way as to bring them in regular
management training. In some become at managing the
contact with nonfinancial
organizations bringing in new people communications processes that
managers?
will be necessary.
l
underlie management accounting.
Do management accountants have
Management accounting is more This will create a better
a reporting responsibility to
than just accounting, it requires people understanding of the role that
operational managers?
who understand the behavioural
consequences of numbers and who can l Do reports to individual managers/ management accountants can play in
units contain a maximum amount achieving success and it is in this
link controls to strategy.
of information about that specific context that significant management
Last, but not least, the management accounting change will occur.
unit?
accounting process requires new
metrics. l Are accountants given 1. Johnson, H. & Kaplan, R. (1987),
responsibilities that can only be Relevance Lost: The Rise and Fall
Most accounting functions measure of Management Accounting,
discharged by working with
timeliness, in terms of the delay Boston, Harvard Business School
operational people?
between the end of the reporting cycle
and thei ssuing of the report, and many l Do the accountants who have these Press, p 269.
measurethe cost of the finance function responsibilities have sufficient 2. Drucker, Peter (1990) The
relative to revenues. Few organizations status to maintain working Emerging Theory of Manufacturing
measure the use or the usefulness of the relationships on the basis of mutual Harvard Business Review May/
management accounting information respect? June pp. 94-102
provided. The absence of such l How many accounting personnel do 3. Accenture Finance Solutions
measures guarantees that things will not have significant routine (2004) Best in Class How Finance
remain the same. reporting responsibilities? Business Process Outsourcing Can
Diagnostic Management accoun- l How much financial training is Help Create a High Performance
tants should conduct frequent analyses provided for operating management? Finance Function. Alexander.q

HEARTY FELICITATION
Gautam Mitra, on his promotion to the position of Deputy General Manager (Finance & Accounts)
and Company Secretary of Burn Standard Company Limited, Kolkata.
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

P N Shankar on his joining Futura Polyesters Limited (Formerly Indian Organic Chemicals Ltd.)
as Dy. General Manager Accounts.

the management accountant, December, 2007 945


Disciplined vision
Anne Papmehl*
Building a competitive advantage
through sustainable development
practices takes more than a good
mission statement. A strong
organizational learning focus can
add a new dimension to your
efforts.
M
any of today’s progressive
companies are adopting
sustainable development
practices, not just
for the sake of the
planet but also their
own competitive
edge. But a truly
sustainable company
doesn’t arise from a
mission statement and a few new
pollution controls: the company needs
to be continuously learning, trans-
forming and innovating to significantly
reduce its environmental impact, create
social value and outpace its
competitors.
To build and strengthen these
capacities, many sustainable North
American organizations are turning to
the five core organizational learning
(OL) disciplines: systems thinking,
challenging mental models, team
learning, building shared vision and
personal mastery.
“Integrating OL insights, tools and
disciplines with sustainability in
creative ways has the power to drive
real breakthrough innovations,” says
Bryan Smith, co-author with Peter
Senge of three Fifth Discipline OL
field-books. He is also president of
Broad Reach Innovations and a faculty
MA (apapmehl@sympatico.ca) is a
London, Ont.-based writer and
consultant.
946
CMA Global Perspective
member at the Sustainable Enterprise
Academy (SEA) at York University in
Toronto.
Shifting thinking, perception and
interaction
One ideal end point of a sustainable
company is to become environmentally
neutral or, better, environmentally
restorative. Getting to that point
requires different aspirations and ways
of thinking. “At the core of
organizational learning is a
fundamental shift in the quality of the
thinking, perception and interaction,”
says Smith, “and we believe these to
be the most powerful upstream points
of intervention for any organization,
sustainable or otherwise.”
Of the five organizational learning
disciplines, none embodies this notion
more fully than systems thinking.
Known as the integrative discipline,
systems thinking is the art or practice
of seeing the system as a whole and
focusing on the relationships or
interdependence among the system’s
parts. The idea is to work with the
system rather than against it to create
permanent solutions to problems, and
achieve shared aspirations that often
seem impossible when teams start to
work on them.
With a systems thinking approach,
the further upstream one goes, the
higher the leverage. “If you think of it
in relation to pollution,” says Smith,
“you can add controls onto your stack
at the end of the production process and
try to remove contaminants there, but
that’s a very low-leverage way to
address the problem. A higher-leverage
approach is to systematically move
upstream to challenge your collective
thinking about the products you’re
the management accountant, December, 2007
producing, how you’re producing them
and what end result you’re actually
trying to deliver to your customers.”
Smith recommends four key steps
in applying systems thinking:
l Broaden the boundaries of the
system you are considering by
looking beyond your firm and your
industry, to the larger economy and
the needs your firm is fulfilling in
society.
l Create a shared vision of your
company leading change in that
larger system, perhaps including
restorative contributions you want
to make in the environment and
community aspects of the system.
l Establish three to five key leverage
points in the system to focus your
energy that will move your
organization forward with the
highest return on your investment
of time, money, talent and other
resources.
l Develop a strategy for each
leverage point, create teams made
up of the best, brightest and most
energetic people in your
organization and take action.
By the time Suncor Energy started
working with Smith and the OL models
in 2001, it had been applying systems
thinking models in the proper sequence,
albeit unknowingly, for nearly a
decade. “When we started we had no
theoretical underpinnings to follow,”
says Gordon Lambert, the company’s
vice-president of sustainable
development. “It was basically learn by
doing.”
With climate change being the
pressing issue in the early 1990s,
Suncor examined the impacts and
implications of it from a broad
perspective. “We researched everything
we could find on climate change on
national and international levels,
developed a network of contacts,
examined the implications for our

company, our industry and even for our
country,” says Lambert. “From there we
went on to consider the inter-political
and commercial dynamics as well as the
technology implications, how all the
pieces fit together, and then looked for
where the highest leverage points
were.”
Suncor settled on seven leverage
points, articulated in its Seven Point
Action Plan in 1997. “These are a few
more than what [Smith] recommends,”
acknowledges Lambert, “but we
consider the first four to be the most
significant from a strategy point of
view.” They are: internal energy
efficiency, renewable energy, offsets
and new technologies. “These leverage
points allowed employees at all levels
to see the issue as something that they
could manage and, even though it’s
ambiguous, they’d see opportunities to
take action.”
A core part of Suncor’s strategy is
technical innovation, both in the
emerging area of renewable energy and
in the company’s traditional fossil fuel
business. In the latter, especially,
Suncor continues to take the systems
thinking approach. “We’re looking at
how we can take the learning from our
oil sands production and extend it into
the sequestration (capture) of CO2, and
where that in turn might take the
company in terms of future markets,”
says Lambert. Another technology the
company is exploring is gasification,
which could eliminate or reduce the
need for supplemental natural gas as
fuel, as well as create a new synthetic
gas that could be converted into petro-
chemicals or feedstock.
Suncor’s early upstream response to
climate change is already paying
dividends. “All of this research got us
into action mode sooner than we
otherwise would have,” says Lambert.
“We did our homework at a technical
level five or six years ago, and now it’s
suddenly front and centre for policy
the management accountant, December, 2007
CMA Global Perspective
makers and industry colleagues. When
you get this kind of thing right, you’re
not reacting to change; you’re actually
positioned to take advantage of the
change when it occurs.” As it goes
forward, Suncor is working extensively
with OL disciplines to help put more
structure around the learning models it
has applied so far.
Creative tension
All organizations, including
sustainable ones, face the challenge of
what they would like to do (vision/
aspiration) versus what they believe
current reality will let them do. “When
there is a big gap between vision and
current reality, people often begin to
feel anxious, frustrated or
discouraged,” says Smith. “A common
response to this emotional tension is to
try to relieve it, either by lowering the
vision or by denying important aspects
of current reality.”
A more productive approach is to
hold the vision while simultaneously
acknowledging current reality. “This
generates an enormous amount of
energy that actually draws current
reality toward the vision. You are then
more able to take effective actions to
create the results you want,” says
Smith. This is called creative tension,
which Smith sees as the fundamental
organizing principle underlying all of
the organizational learning disciplines
and central to his work on sustainability
with progressive firms.
In 2002, Suncor was facing a
mediocre health and safety record. In
response, the company introduced a
program called Journey to Zero. The
vision was to become accident and
illness free within a short time. “It
caused all sorts of grief at the
beginning, from the senior levels right
down to the plant floor,” reports
Lambert. The prevailing mental models
centered on the impossibility rather
than the probability of the goal.
With the help of OL disciplines and
guiding principles, Lambert challenged
the mental models of the employees.
“We held workshops with employees,
focusing on information on their values
and beliefs that we collected from
earlier surveys, and that data informed
a lot of our workshops,” says Lambert.
Gradually the impossible came to be
seen as possible, and today, three years
later, there are pockets within the
company that are accident and illness
free. “When you intervene on the level
of employee values and beliefs, or
mental models, rather than at the level
of the safety programs themselves, it’s
much more powerful.”
While challenging mental models is
a stand-alone discipline, it is often
paired with team learning. Together,
these are known as the collaborative
organizational learning disciplines.
“They are so named because they focus
on building the crucial skills required
for truly productive conversations,
deeper dialogue between people with
very different views, collective
intelligence and commitment,” says
Smith
A newcomer to sustainability,
BASF Canada recently established a
Sustainable Growth through Innovation
Team (SGI Team) to help incorporate
the concept into its day-to-day
processes, operations and decisions.
“Just bringing people together in a team
situation to think about sustainability
challenges mental models and forces
people to be creative,” says Kerry
Bowman, director of BASF’s
Polyurethane and Styrenics Business
Unit.
One exercise the company has used
to good effect is scenario planning.
“Scenario planning enables you to not
only challenge your mental models and
assumptions, it also helps you see the
inherent threats and opportunities in the
future and formulate strategy,” says
Smith.
BASF’s Building and Construction
947

Group is the first of the company’s
many units to use it. “We really tried to
think way out in an informal group
session,” reports Kay Schaltz, director
of Intermediate and Performance
Chemicals. “We asked ourselves
questions around what the housing
industry could be like 25 years from
now, in terms of energy efficiency,
aesthetics and new products —
basically everything from the roof
down to the foundations.” While the
group has not yet arrived at the strategy
formulation phase, Schaltz reports that
the creative tension and excitement
around the exercise are extremely
energizing to the group.
The two remaining disciplines of
building shared vision and personal
mastery are seen as the aspirational
disciplines. Like their collaborative
counterparts of team learning and
mental models, these two disciplines
are often paired, with people first
developing their personal vision, then
working with others in the company to
forge a true shared vision. Plug Power,
a U.S. fuel cell company, has an
underlying goal or vision to produce
technology that will result in a more
sustainable lifestyle worldwide. The
company also has the goal to become a
learning organization. But, as the
company found, looking at these goals
in such a broad scope can be
overwhelming, “so we work to have
longer term visions, but also shorter
term goals, with very specific
objectives,” says Marie Schnitzer, the
firm’s program manager.
One way the company is working
with shared vision and personal
mastery is through group projects. For
example, the company had a social goal
of building a large, on-site sports
complex that could also be used for
employee fitness as well as employee
seminars. However, being in the early
stages of product development, their
current reality suggested this
investment might be unwise.
948
CMA Global Perspective
The company looked at the assets
it had, which included strong employee
commitment to building a community
that works and learns together, and
some dedicated volunteer employees.
“Over a two-year period, we were able
to accomplish some smaller projects
that support fitness and community,
including a basketball court, horseshoe
pits, and a weight and cardio room for
employee use,” says Schnitzer. “A
number of employees donated their
time and equipment and the company
financially supported some of the
projects as well.”
The creative tension around the goal
meant the company didn’t have to
abandon its vision entirely. “Although
the aspiration was for a great sports
complex, the current reality didn’t let
us reach that point,” says Schnitzer,
“but because of the creative tension
around the vision, we could still
generate energy and do something on
a smaller scale.” Schnitzer reports that
the company has been transferring
organizational learning from exercises
like this one into its business areas like
product development, technical
innovation and problem solving.
Seeing the gaps
In each of these cases, Smith
attributes the breakthroughs and
successes to the leaders’ ability to be
honest about where they were and
where they wanted to be. “We believe
truth to be at the core of successful
learning, innovation and change on
sustainability,” says Smith. “Unless you
can be honest about both current reality
and the vision, and the gaps between
the two, you’re just not going to get
credibility and support inside or outside
your company,” says Smith.
He says it’s equally important for
people to be honest about their mental
models. “By looking at them deeply and
questioning them you make them
subject to change and improvement.”
the management accountant, December, 2007
This is not always easy and, ultimately,
only individuals can challenge their
own thinking. “If people choose to
defend their way of thinking, they’re
pretty much bullet proof to change,”
says Smith. But one thing is for certain.
We are not going to achieve a truly
sustainable future through ‘business as
usual’ thinking. “Working with the five
OL disciplines can give people at all
levels in business a tremendous boost
to creating the future they want.”q
This article is reprinted with the
permission of Certified Management
Accountants of Canada from
September 2005 issue of CMA
Management magazine.
AT THE HELM
Sri K. G. Nath, (43 years) has been
appointed as Financial Adviser and
Chief Accounts officer of Cochin
Port Trust. He is a post graduate in
commerce from University of Kerala
and an Associate Member of our
Institute.
A native of Ernakulam District, Sri
K. G. Nath started his carrier in
Cochin Refineries Ltd. in 1985 now
BPCL-KR, left the organization in
1985 and joined the office of the
Accountant General Kerala and later
joined Rubber Board, Govt. of India
in 1992 and left that organization in
the year 1996 and joined Cochin Port
Trust as Dy. Chief Accountant. From
2001 to 2007 he worked as Deputy
Financial Advisor of Cochin Port
Trust.

Franchise management —
the people make the
difference
Maureen T. McKay*
While franchising is a very
effective way to expand an
enterprise, it comes with its own
challenges. Choosing the right
franchisees is one of the biggest
and most important.
F
ranchising has become a multi-
billion dollar industry in Canada.
Currently, over 48 cents of every
retail dollar is spent in a franchised
outlet.
Although franchising is usually
associated with restaurant and retail
chains, the
application of
this business
model has
expanded
substantially
to include
many other
specialty sectors. What once appeared
to be the preserve of retail businesses
is now a viable alternative to corporate
growth in almost every business sector.
Franchisors should, however, be
mindful that the franchise model
presents particular challenges and
opportunities for managing and
protecting core business assets.
Every successful franchisor
understands the importance of
protecting and promoting the value of
its core assets. Branding is typically
*B.A., LL.B., (mmckay@pallettvalo.
com) is a member of Pallett Valo, LLP’s
franchise law group, in Mississauga,
Ontario.
the management accountant, December, 2007
CMA Global Perspective
protected through the development and
registration of trademarks, as well as
through copyright. Specialized
software, products, designs and
equipment can be protected by both
copyright and patents. Business
methods and other proprietary
information are usually protected by
restricting access to confidential
information, imposing strict contractual
obligations on those who do have
access to it and, in some cases, by the
registration of patents covering
information that is proprietary but not
confidential.
Unfortunately, many franchisors
overlook both the challenges and the
opportunities that exist for managing
what is perhaps their most important
asset — their people and, more
particularly, their franchisees.
It’s about resource allocation
Some franchisors become so
focused on growth, and particularly
quick growth, that they fail to
appreciate the importance of selecting
the right kind of franchisees for their
systems. When franchisors admit
franchisees who don’t ‘fit’, who don’t
possess the qualities needed to operate
a successful franchise within the
system, they effectively reduce the
overall success of the system, and have
to devote extra resources either to try
to help a struggling franchisee survive
or to try to manage and control a
franchisee who does not comply with
the franchise agreement, manual and
policies. In addition, they inevitably
have to deal with high rates of turnover.
This results in increased application of
resources to problem-solving and
dispute resolution, diverting them away
from initiatives aimed at achieving
growth and greater profitability.
Poor human resource management
can undermine the success of any
business and this is particularly true in
the franchise sector. It is therefore
critical that a franchisor carefully
analyze its human resource needs and
develop a comprehensive system for
attracting and selecting people who
possess the qualities needed to achieve
success in the franchised business.
Screening processes — the options
On a corporate level, a franchisor
must have an internal staff equipped to
find, select, train, support and manage
franchisees effectively. On a system-
wide level, a franchisor must develop
a system to ensure that the franchisees
who become part of the system have
the particular qualities that are essential
to success in the franchised business.
Finally, measures must be taken to
ensure that each franchisee’s front-line
workers will serve the system properly.
To create such a proper franchisee
selection and screening system, a
franchisor will have to:
l Learn from success — Select a
successful franchisee from the
system (or a similar system, if
necessary) and analyze the reasons
for that individual’s success to
develop a profile of the ‘ideal
franchisee’ for the franchise system
in question;
l Think outside of the interview —
Implement behavioural inter-
viewing procedures, personality
profiling and/or experiential
assessments to determine whether
a candidate possesses the qualities
needed for success in the system;
l Learn to say no — Select
franchisees only from those who
truly match the profile and reject
those who do not; and
949

l Weed out the weak — Identify
those franchisees cur-rently in the
system who do not match the profile
and, over time, remove them, either
through termination or through non-
renewal of their franchise
agreements.
There are a variety of commercial
services and programmes available to
assist a franchisor in establishing an
appropriate screening process. Advice
and assistance should be sought from a
company or consultant specializing in
franchisee selection and screening.
The benefits — risk reduction &
increased profitability
By creating and implementing a
proper screening process, a franchisor
can:
l Minimize franchisee failure and
turnover (both of which are costly
and injurious to goodwill) and
increase success and profitability of
the system as a whole;
l Minimize the prospect of, and
losses resulting from, a franchisee’s
wrongful conduct toward the
franchisor;
l Minimize exposure to legal liability
for a franchisee’s wrongful conduct
toward customers or others;
l Reduce the franchisor’s exposure to
legal claims from unsuccessful
franchisees and reduce the chances
of having to pursue legal claims
against errant franchisees;
l Dedicate resources to proactive
business planning and management
instead of to problem-solving and
dispute resolution; and
l Protect and develop the goodwill of
the system overall.
The avoidance of legal action is
important for any franchisor, because
litigation is costly, time consuming,
disruptive to the franchisor’s business
and usually bad from a public relations
point of view. Avoiding such claims is
particularly important in jurisdictions
950
CMA Global Perspective
such as Ontario and Alberta, though,
because franchisors active in those
jurisdictions are legally required to
provide detailed written information
about all lawsuits in disclosure
documents that they must provide to
prospective franchisees. The disclosure
of litigation between a franchisee and
current or former franchisees will,
obviously, complicate the sales process
and may deter individuals who would
be successful franchisees from entering
the system.
The front line worker
In addition to implementing a
proper franchisee selection and
screening process, a franchisor must
identify the specific human resource
concerns that apply to the people who
will work for the franchisees.
Screening and selection of front-
line workers may, in the context of
many franchise systems, not appear to
be a high priority. Consider, though, the
fact that, in many systems, front-line
workers:
l Have access to customers’ sensitive
personal and financial information
(including home addresses, credit
card numbers, bank accounts, etc.);
l Perform personal services for
customers (eg. the preparation of
tax returns, provision of child care
or personal assistance, the
performance of cosmetic services
and even provision of medical
care); and
l Attend at or are given access to
customer’s homes, either when
customers are present or when they
are not (eg. to provide landscaping
services, deliver and install carpets
or furniture, perform electrical or
plumbing services, etc.).
Liability for acts and omissions of
franchise employees
So, whether a franchise provides
home inspection services, real estate
sales, accounting services, spa services,
or even fast food delivery, franchise
the management accountant, December, 2007
customers, whether they realize it or
not, will usually be in a potentially
vulnerable situation. That vulnerability
may result in a franchisor (and not just
the franchisee) owing a specific duty
of care to its customers. Where such a
duty of care exists, the law will impose
liability on a franchisor that fails to
meet it.
There is a reasonable expectation on
the part of any customer that individuals
employed in a franchise system (both
at the franchisor and the franchisee
level) have the knowledge, skills and
integrity to do their jobs safely and
effectively. In addition, if a franchise
sends its employees to people’s homes
for deliveries or to provide other
services, there is a reasonable
expectation on the part of customers
that the person coming to their house
is not a dangerous person, and that they
will be safe with such a person in their
home. Because these expectations
exist, if a franchisor does not implement
an appropriate screening system and
require its franchisees to follow the
same, it could be held liable to a
customer who is injured or suffers
damages due to the acts or omissions
of franchise employees.
For instance, in situations in which
employees are sent to customers’
homes for any purpose, including
something as simple as fast food
delivery, a franchisor may have a legal
obligation to conduct a criminal record
check before hiring such a person. If a
franchisor fails to do so, and it turns
out that an employee with a criminal
record commits a criminal act against
a customer or other third party, the
franchisor may find itself liable to pay
damages to the aggrieved party.
Similarly, in the context of
professional service franchises,
prospective employees may be
screened for any regulatory offences or
disciplinary decisions issued by the
body that governs their profession. In
the absence of such screening, a

customer who suffers damages due to
an act or omission constituting
negligence on the part of the employee
may have recourse against the franchisor.
Note that, contrary to popular
belief, it is not illegal to ask a
prospective employee if he or she has
a criminal record or has been convicted
of certain provincial offences if such a
record is relevant to the job for which
he or she is being considered. Legal
advice should, however, be obtained to
determine precisely what a particular
employer can and cannot require from
an applicant in this regard. If an
inappropriate question is asked, an
employer may be exposed to a complaint
under human rights legislation.
A franchisor should therefore
identify the skills and other qualities
required for, and the risk factors
associated with, the services to be
provided by each category of
employee, from the perspective of both
the franchisor and the customer, to
determine what type of screening
process is necessary and appropriate for
the same.
Next, the franchisor must identify
means by which to ensure that
employees possess such skills and
qualities, and reduce such risks. For
example, the franchisor can implement
internal and system-wide policies
requiring that its human resources
department and its franchisees conduct
THE INSTITUTE OF COST AND WORKS ACCOUNTANTS OF INDIA
12, SUDDER STREET, KOLKATA - 700 016
21-CWA/2007: In pursuance of sub-Section (1) of Section 21 of the Cost and Works Accountants Act, 1959 as amended by
the Cost and Works Accountants (Amendment) Act, 2006, it is hereby notified that the Council of the Institute at its 241st
meeting held on 22nd July, 2007 has established a Disciplinary Directorate headed by Shri Kaushik Banerjee, Joint Secretary
designated as Director (Discipline) for making investigations in respect of any information or complaint received by it.
the management accountant, December, 2007
CMA Global Perspective
a criminal background check before
hiring certain types of employees, as
well as carefully checking references,
and verifying academic credentials,
employment histories, professional
standing, etc.
The franchise agreement
A franchisee’s obligations with
respect to employee selection and
screening should be set out in the
franchise agreement between the
franchisor and franchisee. In addition,
the franchisee’s reporting obligations
should include the submission of
evidence that the screening and
selection process is followed
consistently (e.g. by submitting copies
of criminal background reports or
completed employment application
forms concurrent with the hiring
process) and the franchisor’s audit
rights pursuant to the franchise
agreement should expressly address the
review of franchisees’ records about the
screening and selection process.
Can you afford not to?
A number of difficult lessons have
been learned in the franchise sector in
the past several years. More
sophisticated approaches to franchisee
development and employee hires
appears to be a burgeoning trend. While
some believe that they can’t afford the
expense of such an approach, the costs
and losses that result from poor
Institute Notification
NOTIFICATION
franchisee and employee selection far
outweigh the cost of institutionalizing
a selection and screening process. In
addition, a good process will likely
realize results in greater efficiency,
profitability and valuable goodwill.
Franchisors in the process of
creating their systems would be well
advised to build a good screening and
selection process into their initial
model.
Those who have already made some
mistakes in this regard will likely see
the importance of implementing a
strategic human resource management
plan, but may also think that it is too
late for them to do so. It probably isn’t.
Franchisors who have made mistakes
can start by identifying what has and
has not worked in their franchise
systems and determine what makes an
‘ideal franchisee’ in that context. Once
a profile has been created, a franchisor
can identify not only which franchisees
to bring into the system, but which ones
will have to be removed. With some
good professional advice, a franchisor
can gradually replace unsuccessful
franchisees with successful ones, while
minimizing costs and conflict.q
This article is reprinted with the
permission of Certified Management
Accountants of Canada from
February 2005 issue of CMA
Management magazine.
Kolkata, the 29th October, 2007
Sd-
(Debasis Bagchi)
Secretary
951

Exceptional and
Extraordinary Items
L. Venkatesan*
Introduction
I
n order to rationalize and modify
the process of formats for
submission of financial results to
stock exchanges and also with a view
to simplify the process the Securities
and Exchange Board of India has
amended the clause 41 of the listing
agreement . The amendment has also
made certain changes in the format for
submission of quarterly results .
Among the various changes a new
row has been added before Profit and
Loss from ordinary activities
“Exceptional Items” . The disclosure
requirement of “Extraordinary Item “
has been changed to “Extraordinary
Items (net of tax expense Rs……..)” .
The introduction of a new row item
namely Exceptional Item has created
some mix up with the definition of
Extraordinary Item .
Definition of Extraordinary Items
Accounting Standard (AS)
5(revised 1947) defines “Extraordinary
Items are income or expenses that arise
from events or transactions that are
clearly distinct from the ordinary
activities of the enterprise and ,
therefore , are not expected to recur
frequently or regularly ”.
The earlier version AS 5 (1982
version) , Extraordinary items were
defined as “gains or losses which arise
from events or transactions that are
distinct from the ordinary activities of
the business which are both material
and expected not to occur frequently
Cost Accountant
952
Financial Reporting
or regularly ”.
US GAAP defines Extraordinary
Items as “Events and Transactions that
are distinguished by their unusual
nature and by the infrequency of their
occurrence ”.
International Public Sector
Accounting Standard (IPSAS 3)
defines “Extraordinary Items as
revenue or expenses that arise from
events or transactions that are clearly
distinct from the activities of the entity
that are not expected to recur or
regularly and are outside the control or
influence of the entity “
Definition of Exceptional Items
While a varied definitions are
available for the word extraordinary ,
the word “ EXCEPTIONAL “ has been
In order to understand the distinction between exceptional and extraordinary items
a few extracts from APB opinion 30 (under US GAAP) regarding Extraordinary
Items is summarized below
Extraordinary Items
1. Clearly distinct from ordinary
Activities
Eg: Loss on account of Tsunami
2. Items that are unusual
and infrequent .
Eg: loss on account of Gujrat
Earthquake
3. outside the control or influence
of the Entity
Eg: Takeover of assets by the
Government
4. Occurrence of extraordinary
items are rare
Eg : Nationalization of Banks
the management accountant, December, 2007
indirectly defined in Schedule VI Part
II para 2 in the following manner “The
Profit and Loss Account
(a) shall be so made out as clearly to
disclose the result of the working
of the company during the period
covered by the account and
(b) shall disclose every material feature
including credits or receipts and
Debits or expenses in respect of
non-recurring transactions or
transactions of an exceptional
nature ”.
The dictionary meaning of the
Exceptional is defined as “unusual ; not
typical ”
Extraordinary vs Exceptional Items
The term “Extraordinary Items ”and
“Exceptional Items” are often used
interchangeably eventhough they are
not interchangeable and have specific
meaning in presentation of Financial
Statements .
A few example of such interchange
from the Published results of a few
companies for the quarter ending 30th
September 2007 is given below.
Exceptional Items
It is a part of activities of the
company
Eg: Sale of Land and Buildings
Items that are unusual or infrequent
but not both.
Eg:Payment on account VRS
Within the control of the company
Eg: Exchange loss, sale of
investments, etc
Occurrence is more frequent
Eg : Sale of Business Entity
 Financial Reporting

Extracts from the published results under Clause 41

Name Of the company Amount involved Nature of the transaction Remarks

(In Lakh)
Exceptional
Shiva Texyarn Ltd. 184.41 a) Profit on sale of land
b) Expenses written back
c) Provision against financial assets
Batliboi Ltd 36.27 Exceptional items represent exchange loss of
Rest. 36.27 Lacs.
Ambuja Cements Ltd. 2088 a) Profit on sale of Subsidiary/ Joint venture/
Associates
b) Profit on sale of property
c) Provision for diminution in value of
investment in subsidiary company
Rane Break Linkings Ltd. 101.4 Profit on sale of Land and Buildings
Aspinwall & Company Ltd 2443 profit on sale of land and buildings at fort
Cochin.
TVS Motor Company Ltd 1020 gain of Rs.29.34 crores on restatement of
external commercial borrowings and acceler-
ated amortisation of deferred product launch
expenses on certain motor cycle variants
amounting to 19.14 crores.
GalexoSmithKline 13991 Profit on sale of Fine Chemicals division
Pharmaceuticals
Extraordinary
Mercator Lines Ltd. 180.94 During the quarter two vessels were under
dry-dock repairs which is periodically carried
out every 2.5years. The entire cost of the dry-
dock has been fully charged off during the
quarter under review
PSL Limited 424 Provision for bad and doubtful debts
Shanthi Gears Ltd. 227.15 Reversal of entry tax provision made in earlier
years
Elecon Engg. Compny 57.44 Payment on account of VRS
Other income/ expenses
Kothari Sugars and 317.80 Other income for the quartet ended 30th
Chemicals Ltd. September 2007, includes Rs.259.64Lacs
being profit on sale of investment and interest
on deposits
HOV Services Limited 3356.5 The financials of the subsidiary companies are
accounted on basis of having integral opera-
tion from 1st April,07 and the resultant.
Foreign exchange gain of Rs.345.27million in
Q2 and for the six months of 2007 is included
in other income.
CONCLUSION
AS issued by ICAI so for defined only Extraordinary Item and hence Companies were describing even Exceptional Items as Extraordinary
items . With the change in reporting requirement under Clause 41, reporting by the Indian Companies are also expected to improve . One
thump rule which the Indian Companies can follow is to adopt the definition given by International Public Sector Accounting Standard
(IPSAS 3) , for any item to qualify as an Extraordinary Item it should be outside the control or influence of the entity . All other items
which are non-recurring or transactions of an exceptional nature , to be treated as as exceptional item in line with Schedule VI
(These are the personal views of the author and can be contacted via l.venkatesan@hotmail.com ).
the management accountant, December, 2007 953

IFRS 3,
Business Combinations
- A Closer Look
K.S.Muthupandian*
A
project on Business Combina
tions was carried over from the
International Accounting
Standards Committee to the
International Accounting Standards
Board (IASB) on 1 April 2001. The
project added to IASB agenda in July
2001. On 5 December 2002, the IASB
issued the Exposure Draft ED 3
Business Combinations and related
exposure drafts proposing amendments
to IAS 36, Impairment of Assets and
IAS 38, Intangible Assets. As part of
the first phase of the project on business
combinations, the IASB on 31 March
2004 published IFRS 3 Business
Combinations and related amended
versions of IAS 36 and IAS 38.
Objective
The objective of IFRS 3 is to specify
the financial reporting by an entity
when it undertakes a business
combination. The IFRS 3 supersedes
IAS 22, Business Combinations.
Scope
IFRS 3 applies to all business
combinations except combinations of
entities under common control,
combinations of mutual entities,
combinations by contract without
exchange of ownership interest, and
formations of joint ventures. It requires
all business combinations to be
accounted for by applying the purchase
method. Merger accounting is not
allowed under IFRS 3; however it is still
permitted for group reconstructions
*M.Com., AICWA and Member of
Tamil Nadu State Treasuries and Ac-
counts Service, presently working as
Treasury Officer, Ramanathapuram
District, Tamil Nadu.
954
Financial Reporting
because they are outside the scope of
the standard.
In developing IFRS 3, the IASB
observed that differences between the
ownership structures of mutual entities
and those of investor-owned entities
give rise to complications in applying
the purchase method to business
combinations involving two or more
mutual entities. Such transactions
normally do not involve the payment
of any readily measurable considera-
tion. Thus, difficulties arise in
estimating the cost of the business
combination and any goodwill acquired
in the combination. Similar complica-
tions arise in applying the purchase
method to combinations involving the
formation of a reporting entity by
contract alone without the obtaining of
an ownership interest.
Definition of business combination
A business combination is the
bringing together of separate entities or
businesses into one reporting entity.
The result of nearly all business
combinations is that one entity, the
acquirer, obtains control of one or more
other businesses, the acquiree. If an
entity obtains control of one or more
other entities that are not businesses,
the bringing together of those entities
is not a business combination.
Requirements
The IFRS 3:
(a) requires all business
combinations within its scope to be
accounted for by applying the purchase
method.
(b) requires an acquirer to be
identified for every business
combination within its scope. The
the management accountant, December, 2007
acquirer is the combining entity that
obtains control of the other combining
entities or businesses.
(c) requires an acquirer to measure
the cost of a business combination as
the aggregate of: the fair values, at the
date of exchange, of assets given,
liabilities incurred or assumed, and
equity instruments issued by the
acquirer, in exchange for control of the
acquiree; plus any costs directly
attributable to the combination.
(d) requires an acquirer to recognise
separately, at the acquisition date, the
acquiree’s identifiable assets, liabilities
and contingent liabilities that satisfy the
following recognition criteria at that
date, regardless of whether they had
been previously recognised in the
acquiree’s financial statements:
(i) in the case of an asset other than
an intangible asset, it is probable that
any associated future economic benefits
will flow to the acquirer, and its fair
value can be measured reliably;
(ii) in the case of a liability other
than a contingent liability, it is probable
that an outflow of resources embodying
economic benefits will be required to
settle the obligation, and its fair value
can be measured reliably; and
(iii) in the case of an intangible asset
or a contingent liability, its fair value
can be measured reliably.
(e) requires the identifiable assets,
liabilities and contingent liabilities that
satisfy the above recognition criteria to
be measured initially by the acquirer at
their fair values at the acquisition date,
irrespective of the extent of any
minority interest.
(f) requires goodwill acquired in a
business combination to be recognised
by the acquirer as an asset from the
acquisition date, initially measured as
the excess of the cost of the business
combination over the acquirer’s interest
in the net fair value of the acquiree’s
identifiable assets, liabilities and
contingent liabilities recognised in
accordance with (d) above.
(g) prohibits the amortisation of
goodwill acquired in a business
combination and instead requires the

goodwill to be tested for impairment
annually, or more frequently if events
or changes in circumstances indicate
that the asset might be impaired, in
accordance with IAS 36.
(h) requires the acquirer to reassess
the identification and measurement of
the acquiree’s identifiable assets,
liabilities and contingent liabilities and
the measurement of the cost of the
business combination if the acquirer’s
interest in the net fair value of the items
recognised in accordance with (d)
above exceeds the cost of the
combination. Any excess remaining
after that reassessment must be
recognised by the acquirer immediately
in profit or loss.
(i) requires disclosure of
information that enables users of an
entity’s financial statements to evaluate
the nature and financial effect of:
(i) business combinations that were
effected during the period;
(ii) business combinations that were
effected after the balance sheet date but
before the financial statements are
authorised for issue; and
(iii) some business combinations
that were effected in previous periods.
(j) requires disclosure of
information that enables users of an
entity’s financial statements to evaluate
changes in the carrying amount of
goodwill during the period.
Disclosures
For each business combination (or
in the aggregate for immaterial
combinations), required disclosures by
the acquirer include:
l Names and descriptions of the
combining entities or businesses.
l Acquisition date.
l Percentage of voting equity
instruments acquired.
l Cost of the combination (with
separate disclosure of the number
and fair values of equity instruments
issued and how fair values were
determined)
l Amounts recognised at the
acquisition date for each class of the
acquiree’s assets, liabilities, and
the management accountant, December, 2007
Financial Reporting
contingent liabilities, and, unless purchase method. The pooling of
impracticable, the carrying amounts interests method is prohibited.
of each of those classes, determined Acquirer must be identified for
in accordance with IFRSs, every combination: The old IAS 22
immediately before the had required the pooling method if an
combination. acquirer could not be identified. Under
l Amount of any negative goodwill IFRS 3, an acquirer must be identified
recognised in profit or loss for all business combinations.
l Details about the factors that Cost of a Business Combination
contributed to recognition of Fair value of consideration given
goodwill plus costs: The acquirer measures the
l Amount of the acquiree’s profit or cost of a business combination at the
loss since the acquisition date sum of the fair values, at the date of
included in the acquirer’s profit or exchange, of assets given, liabilities
loss for the period, unless incurred or assumed, and equity
impracticable. instruments issued by the acquirer, in
The following must also be exchange for control of the acquiree;
disclosed unless impracticable: plus any costs directly attributable to
the combination. If equity instruments
Revenue of the combined entity for
are issued as consideration for the
the period as though the acquisition
date for all business combinations acquisition, the market price of those
effected during the period had been the equity instruments at the date of
beginning of that period. exchange is considered to provide the
Profit or loss of the combined entity best evidence of fair value. If a market
for the period as though the acquisition price does not exist, or is not considered
date for all business combinations reliable, other valuation techniques are
effected during the period had been the used to measure fair value.
beginning of the period. Cost adjustments contingent on
Changes in Accounting Treatment future events: If the cost is subject to
adjustment contingent on future events,
The IFRS 3 significantly affects the the acquirer includes the amount of that
accounting treatment of business adjustment in the cost of the
combinations. The following table combination at the acquisition date if
illustrates the major areas of accounting the adjustment is probable and can be
for business combinations that will be measured reliably. However, if the
affected by the issuance of IFRS 3: contingent payment either is not
Method of Accounting probable or cannot be measured
Purchase method: All business reliably, it is not measured as part of
combinations within the scope of IFRS the initial cost of the business
3 must be accounted for using the combination. If that adjustment
Method of Accounting Must use purchase method. Uniting of
interests prohibited.
Assets and Liabilities Acquired All identifiable assets, liabilities, and
contingent liabilities acquired are
measured at 100% of fair values.
Goodwill Not amortised, but tested for impairment
annually.
Negative Goodwill Not recognized in the balance sheet, but
recognised in income statement
immediately.
Restructuring Costs Only recognised to the extent that a
liability exists at acquisition date.
955

subsequently becomes probable and
can be measured reliably, the additional
consideration is treated as an
adjustment to the cost of the
combination.
Recognition and Measurement
Recognition of acquired assets
and liabilities: The acquirer recognises
separately, at the acquisition date, the
acquiree’s identifiable assets, liabilities
and contingent liabilities that satisfy the
following recognition criteria at that
date, regardless of whether they had
been previously recognised in the
acquiree’s financial statements:
l an asset other than an intangible
asset is recognised if it is probable
that any associated future economic
benefits will flow to the acquirer,
and its fair value can be measured
reliably;
l a liability other than a contingent
liability is recognised if it is
probable that an outflow of
resources will be required to settle
the obligation, and its fair value can
be measured reliably; and
l an intangible asset or a contingent
liability is recognised if its fair value
can be measured reliably.
Measurement of acquired assets
and liabilities: The acquired
identifiable assets, liabilities, and
contingent liabilities are measured
initially by the acquirer at their fair
values at the acquisition date,
irrespective of the extent of any
minority interest. In other words, the
identifiable assets acquired, and
liabilities and contingent liabilities
incurred or assumed, must be initially
measured at full fair value, including
any minority interest’s share of the
acquired item.
No restructuring provisions: In
applying the purchase method, an
acquirer must not recognise provisions
for future losses or restructuring costs
expected to be incurred as a result of
the business combination. These must
be treated as post-combination
expenses.
Recognition of intangibles: In
applying the purchase method, an
956
Financial Reporting
intangible item acquired in a business
combination, including an in-process
research and development project, must
be recognised as an asset separately
from goodwill if it meets the definition
of an asset (it is controlled and provides
economic benefits), is either separable
or arises from contractual or other legal
rights, and its fair value can be measure
reliably.
Contingent liabilities are
recognised at fair value: In applying
the purchase method, an acquirer must
recognise contingent liabilities assumed
in the business combination, if their fair
value is reliably measurable. After their
initial recognition, such contingent
liabilities must be remeasured at the
higher of:
(a) the amount that would be
recognised in accordance with IAS 37
Provisions, Contingent Liabilities and
Contingent Assets, and
(b) the amount initially recognised
less, when appropriate, cumulative
amortisation recognised in accordance
with IAS 18 Revenue.
A contingent liability recognised
under IFRS 3 continues to be
recognised in subsequent periods even
though it does not qualify for
recognition under IAS 37.
Step acquisitions: If a business
combination involves more than one
exchange transaction, each exchange
transaction shall be treated separately
by the acquirer, using the cost of the
transaction and fair value information
at the date of each exchange
transaction, to determine the amount of
any goodwill associated with that
transaction.
Goodwill
The difference between the fair
value of the consideration paid for a
business and the fair value of the
intangible and tangible assets and
liabilities in that business is recognised
as goodwill.
Recognition and measurement of
goodwill: Goodwill is recognised by
the acquirer as an asset from the
acquisition date and is initially
measured as the excess of the cost of
the management accountant, December, 2007
the business combination over the
acquirer’s share of the net fair values
of the acquiree’s identifiable assets,
liabilities and contingent liabilities.
No amortisation of goodwill:
IFRS 3 prohibits the amortisation of
goodwill. Instead goodwill must be
tested for impairment at least annually
in accordance with IAS 36 - write offs
from past deals could arise and this
message needs careful communication
to the market.
Negative goodwill: If the acquirer’s
interest in the net fair value of the
acquired identifiable net assets exceeds
the cost of the business combination,
that excess (sometimes referred to as
negative goodwill) must be recognised
immediately in the income statement as
a gain. Before concluding that
“negative goodwill” has arisen,
however, IFRS 3 requires that the
acquirer reassess the identification and
measurement of the acquiree’s
identifiable assets, liabilities, and
contingent liabilities and the
measurement of the cost of the
combination. Negative goodwill will
only occur if a bargain price were
achieved. In most transactions between
unconnected parties this is unlikely to
happen. If negative goodwill arises, it
is credited immediately to the income
statement.
Accounting Treatment of other issues
A business combination may
involve more than one exchange
transaction, for example when it occurs
in stages by successive share purchases.
If so, each exchange transaction shall
be treated separately by the acquirer,
using the cost of the transaction and fair
value information at the date of each
exchange transaction, to determine the
amount of any goodwill associated with
that transaction. This results in a step-
by-step comparison of the cost of the
individual investments with the
acquirer’s interest in the fair values of
the acquiree’s identifiable assets,
liabilities and contingent liabilities at
each step.
If the initial accounting for a
business combination can be
determined only provisionally by the

end of the period in which the
combination is effected because either
the fair values to be assigned to the
acquiree’s identifiable assets, liabilities
or contingent liabilities or the cost of
the combination can be determined only
provisionally, the acquirer shall account
for the combination using those
provisional values. The acquirer shall
recognise any adjustments to those
provisional values as a result of
completing the initial accounting:
(a) within twelve months of the
acquisition date; and
(b) from the acquisition date.
Effective Date and Transition
IFRS 3 is effective for business
combinations for which the agreement
date is on or after 31 March 2004.
Implications
IFRS 3 was designed to give greater
transparency to how companies
accounted for Mergers and
Acquisitions (M&A). IFRS 3 will
impact the M&A significantly by,
amongst other things, formalizing the
reporting requirements of ‘intangible’
assets in business combinations. The
changes brought in by IFRS 3 are going
to affect all stages of the M&A process
- from planning to the presentation of
post deal results. The implications
primarily involve giving greater
transparency and insight into what has
been acquired and allowing the market
to evaluate management’s explanations
of the rationale behind a transaction.
Post Issue Developments in IFRS 3
Limited Amendments
The IASB on 29 April 2004
published for public comment
proposals for a limited amendment to
IFRS 3.The proposals are set out in the
Exposure Draft Combinations by
Contract Alone or Involving Mutual
Entities. The amendments would add
to the scope of IFRS 3: Combinations
in which separate entities are brought
together to form a reporting entity by
contract alone without the obtaining of
an ownership interest; and Business
combinations involving mutual entities.
Including these transactions in IFRS 3
the management accountant, December, 2007
Financial Reporting
would mean that an acquirer must be
identified and the acquirer must
account for the combination using the
purchase method. The exposure draft
would not change the IFRS 3 scope
exclusion for combinations involving
entities under common control. The
main features of the IASB’s proposals
are:
n to remove IFRS 3’s scope
exclusion for combinations involving
two or more mutual entities or
combinations in which separate entities
are brought together to form a reporting
entity by contract alone without the
obtaining of an ownership interest. This
includes combinations in which
separate entities are brought together
by contract to form a dual listed
corporation.
n that an acquirer should measure
the cost of such a combination as:
(a) the net fair value of the
acquiree’s identifiable assets, liabilities
and contingent liabilities when the
combination is one in which separate
entities or businesses are brought
together to form a reporting entity by
contract alone without the obtaining of
an ownership interest.
(b) the aggregate of the following
amounts when the combination is one
in which the acquirer and acquiree are
both mutual entities:
n the net fair value of the acquiree’s
identifiable assets, liabilities and
contingent liabilities; and
n the fair value, at the date of
exchange, of any assets given, liabilities
incurred or assumed, or equity
instruments issued by the acquirer in
exchange for control of the acquiree.
Therefore, until guidance on
applying the purchase method to such
transactions is developed by the IASB
as part of a later phase of its Business
Combinations project, the acquirer
would recognise goodwill equal to the
fair value of any consideration given
by the acquirer in exchange for control
of the acquiree.
Joint Project with FASB
The IASB and the US Financial
Accounting Standards Board (FASB)
on 30 June 2005 each published for
public comment an Exposure Draft
containing joint proposals to improve
and align the accounting for business
combinations. The proposals include a
draft standard that the boards have
developed in their first major joint
project. The objective of the project is
to develop a single high quality
standard for accounting for business
combinations that could be used for
both domestic and cross-border
financial reporting. The proposed
standard would replace the existing
requirements of the IASB’s IFRS 3 and
the FASB’s Statement 141 Business
Combinations. The scope of the
proposed new IFRS 3 has been
broadened to include business
combinations involving only mutual
entities and those achieved by contract
alone.
Phase II of the IASB’s business
combinations project is addressing:
Issues related to applying the purchase
method of accounting; Accounting for
formations of joint ventures and
business combinations involving
entities under common control; and
Possible applications for ‘fresh start’
accounting.
The comment period ended 28
October 2005. The Round-tables were
held in London and Norwalk. The
FASB and the IASB received 287
comment letters on the core proposals.
The 16 month redeliberation period
concluded in April 2007. In April 2007
the IASB decided that the effective date
should be 1 January 2009. In November
2007 meeting, the IASB decided to
change the effective date to 1 July 2009
to restore the transition period of 18
months. The revised IFRS 3 is under
preparation and would be issued
shortly.
Conclusion
The IFRS 3 will challenge manage-
ment, investment bankers and other
M&A specialists to achieve a greater
balance in their priorities, and to
identify the board asset potential of
companies. Senior management must
therefore understand the implications
for their corporate acquisition strategy.q
957

IFRS – A ‘Must’ Journey
To 2011
Financial Statements of Indian Business’s have a new look when financial
statements prepared and presented under Indian Accounting Standard (AS) will
replaced by International Financial Reporting Standard (IFRS) with effect from
financial year 2010- 2011. Changing of accounting treatment from AS to IFRS is
not only a simple adoption of one accounting principle to another but it’s a
mammoth exercise for accountants which require from a long term vision to a
lowest level technical skills.
Shashikant Choubey*
I
nternational Financial Reporting
Standards (IFRS) are accounting
standards adopted and governed by
International Accounting Standard
Board (IASB) since April,2001. IFRS
in present form, adopted from
International Accounting Standard
(IAS) and Standing interpretation
Committee (SIC) those were issued
from 1973 to 2001 under International
Accounting Committee (IAC). IFRS is
reviewed and adopted by International
Financial Reporting Interpretation
Committee (IFRIC) after April,2001
under IASB. IFRS comprises of:
Eight IFRS issued so far.
Forty one IAS issued between 1973 to 2001.
Seven interpretation of the standard
with IFRIC
Eleven interpretation of standard with SIC.
Needs of IFRS in India:
IFRS is more comprehensive and
market driven since it improves quality
of information, increases market
efficiency, and minimize capital cost.
IFRS is said as “Principle Based”
rather than “Rule Based” like Financial
Accounting Standard (FAS or US
GAAP). This is more suitable to for
Indian business.
Indian Accounting Standard (AS)
is inherited from International
Accounting Standard (IAS or IFRS)
*Assistant General Manager-Accounts,
Corporate Accounts, Reliance
Communications Ltd., Mumbai.
958
Financial Reporting
which facilitate easy adoption of IFRS.
At present over one hundred
countries have implemented IFRS and
some more countries are on their way
to implement IFRS. These countries
inclusive of Canada, Australia, New
Zealand, European Union, Russia,
Singapore, Turkey and Pakistan. India
will become an ‘IFRS compliant’ Country.
There is no need to reconcile the
Indian Accounts with other IFRS
Accounts.
Accounts prepared under IFRS will
give a confidence to investors and
world community to understand Indian
businesses prudently, which ultimately
attract more investment in India.
Provisions in AS are not updated
and does not deals in complex business
activities, particularly in case of merger
and acquisition accounting and
presentation of Consolidated Financial
Statement (CFS).
IFRS improves ‘Inter Unit / Inter
Firm” comparison and consistent
financial information.
Financial Statements made under
IFRS are accepted by all stock
exchanges in the world. Thus IFRS
facilitate Indian Companies seeking
entry in to any stock exchange of this
world including US.
IFRS facilitates cross boarder
acquisitions by the Indian Companies,
International trading in securities, better
customer / vendor relationship and
timely decisions, since Financial
Statements is more transparent.
the management accountant, December, 2007
Quality of Management
Information System (MIS) improves
because of quality and consistency of
information in financial statement.
Financial Statements prepared
under IFRS is universally recognized
as a qualitative statement, which
ultimately improves esteemed value of
the entity and group.
Preparation of Consolidated
Financial Statement (CFS) is made easy
for a Group when the group has
different entities in different countries,
all following IFRS, because the
reconciliation of two financial
statements based on two different
GAAP can be avoided.
Regular review of IFRS by the
research wings, make IFRS more
qualitative and need based as per the
modern business which is not available
in any local GAAP.
IFRS vs. Indian GAAP
If we compare IFRS ‘as it is in
present form’ and Indian Accounting
Standard (AS) or Indian GAAP, there
are certain key areas needs to be
addressed. A brief comparative analysis
is stated in following table.
It is clear that IFRS is much more de-
scriptive, practical and useful in present
business scenario, particularly for Ac-
counts Consolidation, Revenue Recog-
nition or other contractual liabilities,
Taxation, ESOP etc.
Adopting IFRS
Time has come to take action now
to bring IFRS on the rail. In particular
some needful actions are expected from
the Government and Government agen-
cies too, along with Individual Com-
panies have to prepare themselves.
These may inclusive of followings:
- Ministry of Finance (Direct and
Indirect Tax), Company Law Board
(CLB), States VAT / Sales Tax, RBI and
SEBI have to make necessary amendments
to facilitate IFRS adoption in time.
-It is not merely switching over
from one GAAP to another but it re-
quires all individual companies to:
Bring necessary changes in their
System software and IT technique.
 Financial Reporting

IFRS/IAS DESCRIPTION AS / DESCRIPTION BASIC FEATURES OF IFRS / SPECIAL

INDIAN REMARK
GAAP
IFRS 1 / First time adoption of AS 1 Discloser of Statement for Change in equity or a statement
IAS 1 / International Financial Accounting Policies of recognized income or expenses to be
IAS 30 Reporting Standard / appeared in Financial Statement in addition
Presentation of to Balance Sheet, Income Statement and Cash
Financial Statements / Flow Statement. An entity preparing IFRS
Disclosures in the first time, must apply IFRS in current period
Financial Statements of as well as of previous period. Thus IFRS
Banks and Similar preparation to be done from 1st April,2010
Financial Institutions even. No separate AS is available for Banking
and similar industries.
IFRS 2 / Share – based Not Not Available This deal in remuneration received by
IFRIC 8 / payment / Scope of Available employee (including directors) of the entity
IFRIC 11 IFRS 2 / Group and form of shares or stocks of the entity. This
Treasury Share also deals when the entity receives goods or
Transactions services in lieu of it’s own shares or equity
instruments. No Accounting Standard made
in India for these transactions. Only SEBI
guideline is available for listed companies in
case of ESOP payment.
IFRS 3 / Business AS 14 / Accounting of The ultimate parent company must produce
IAS 27 / Combinations / AS 21 Amalgamation / consolidated financial statements. (IAS 27.9).
SIC 12 / Consolidated Financial Consolidated Where in Indian context it is optional. Only
IAS 22 Statements / Consolida- Financial Statements ‘Purchase Method’ of amalgamation is
tion- Special Purpose permitted in IFRS. Goodwill arising out of
Entities / Business consolidation is subject to impairment at least
Combinations annually and not amortized. IFRS deals in
detail about cross holdings and complex
holdings of subsidiaries and minority which
is a regular feature of modern business, where
AS 14 and AS 21 have not updated itself to
meet the current requirement.
IFRS 4 Insurance Contracts Not Not Available A detail guideline made in IFRS for
Available Insurance Companies
IFRS 5 Non – Current Assets Not Not Available No separate AS is available in India for this
held for sale and Available transaction. IFRS will be a valuable guide in
discounted operation. big business houses in term of accounting
treatment and taxation matters, where
modernization of plant / renovation of
buildings are coming up.
IFRS 6 Exploration for and Not Not Available No separate AS is available in India for this
Evaluation of Mineral Available transaction.
Resources
IFRS 7 / Financial Instruments – AS 30 Financial Instru- AS 30 is Under Draft Stage and not yet
IAS 32 / Disclosures / Financial ments – Disclosures adopted.
IFRIC 9 / Instruments : Disclo- and Presentation
IAS 39 sures and Presentation /
Reassessment of
Embedded Derivatives/

the management accountant, December, 2007 959

 Financial Reporting

Financial Instruments:
Recognition and
Measurement
IFRS 8 / Operating Segments / AS 17 Segment Reporting This IFRS is applicable from annual reporting
IAS 14 Segment Reporting period beginning on or after 1st January, 2008.
IFRS adopts management reporting approach
to identifying operating segment unlike AS
14 of business or geographical segments. This
principle is discretely based on Chief
Operating Decision Maker (CODM) of
internal management report. Thus by
adopting IFRS, segment reporting in
Financial Statement will have a new look.
IAS 2 Inventories AS 2 Valuation of No significant difference with AS
Inventories
IAS 7 Cash Flow Statements AS 3 Cash Flow IFRS Cash Flow Statements do not require
Statements to show movement in borrowings but can be
netted off. Liquid investments and Fixed
deposits with an original maturity value not
exceeding three months forming part of Cash
and Cash Equivalent.
IAS 8 Net Profit or Loss for AS 5 Net Profit or Loss Though AS inherited from IAS. Benchmark
the Period, Fundamen- for the Period, Prior treatment of prior period item is not allowed
tal Errors and changes Period Items and in AS. More detail treatment is available in
in Accounting Practices Changes is changes IFRS for treatment of change in accounting
in Accounting policies.
Policies
IAS 10 Events after Balance AS 4 Contingencies and Significant changes to be bring under
Sheet Date Events after Balance Financial Statement in IFRS unlike in AS to
Sheet Date mention as a notes to accounts.
IAS 11 Construction Contracts AS 7 Construction With regards to percentage of completion and
Contracts recognitions, IFRS suggests more detail and
alternatives than AS.
IAS 12 / Income Tax / Income AS 22 Accounting for taxes More detail interpretations have been drawn
SIC 21 / Tax – Recovery of on income in IFRS particularly for revalued assets and
SIC 25 Revalued Non – fair value. Temporary difference approach is
Depreciable Assets / focused in IFRS, which is not available in
Changes in Tax status AS.
of an entity or it’s
shareholders
IAS 15 Information Reflecting Not Not Available No separate AS is available in India. It will
effect of changing Available have a long impact on Indian Industries to
prices provide information on change in prices in
financial statements.
IAS 16 Property, Plant and AS 10 Accounting for IFRS defines fixed assets recognitions in
Equipment Fixed Assets more detail and revaluation is permitted with
sufficient regularity. In AS 10 there is no such
requirement for upward revaluation.
IAS 17 / Leases / Operating AS 19 Leases No significant difference, since AS inherited
SIC 15 / Leases – Incentives / from IFRS except SIC 15 and SIC 27.
SIC 27 Evaluating Substance

960 the management accountant, December, 2007

 Financial Reporting

of Transactions
involving legal form of
a lease
IAS 18 / Revenue / Revenue- AS 9 Revenue Revenue ‘Swap’ or barter system in IFRS
SIC 31 / Barter transactions Recognition which is more relevant in Indian context is
SIC 29 involving Advertising useful for share based payment system. Fair
Services Disclosure value detail and Zero profit method will also
Service Concession have impact on revenue recognition.
Arrangement
IAS 19 / Employee Benefits / AS 15 Accounting for IFRS deals in ESOP and Project unit Method
IAS 26 Accounting and Retirement Benefits to measure the employees’ obligation, will
Reporting by Retire- in the Financial help the companies to consider ‘employee
ment Benefit Plans Statements of cost’ in prudent way in the Financial
Employers Statement.
IAS 20 / Accounting for AS 12 Accounting for IFRS is not significant Different than AS.
SIC 10 Government Grants Government Grants
and Disclosure of
Government Assis-
tance/Government
Assistance– No
Specific Relation to
Operating Activities
IAS 21 The effect of Change in AS 11 The effect of Change IFRS explains the treatment in more detail.
Foreign Exchange in Foreign Exchange
Rates Rate
IAS 23 Borrowing Costs AS 16 Borrowing Cost IFRS allows dual (Bench Mark and
Alternative) treatment of capitalization of
Borrowing cost.
IAS 24 Related Party AS 18 Related Party IFRS requires to disclose ‘Pricing Policy’ in
Disclosures Disclosure the disclosure.
IAS 28 Investments in AS 23 Accounting for IFRS does not permit to identify goodwill of
Associates Investment in capital reserve. Also investment to be
Associates in measured by equity method. Thus cost of
Consolidated investment to be considered in Financial
Financial Statement Statement. Where AS 23 allows for valuation
of investment according to AS 13.
IAS 29 / Financial Reporting in Not Not Available At present price level scenario, not useful.
SCI 7 Hyperinflationary Available
Economics /
Introduction of Euro
IAS 31 / Financial Reporting of AS 27 Financial Reporting IFRS allows multi-treatment of presentation
SIC 13 Interest in Joint of Interest in Joint for Joint Ventures, like- Bench Mark and
Ventures/Jointly Ventures Alternative Method. Thus multiple choices
Controlled Entity – are available for the Companies. Though AS
Non Monetary contri- 27 inherited from IAS, it allows only
bution by Venture. alternative method (line by line) of
accounting.
IAS 33 Earning Per Share AS 20 Earning Per Share No significant difference with AS.
(EPS)
IAS 34 Interim Financial AS 25 Interim Financial No significant difference with AS.
Reporting Reporting

the management accountant, December, 2007 961

 Financial Reporting

IAS 35 Discounting Operation AS 24 Discounting No significant difference with AS.

Operation
IAS 36 Impairment of Assets AS 28 Impairment of Goodwill impairment will be a new
Assets experience for Indian Companies.
IAS 37 Provisions, Contingent AS 29 Provisions, Contin- IFRS allows present valuation of Provisions
Liabilities and Contin- gent Liabilities and and constructive obligations to make
gent Assets Contingent Assets provisions. Further, contingent assets to be
disclosed in Financial Statement, which AS
does not allow.
IAS 38 / Intangible Assets / AS 26 Intangible Assets Revaluation of intangible assets in IFRS will
SIC 32 Intangible Assets – have long term impact on companies seeking
Website Costs for revaluation. Also amortization period
exceeds to twenty years against ten years in
I AS.
AS 40 Investment Property AS 13 Accounting For IFRS deals in derivatives in detail, which is
Investments not available in India.
IAS 41 Agriculture Not Not Available There is no AS available in India. Accounting
Available treatment of Biological Assets will have a
new experience. Industries like- Agro based,
Food Processing, Milk and Spice will have a
long term impact because of IFRS.

Prepare a detail ‘Blue Print’ for each and

every item to be treated in Financial Statement
under IFRS to avoid any ambiguity or
confusion to prepare the accounts. This Blue
Print will be an ultimate guide for adopting
IFRS in the company.
Prepare an ‘in house’ team to get skill thereto
and make a mass awareness for the same.
Companies should facilitate accountants
to participate in training and intensive
workshop programme. Companies are to
mobilize resources in terms of Fund and
Manpower for easy sailing of conversion.
In- House dialogue and group discussion
with expert and expert agency is to be done
for any issues and matters for proper
understanding and impact on the company.

Any issue for which no clear cut guidance

is available in the Standards, the matters
should bring at the proper forum to find out
suitable solution.
It is suggested to convert present Financial
Statements which are available in Indian
GAAP to IFRS for subsequent two years
(2007-08 and 2008 - 09). This exercise gives
us a feel on the new GAAP and any tricky
matters not explained in IFRS can be
highlighted.
Action is required ‘Now’, if it is not ‘Late’,
it must not postpone to ‘Later’.q
962 the management accountant, December, 2007
the management accountant, December, 2007 963
 Legal Notes & Notifications
COMPANIES ACT
NOTIFICATION
Section 210A of the Companies Act, 1956 – Constitution
of National Advisory Committee on Accounting Standards –
Notified Committee – Amendment in notification
No. S.O.339(E), dated 9-3-2007
NOTIFICATION NO. S.O. 1745(E),
DATED 12-10-2007, ISSUED BY
MINISTRY OF CORPORATE AFFAIRS
In exercise of the powers conferred by sub-section (1) of
section 210A of the Companies Act, 1956 (1 of 1956), the
Central Government hereby makes the following amendment
in the notification of Government of India, in the Ministry
of Corporate Affairs (then Ministry of Company Affairs),
published in the Gazette of India, Extraordinary dated 9th
March, 2007, vide number S.O. 339(E) dated 9th March,
2007, namely:-
In the said notification, at serial number (4), for the words –
“Shri Dhananjay V. Joshi, President of the Institute of Cost
and Works Accountants of India”,
the following words shall be substituted, namely:-
“Shri Chandra Wadhwa, President of the Institute of Cost
and Works Accountants of India”.
COMPANIES ACT
RULES / REGULATIONS
Company Law Board (Qualifications, Experience and other
Conditions of Service of Members) Amendment Rules, 2007
– Substitution of rule 8
NOTIFICATION NO. G.S.R. 588(E),
DATED 13-9-2007, ISSUED BY
MINISTRY OF CORPORATE AFFAIRS
In exercise of the powers conferred by sub-section (2A) of
section 10E read with clause (a) of sub-section(1) of section
642 of the Companies Act, 1956 (1 of 1956), the Central
Government hereby makes the following rules to amend the
Company Law Board (Qualifications, Experience and other
Conditions of Service of Members) Rules, 1993, namely:-
1. These rules may be called the Company Law Board
(Qualifications, Experience and other Conditions
of Service of Members) Amendment Rules, 2007.
2. They shall come into force on the date of their
publication in the Official Gazette.
3. In the Company Law Board (Qualifications,
Experience and other Conditions of Service of
Members) Rules, 1993, for rule 8, the following
shall be substituted namely:-
964
“8. Term of office of Chairman, Vice-Chairman
and Members:- Except as provided in rule 6 or 7,
the Chairman shall hold office till he attains the
age of sixty seven years, the Vice-Chairman shall
hold office till he attains the age of sixty five years
and any other Member shall hold office till he
attains the age of sixty two years.”
CESTAT, NEW DELHI BENCH
Raj Khosla & Co. (P.) Ltd.
v.
Commissioner of Central Excise, New Delhi
Cenvat Credit
Rule 4 of the Cenvat Credit Rules, 2004 - Cenvat credit -
Conditions for allowing - Whether where assessee was
earlier working from premises for which registration was
taken and credit of service tax paid on input services was
being taken, but later had shifted to new premises for which
registration was not taken, assessee was not entitled to credit
of service tax paid on input services - Held, yes [Para 4]
Facts
Service tax was demanded by the revenue along with interest
and penalty from the assessee on the ground that it was not
entitled to claim credit of service tax since there was no
correlation between input service on which credit was taken
and the output service provided by it. In the stay application,
the assessee urged that the only mistake on its part was of
not taking the registration of the changed premises from
where it had started working.
Held
The applicant-assessee was earlier working from the
premises for which registration was taken and credit of
service tax paid on input services was being taken. It shifted
the business to new premises for which no registration was
taken. The applicant was functioning from the new premises
without a valid registration and it was also not submitting
return. It was, therefore, not entitled to the credit. It was
also observed that the credit had been taken on the telephone
bills in the name of different persons and of different
addresses. Therefore, the applicant had failed to make out a
prima facie case in its favour. On the facts and the
circumstances of the case, the applicant was to be directed
to pre-deposit a sum of Rs. 4 lakh. On such pre-deposit, the
recovery of balance amount of service tax, penalty and other
charges would stand waived. If the amount was not deposited
within the prescribed period, the appeal would stand
dismissed. [Para 4]
the management accountant, December, 2007
 Legal Notes & Notifications

CENVAT Credit (Tenth Amendment) Rules, 2007
NOTIFICATION NO. 39/2007-CENTRAL EXCISE
(N.T.), DATED 14-11-2007
In exercise of the powers conferred by section 37 of the
Central Excise Act, 1944 (1 of 1944) and section 94 of the
Finance Act, 1994 (32 of 1994), the Central Government
hereby makes the following rules further to amend the
CENVAT Credit Rules, 2004, namely:-
1. (1) These rules may be called the CENVAT Credit
(Tenth Amendment) Rules, 2007.
(2) They shall come into force on the date of their
publication in the Official Gazette.
2. In the CENVAT Credit Rules, 2004, in rule 3, in sub-rule
(5), after the second proviso, the following proviso shall be
inserted, namely:-
“Provided also that if the capital goods, on which
CENVAT Credit has been taken, are removed after being
used, the manufacturer or provider of output service shall
pay an amount equal to the CENVAT Credit taken on the
said capital goods reduced by 2.5 per cent for each quarter
of a year or part thereof from the date of taking the Cenvat
Credit;”.
[F.No. 267//01/2004-CX.8]
INCOME-TAX (THIRTEENTH AMENDMENT)
RULES, 2007—AMENDMENT IN RULE 2BB
NOTIFICATION NO. 270/2007, DATED 7-11-2007
In exercise of the powers conferred by section 295 read with
sub-clause (ii) of clause (14) of section 10 of the Income-
tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes
hereby makes the following rules further to amend the
Income-tax Rules, 1962, namely:—
1. (1) These rules may be called the Income-tax
(Thirteenth Amendment) Rules, 2007.
(2) They shall come into force from the date of their
publication in the Official Gazette.
2. In the Income-tax Rules, 1962, in Part II, in rule 2BB,
in sub-rule (2), in the Table, against serial number 12,
in column 2 relating to name of allowance, the word
“coal” shall be omitted.
[F.No. 142/29/2007-TPL]
INCOME-TAX (FOURTEENTH AMENDMENT)
RULES, 2007-AMENDMENT IN RULE 3 –
VALUATION OF PERQUISITES
NOTIFICATION NO. 271/2007, DATED 7-11-2007
In exercise of the powers conferred by section 295 read with
sub-section (2) of section 17 of the Income-tax Act, 1961
(43 of 1961), the Central Board of Direct Taxes hereby makes
the following rules further to amend the Income-tax Rules,
1962, namely:—
1. These rules may be called the Income-tax (Fourteenth
Amendment) Rules, 2007.
2. In the Income-tax Rules, 1962, in rule 3,-
(i) in sub-rule (1), for Table I, the following Table shall
be substituted and shall be deemed to have been
substituted with effect from the 1st day of April, 2006,
namely:-

“TABLE I

Sl No. Circumstances Where accommodation is Where accommodation is furnished

unfurnished
(1) (2) (3) (4)

(1) Where the accommoda-
tion is provided by the
Central Government or
any State Government to
the employees either hold-
ing office or post in con-
nection with the affairs of
the Union or of such State
or serving with any body
or undertaking under the
control of such Govern-
ment on deputation.
License fee determined by the Cen-
tral Government or any State Govern-
ment in respect of accommodation in
accordance with the rules framed by
such Government as reduced by the
rent actually paid by the employee.
The value of perquisite as determined under
column (3) and increased by 10% per an-
num of the cost of furniture (including tele-
vision sets, radio sets, refrigerators, other
household appliances, air-conditioning plant
or equipment) or if such furniture is hired
from a third party, the actual hire charges
payable for the same as reduced by any
charges paid or payable for the same by the
employee during the previous year.

the management accountant, December, 2007 965

 Legal Notes & Notifications

(2) Where the accommoda- (i) 15% of salary in cities having
tion is provided by any population exceeding 25 lakhs as
other employer and- per 2001 census;
(ii) 10% of salary in cities having
(a) where the accommoda- population exceeding 10 lakhs but
tion is owned by the em- not exceeding 25 lakhs as per
ployer, or 2001 census;
(iii) 7.5% of salary in other areas,
in respect of the period during which
the said accommodation was occupied
by the employee during the previous
(b) where the accommoda- year as reduced by the rent, if any,
tion is taken on lease or actually paid by the employee.
rent by the employer. Actual amount of lease rental paid or
payable by the employer or 15% of
salary whichever is lower as reduced
by the rent, if any, actually paid by the
employee.
The value of perquisite as determined under
column (3) and increased by 10% per an-
num of the cost of furniture (including tele-
vision sets, radio sets, refrigerators, other
household appliances, air-conditioning plant
or equipment or other similar appliances or
gadgets) or if such furniture is hired from a
third party, by the actual hire charges pay-
able for the same as reduced by any charges
paid or payable for the same by the employee
during the previous year.
The value of perquisite as determined under
column (3) and increased by 10% per an-
num of the cost of furniture (including tele-
vision sets, radio sets, refrigerators, other
household appliances, air-conditioning plant
or equipment or other similar appliances or
gadgets) or if such furniture is hired from a
third party, by the actual hire charges pay-
able for the same as reduced by any charges
paid or payable for the same by the employee
during the previous year.

(3) Where the accommoda- Not applicable 24% of salary paid or payable for the previ-
tion is provided by the ous year or the actual charges paid or pay-
employer specified in se- able to such hotel, which is lower, for the
rial number (1) or (2) in a period during which such accommodation
hotel (except where the is provided as reduced by the rent, if any,
employee is provided such actually paid or payable by the employee.
accommodation for a pe-
riod not exceeding in ag-
gregate fifteen days on his
transfer from one place to
another)

(ii) after sub-rule (1), the following sub-rule shall be inserted and shall be deemed to have been inserted with effect from
1st April, 2008, namely:-
“(2) (A) The value of perquisite provided by way of use of motor car to an employee by an employer, who is not liable to
pay fringe benefit tax under Chapter XII-H of the Act, shall be determined in accordance with the following Table, namely:-

Sl No. Circumstances Where cubic capacity 8/L3 of Where cubic capacity of engine exceeds
engine does not exceed 1.6 litres 1.6 litres
(1) (2) (3) (4)

(1) Where the motor car is

owned or hired by the em-
ployer and—
(a) is used wholly and ex-
clusively in the perfor-
mance of his official
duties;
No value: No value:
Provided that the documents specified Provided that the documents specified in
in clause (B) of this sub-rule are main- clause (B) of this sub-rule are maintained
tained by the employer. by the employer.

966 the management accountant, December, 2007

 Legal Notes & Notifications

(1) (b) is used exclusively for Actual amount of expenditure in- Actual amount of expenditure incurred by
the private or personal curred by the employer on die running the employer on the running and mainte-
purposes of the em- and maintenance of motor car during nance of motor car during the relevant pre-
ployee or any member the relevant previous year including vious year including remuneration, if any,
of his household and remuneration, if any, paid by the em- paid by the employer to the chauffeur as in-
the running and main- ployer to the chauffeur as increased creased by the amount representing normal
tenance expenses are by the amount representing normal wear and tear of the motor car and as re-
met or reimbursed by wear and tear of the motor car and as duced by any amount charged from the em-
the employer; reduced by any amount charged from ployee for such use.
(c) is used partly in the the employee for such use.
performance of duties
and partly for private
or personal purposes of
his own or any mem-
ber of his household
and
(i) the expenses on main- Rs. 1,200 (plus Rs. 600, if chauffeur Rs. 1,600 (plus Rs. 600, if chauffeur is also
tenance and running is also provided to run the motor car) provided to run the motor car)
are met or reimbursed
by the employer,
(ii) the expenses on run- Rs. 400 (plus Rs. 600, if chauffeur is Rs. 600 (plus Rs. 600, if chauffeur is also
ning and maintenance provided by the employer to run the provided to run the motor car)
for such private or per- motor car)
sonal use are fully met
by the assessee.

(2) Where the employee owns

a motor car but the actual
running and maintenance
charges (including remu-
neration of the chauffeur,
if any) are met or reim-
bursed to him by the em-
ployer and
(i) such re-imbursement No value: No value:
is for the use of the ve- Provided that the documents specified Provided that the documents specified in
hicle wholly and ex- in clause (B) of this sub-rule are main- clause (B) of this sub-rule are maintained
clusively for official tained by the employer. by the employer.
purposes,
(ii) such re-imbursement Subject to the provisions of clause (B) Subject to the provisions contained in clause
is for the use of the ve- of this sub-rule, the actual amount of (B) of this sub-rule, the actual amount of ex-
hicle partly for official expenditure incurred by the employer penditure incurred by the employer as re-
purposes and partly as reduced by the amount specified in duced by the amount specified in Sl. No.
for personal or private Sl. No. (1)(c)(i) above. (1)(c)(i) above.
purposes of the em-
ployee or any member
of his household.

the management accountant, December, 2007 967

 Legal Notes & Notifications

(3) Where the employee owns

any other automotive con-
veyance but the actual run-
ning and maintenance
charges are met or reim-
bursed to him by the em-
ployer and
(i) such re-imbursement No value: Not applicable
is for the use of the ve- Provided that the documents specified
hicle wholly and ex- in clause (B) of this sub-rule are main-
clusively for official tained by the employer.
purposes,
(ii) such re-imbursement
is for the use of the ve-
hicle partly for official
purposes and partly for Subject to the provisions of clause (B)
personal or private of this sub-rule, the actual amount of
purposes of the em- expenditure incurred by the employer
ployee. as reduced by an amount of Rs. 600:

Provided that where one or more motor-cars are owned
or hired by the employer and the employee or any member
of his household are allowed the use of such motor-car or
all or any of such motor-cars (otherwise than wholly and
exclusively in the performance of his duties), the value of
perquisite shall be the amount calculated in respect of one
car in accordance with Sl. No. (l)(c)(i) of Table II as if the
employee had been provided one motor-car for use partly in
the performance of his duties and partly for his private or
personal purposes and the amount calculated in respect of
the other car or cars in accordance with Sl. No. (1)(b) of
Table II as if he had been provided with such car or cars
exclusively for his private or personal purposes.
(B) Where the employer or the employee claims that the
motor-car is used wholly and exclusively in the performance
of official duty or that the actual expenses on the running
and maintenance of the motor-car owned by the employee
for official purposes is more than the amounts deductible in
Sl. Nos. 2(ii) or 3(iii) of Table II, he may claim a higher
amount attributable to such official use and the value of
perquisite in such a case shall be the actual amount of charges
met or reimbursed by the employer as reduced by such higher
amount attributable to official use of the vehicle provided
that the following conditions are fulfilled:—
(a) the employer has maintained complete details of journey
undertaken for official purpose which may include date
of journey, destination, mileage, and the amount of
expenditure incurred thereon;
(b) the employer gives a certificate to the effect that the
expenditure was incurred wholly and exclusively for the
performance of official duties.
Explanation.—For the purposes of this sub-rule, the
normal wear and tear of a motor-car shall be taken at 10%
per annum of the actual cost of the motor-car or cars.”
(iii) after sub-rule (5), the following sub-rule shall be inserted
with effect from 1st April, 2008, namely:-
“(6) The value of any benefit or amenity resulting from
the provision by an employer, who is not liable to pay fringe
benefit tax under Chapter XIIH of the Income-tax Act and
is engaged in the carriage of passengers or goods to any
employee or to any member of his household for personal
or private journey free of cost or at concessional fare, in any
conveyance owned, leased or made available by any other
arrangement by such employer for the purpose of transport
of passengers or goods shall be taken to be the value at which
such benefit or amenity is offered by such employer to the
public as reduced by the amount, if any, paid by or recovered
from the employee for such benefit or amenity:
Provided that nothing contained in this sub-rule shall apply
to the employees of an airline or the railways”
(iv) in sub-rule (7),-
(a) after item (i), the following items shall be inserted
with effect from 1st April, 2008, namely:-
“(ii) The value of travelling, touring, accommodation
and any other expenses paid for or borne or reimbursed by
the employer, who is not liable to pay fringe benefit tax under
Chapter XH-H of the Act, for any holiday availed of by the
employee or any member of his household, other than
concession or assistance referred to in rule 2B of these rules,

968 the management accountant, December, 2007

 Legal Notes & Notifications
shall be determined as the sum equal to the amount of the
expenditure incurred by such employer in that behalf. Where
such facility is maintained by the employer, and is not
available uniformly to all employees, the value of benefit
shall be taken to be the value at which such facilities are
offered by other agencies to the public. Where the employee
is on official tour and the expenses are incurred in respect
of any member of his household accompanying him, the
amount of expenditure so incurred shall also be a fringe
benefit or amenity. However, where any official tour is
extended as a vacation, the value of such fringe benefit shall
be limited to the expenses incurred in relation to such
extended period of stay or vacation. The amount so
determined shall be reduced by the amount, if any, paid or
recovered from the employee for such benefit or amenity.
(iii) The value of free food and non alcoholic beverages
provided by the employer, who is not liable to pay fringe
benefit tax under Chapter XIIH of the Act, to an employee
shall be the amount of expenditure incurred by such
employer. The amount so determined shall be reduced by
the amount, if any, paid or recovered from the employee for
such benefit or amenity:
Provided that nothing contained in this sub-rule shall
apply to free food and non-alcoholic beverages provided by
such employer during working hours at office or business
premises or through paid vouchers which are not transferable
and usable only at eating joints, to the extent the value thereof
in either case does not exceed Rs. 50 per meal or to tea or
snacks provided during working hours or to free food and
non-alcoholic beverages during working hours provided in
a remote area or an off-shore installation.
(iv) The value of any gift, or voucher, or token in lieu of
which such gift may be received by the employee or by
member of his household on ceremonial occasions or
otherwise from the employer, who is not liable to pay fringe
benefit tax under Chapter XII-H of the Act, shall be
determined as the sum equal to the amount of such gift.
However, where the value of such gift, voucher or token, as
the case may be, is below Rs. 5,000 in the aggregate during
the previous year, the value of perquisite shall be taken as
‘nil’.
(v) The amount of expenses including membership fees
and annual fees incurred by the employee or any member of
his household, which is charged to a credit card (including
any add-on-card), provided by the employer, who is not liable
to pay fringe benefit tax under Chapter XII-H of the Act, or
otherwise, paid for or reimbursed by such employer shall
be taken to be the value of perquisite chargeable to tax.
However, there shall be no value of such benefit where the
expenses are incurred wholly and exclusively for official
purposes and the following conditions are fulfilled—
the management accountant, December, 2007
(a) complete details in respect of such expenditure are
maintained by the employer which may, inter alia, include
the date of expenditure and the nature of expenditure;
(b) the employer gives a certificate for such
expenditure to the effect that the same was incurred wholly
and exclusively for the performance of official duties.
The amount so determined shall be reduced by the
amount, if any paid or recovered from the employee for such
benefit or amenity.
(vi) (A) The value of benefit to the employee resulting
from the payment or reimbursement by the employer, who
is not liable to pay fringe benefit tax under Chapter XII-H
of the Act, of any expenditure incurred (including the amount
of annual or periodical fee) in a club by him or by any
member of his household shall be determined to be the actual
amount of expenditure incurred or reimbursed by such
employer on that account. The amount so determined shall
be reduced by the amount, if any paid or recovered from the
employee for such benefit or amenity. However, where the
employer has obtained corporate membership of the club
and the facility is enjoyed by the employee or any member
of his household, the value of perquisite shall not include
the initial fee paid for acquiring such corporate membership.
(B) Nothing contained in this sub-rule shall apply if such
expenditure is incurred wholly and exclusively for business
purposes and the following conditions are fulfilled:—
(a) complete details in respect of such expenditure are
maintained by the employer which may, inter alia, include
the date of expenditure, the nature of expenditure and its
business expediency;
(b) the employer gives a certificate for such expenditure
to the effect that the same was incurred wholly and
exclusively for the performance of official duties;
(c) Nothing contained in this sub-rule shall apply for
use of health club, sports and similar facilities provide
uniformly to all employees by the employer.”
(b) after item (viii), the following item shall be inserted
with effect from 1st day of April, 2008, namely:-
“(ix) The value of any other benefit or amenity, service,
right or privilege provided by the employer shall be
determined on the basis of cost to the employer under an
arm’s length transaction as reduced by the employee’s
contribution, if any:
Provided that nothing contained in this item shall apply
to the expenses on telephones including a mobile phone
actually incurred on behalf of the employee by the
employer.”
[F.No. 142/15/2007-TPL]
969
 Examination Notification – Revised Syllabus

The Institute of Cost and Works Accountants of India

DECEMBER 2007 EXAMINATION NOTIFICATION
Notification No. December 2007/EG dated 15th September, 2007
In pursuance of Regulation 36 of the Cost and Works Accountants Regulations, 1959, it is hereby notified for general
information that the next December 2007 term of examinations will be held as per schedule below :
Programme for December 2007 Examination – Revised Syllabus
Day, Date & Time Final Intermediate Management Accountancy
Wednesday, 26 th December, 2007 Operations and Project Cost and Management Management Accountancy
09.30 A.M. to 12.30 P.M. Management and Control Accounting
Wednesday, 26 th December, 2007 Management Accounting – Management Accounting- Advanced Management
02.00 P.M. to 05.00 P.M. Decision Making Performance Management Techniques
Thursday, 27 th December, 2007 Advanced Financial Information Systems and Industrial Relations &
09.30 A.M. to 12.30 P.M. Management and Technology Personnel Management
International Finance
Thursday, 27 th December, 2007 Management Accounting- Advanced Financial Marketing Organisation &
02.00 P.M. to 05.00 P.M. Financial Strategy and Accounting Methods
Reporting
Friday, 28 th December, 2007 Strategic Management and Business Laws and Economic Planning &
09.30 A.M. to 12.30 P.M. Marketing Communication Skill Development
Friday, 28 th December, 2007 Cost Audit and Auditing
02.00 P.M. to 05.00 P.M. Management Audit
Saturday, 29 th December, 2007 Strategic Tax Business Taxation
09.30 A.M. to 12.30 P.M Management
Saturday, 29 th December, 2007 Valuations Management Quantitative
02.00 P.M. to 05.00 P.M. and Case Study Methods
Programme for Foundation Course – December 2007 Examination – Revised Syllabus
Wednesday, 26 th December, 2007 Thursday, 27 th December, 2007 Friday, 28 th December, 2007 Saturday, 29thDecember, 2007
02.00 P.M. to 05.00 P.M. 02.00 P.M. to 05.00 P.M. 02.00 P.M. to 05.00 P.M. 02.00 P.M. to 05.00 P.M.
Organisation and Management Financial Accounting Economics and Business Business Mathematics and Statistics
Fundamentals Fundamentals Fundamentals Fundamentals
Examination Fees
Stage (s) Final Intermediate Foundation Course Management Accountancy
Examination Examination Examination Examination
One Stage (Inland Centres) Rs.800/- Rs.700/- Rs.700/- Rs.500/-
(Overseas Centres) US $ 100 US $ 90 US $ 60
Two Stages (Inland Centres) Rs.1600/- Rs.1400/- Rs.1000/-
(Overseas Centres) US $ 100 US $ 90
1. Application Forms for Foundation Course, Intermediate and Final Examinations are available from Institute’s Headquarters at 12, Sudder Street,
Kolkata, Regional Councils and Chapters of the Institute on payment of Rs. 30/- per form. In case of overseas candidates, forms are available at
Institute’s Headquarters only on payment of US $ 10 per form.
2. Last date for receipt of Examination Application Forms without late fees is 26th October, 2007 and with late fees of Rs. 200/- is
6 th November 2007.
3. Examination fees to be paid through Bank Demand Draft of requisite fees drawn in favour of the Institute and payable at Kolkata.
4. Students may submit their Examination Application Forms along with the fees at ICWAI, 12 Sudder Street, Kolkata – 700016 or Regional Offices
or Chapter Offices. Any query can be sent to Director (Examination) at H. Q.
5. For December 2007 term of Examinations questions on the subjects – “Business Taxation” and “Strategic Tax Management” will be set
considering the Finance Act, 2006 involving Assessment Year : 2007-2008.
6. Examination Centres : Agartala, Ahmedabad, Allahabad, Asansol, Aurangabad, Bangalore, Baroda, Bhilai, Bhopal, Bhubaneswar, Bilaspur,
Bokaro, Brahmapur(Ganjam),Chandigarh, Chennai, Coimbatore, Cuttack, Dehradun, Delhi, Dhanbad, Durgapur, Ernakulam, Faridabad, Ghaziabad,
Guwahati, Hardwar, Howrah, Hyderabad, Indore, Jaipur, Jalandhar, Jammu, Jamshedpur, Jodhpur, Kalyan, Kanpur, Calicut, Kolhapur, Kolkata,
Kota, Kottayam, Lucknow, Madurai, Mangalore, Mumbai, Mysore, Nagpur, Naihati, Nasik, Neyveli, Panaji(Goa), Patiala, Patna, Pondicherry,
Pune, Rajahmundry, Ranchi, Rourkela, Salem, Shillong, Surat, Thrissur, Tiruchirapalli, Tirunelveli, Trivandrum, Udaipur, Vellore, Vijayawada,
Vindhyanagar, Waltair and Overseas Centres at Dubai and Muscat.
7. A candidate who is completing all conditions will only be allowed to appear for examination
8. Probable date of publication of result : Foundation – 12th February 2008 and Inter & Final – 2nd March 2008.
C. Bose
Director (Examinations)

970 the management accountant, December, 2007

the management accountant, December, 2007 971
972 the management accountant, December, 2007
the management accountant, December, 2007 973
974 the management accountant, December, 2007
 Emission Trading

The concept of sustainable

Carbon Markets a Great development dates back a long way but
it was at the UN Conference on Human
Environment (Stockholm, 1972) that
Potential of Indian the international community met for the
first time to consider global
environmental and developmental
Corporates–An Overview concerns and needs.
United Nations Conference on
An exposure on emission trading its financial impact and accounting implications Environment and Development
(UNCED), also called Earth Summit,
held at Rio de Janeiro laid the
Shantonu Moitra* foundation for global deliberations on
environment and sustainable
The earth does not argue, development. The summit agreed on
Is not pathetic, has no arrangements’ Agenda 21 and the Rio declaration
Does not scream, haste, persuade?’ which led to agreement on two legally
Threaten promise’ binding conventions. Biological
Makes no discriminations, has no conceivablefailures’ diversity and the Framework
Closes nothing, refuses nothing, and shuts none out. Convention on Climate change
Walt Whitman 1819-92 “a song of rolling earth” (1881) (FCCC). India had signed the United
Nations Framework Convention on
Climate change (UNFCCC) on June
Brief of environment necessitating Kyoto your car, electricity, gas, but everything
10th 1992 and the objective of the
protocol you use i.e. your clothes, computer,
convention is to achieve stabilization
products you buy roads, defence and

O
ur mother earth closes nothing, of green house gas concentration in the
the list goes on unending leading to/
refuses nothing and shuts none atmosphere at a level that would
adding to Green House Gas (GHG)
but we, human beings through prevent dangerous authropogenic
emissions. The more the country is
the development process has consumed interference with the climate system.
Developed, more is the contribution to
natural resources, generated pollution
the Green house Emissions. For After series of deliberations, the text
primarily from 19th century till date and
example: USA emission level is 24.09 of the protocol was adopted at the third
even today, if scientists are to be
CO2e tonnes/person (2003) with only Conference of the parties (COP) 3 to
believed, Mother Earth has reached an
5% of the world’s population, Australia
alarming stage where the problems of
27.54 CO2e tonnes/person (2000),
global warming, rising of sea levels,
whereas the emission per capita in India
drastic trends of climatic changes is a
is CO2e 1.34/person (2001), and China
threat to the very existence of human
3.05 CO2e/person brings out clearly
life on Earth, (rising temperatures and
that development has contributed to the
rising sea levels ref graphs below. The
GHG emission and the developed
industrial processes has generated
countries have the ethical responsibly
gases which has generated a blanket
to contribute and take assertive action
over the Earth trapping heat by the
for mitigating the problem. Kyoto
process known as Greenhouse Effect
Mechanism has created an architectural
which experts believe is linked to the
framework for market based
global warming and climatic changes.
management of global atmosphere and
In today’s society every item we
thus has taken a positive step for a
consume is created by an industrial
cleaner future.
process and hence has green house gas
emissions associated with it. Not just Kyoto protocol a framework to
stabilize/reduce GHG (Green house
gases Emissions)
* AICWA, CS, MBA

the management accountant, December, 2007 975


UNFCC on 11th December 1997 at
Kyoto, Japan. The protocol commits
Annexure I (Industrialized countries) to
achieve quantified emission reduction
targets, an average of 5.2% below 1990
levels between 2008-2012. The
protocol covers among Green House
Gases six major green house gases 1)
Carbon dioxide 2) Methane 3) Nitrous
Oxide 4) Hydroflurocarbons (HFCS) 5)
Perflurocarbons (PCFS) and 6) Sulphur
hexafluroide (SF6). The degree of
warming caused by a specific GHG is
measured upon it’s CO2 equivalence
(CO2e) There are at least 25 other gases
including chloroform, Carbon
Monoxide that influence climate
change however the above mentioned
6 gases are the key ones and can be
controlled by human intervention with
relative ease.
To enter into force the Kyoto
Protocol was to be ratified by at least
55 countries, including countries
representing at least 55% of 1990 Green
House Gas emissions in Industrialised
countries. Many countries ratified the
proposals, India ratified on 26th August
2002. However US and Russia not
ratifying the proposals till 2004,
Annexure 1, ratification was
representing only 47% of the emission
in place of a prerequisite of 55% as
mandated by Kyoto protocol. Russia
ratified the Treaty in 2004 thus
increasing the percentage to 64% after
which the protocol came into force on
Feb 16th 2005.
Under this mechanism, countries
are separated into 2 general categories:
Developed countries referred to as
Annexure I (countries who have
accepted GHG emission reduction
obligations) and Developing countries
referred to as Non Annexure I
(countries who have no GHG reduction
obligations). As on Oct 2006 166
countries and other governmental
entities have ratified the Kyoto
agreement, (representing more than
61.6% of emissions from annexure I
976
Emission Trading
countries, except USA and Australia.
The individual targets for Annexure I
parties are listed in Annexure-B to
Kyoto Protocol. Any country struggling
to fulfill it’s obligation, may have to buy
credits from another countries i.e. on
track in order to meet it’s target.
Mechanisms of Kyoto Protocol
The Kyoto Protocol has identified
3 flexibility mechanisms to lower the
overall costs to achieve the emission
targets of Annexure I countries India
being an non Annexure I country has
to it’s relevance CDM mechanism only.
l Clean Development Mechanism
(CDM)-It is dealt with in Article 12
which provides for Annexurel
countries (Developed countries) to
implement/pay for projects that
reduce emissions in Non Annexure
I countries or absorb carbon through
afforestation/reforestation
activities. In return they get CER
(certified emission reduction)
which they can use in meeting the
Kyoto targets. CER’s are a
certificate just like stock. A CER is
given by CDM Executive Board to
projects in Non Annexure I
(Developing countries) as a
certificate certifying that it has
reduced GHG emissions by 1 tonne
of carbon dioxide per year.
Developed countries buy CER’s
from developing countries under
CDM mechanism in order to
achieve their respective Kyoto
targets.
Say a company in India (Non
Annexure I country) switches from coal
power to biomass and it get’s CER of
40000, means that it has reduced carbon
dioxide emissions by 40000 tonnes per
year. Say another Annexure I country
U K is assumed to have a target of
reducing emissions by 100000 tonnes
as per Kyoto norms, it can purchase
40000 CER generated by the Indian
Company which will result in reduction
of UK’s Kyoto emission reduction
the management accountant, December, 2007
target by 40000 tonnes and it’s revised
target will become 60000 tonnes.
Developed countries have to spend
nearly $300 to $500 for every tonne
reduction in CO2 against $10 to $25 to
be spent by Developing countries this
cost advantage has generated a huge
business opportunity in developing
countries including India. The
mechanism helps the developed
countries in saving costs as marginal
cost of reduction of GHG in developing
countries in lower and in return the
developing countries get investment,
technology and other social/economic
benefits of inflow of funds.
l Joint Implementation (JI)-Joint
Implementation is one of the
mechanisms of the Kyoto protocol
which allows Developed
(Annexure-I) countries with a GHG
reduction commitment to invest in
Emission reducing projects in
another developed country as an
alternative to emission reduction
norms in their own countries. As
costs of emission reductions are
significantly lower in some
countries, countries with relative
cost disadvantage can save/reduce
costs of complying with their Kyoto
targets by using credits from Jl
projects,. Emmision reductions
achieved from Jl projects are
awarded credit similar to CER in
CDM mechanism, Emission
reduction units (ERU), where one
ERU is equivalent to emission
reduction on one Tonne of carbon
Dioxide or equivalent.
l Emissions Trading : It has been
dealt with in Article 17 of the Kyoto
Protocol and it provides Developed
Countries (Annexure I countries)
can acquire emission reduction
units from other developed
countries who have met their Kyoto
emission targets and having
reduced more than norms of Kyoto
reduction resulting in surplus
credits. Emissions trading may be
 Emission Trading

in the form of an Assigned Amount single window clearance for CDM criterion. Based on the PDD the DOE
unit (AMU), a Removal Unit projects in the country. The Project evaluates and validates the proposed
(ARU), an Emission Reduction unit proponents are required to submit one CDM Project. The DOE then issues a
(ERU) and CER (Certified soft copy of Project Concept Note validation report and requests the CDM
Emission Reduction). (PCN) and Project Design Document Executive Board for registration of the
(PDD) through online form and 20 hard project based on the report. A
The Regulatory mechanism and the
copies each of PCN and PDD along Designated Operational Entity (DOE)
inter relations of the three aforesaid
with 2 CD’s containing all information is a company which has been accredited
mechanisms is illustrated in annexed
in each of them through covering letter by CDM executive board for
Diagram A
signed by project sponsors. Once the verification and validation of CDM
Process of getting CER/carbon members of the authority are satisfied projects TUV Seddeutschland India,
Credits under CDM in India the Host country Approval (HCA) is BVQ (Bureau Veritas Quality
The process of issuance of CER is issued by member secretary of the International), Det Norske Veritas are
a lengthy and complex process. There national CDM authority. If the the nasmes of the few DOE in India.
are 4 stages of CDM approval. developer has to undertake the project
3) After CDM executive board is
activity because of statutory
1) The First stage is at domestic satisfied in all aspects the project is
obligations/regulations, such a project
level where the Project is to be registered with CDM Executive Board.
is not generally eligible for CDM
approved by National CDM authority. benefits. 4) After the CDM project has been
The Seventh Conference of Parties registered the DOE usually once in year
(COP-7) to the UNFCCC decided that 2) Validation of PDD by Designated
checks whether the Emission
parties participating in CDM should Operational Entity (DOE) and
Reductions as envisaged in the project
designate a National Authority for Registration with UNFCCC-Before
has taken place or not. Only after DOE
CDM and as per the CDM project cycle registration with UNFCC the CDM
validates the project the CER is issued
a project appraisal should include project needs to be validated by
by CDM Executive Board.
written approval of voluntary Designated Operational Entity (DOE)
whether the project satisfies the CDM Illustration in diagram
participation from the Designated
National Authority for each country
and confirmation that the project
activity assists the host country in
achieving sustainable development.
In India Central government has
constituted the National Clean
Development mechanism (CDM)
Authority as per Kyoto Protocol and
whose composition is 1) Secretary
(environment & Forests)-Chairperson
2) Foreign secretary or his nominee 3)
Finance secretary or his nominee 4)
Secretary industrial Policy and
Promotion or his nominee 5) Secretary,
Ministry of Non Conventional energy
sources or his nominee 6) Secretary,
Ministry of Power or his nominee 7)
Secretary planning Commission or
hisnominee 8) Jt Secretary (Climate
Change), ministry of Environment and
forests and 9) Director (climate
change), Ministry of Environment &
Forests as member Secretary.
The National CDM Authority is a Source-http://cdmindia.nic.in/host_approval_process.htm

the management accountant, December, 2007 977


China & India accounts for 75% of
the CDM supplier with the total share
of Asia being 84% of market volumes
indicating that India and China are two
major suppliers of CER credits.
China & India has very different
processes regarding the functioning of
their respective DNA. The price of CER
is fixed at the time of submission for
the letter of approval (LOA). The
National Development and Reform
Commission (NDRC) exercise price
control on the CER to be in line with
prevailing market prices on similar
projects around the world. Evidence
indicates that Chinese Projects are
leveraging China’s strength in the
market by proposing higher prices. In
India the CDM Authority does not get
involved or influence the CER price
discussion/negotiation, the prices are
fixed by the buyers and sellers
independently through the market
mechanisms.
China attaches differentiated levies
for CDM projects ranging from 65%
for projects involving HFC, PFC, and
SF6 projects 30% for projects involving
N2O projects and 2% of priority project
areas and afforestation/deforrestation,
and the proceed of the levy supports
the sustainable development projects.
Taxes/leveies has not been imposed as
yet in India, perhaps the government
wants to develop the potential before
imposing any levy/duties/taxes.
CER’s and associated risks which
effect the Pricing
The major risk components of a
CDM project is
l Base Line Risk/Base Line Emission
Risk-The baseline accepted for the
generation of CER may need to be
adjusted during the crediting period
due to technological innovation
new host country energy/environ-
ment policy, or the activity level
may change due to uncertain
demand, technological under-
978
Emission Trading
performance, business interruption
etc.
l Kyoto process Risk-Methodology
Changes
l Country Risk-It relates to risk that
the host country will ratify and
subsequently comply with the
obligation under Kyoto protocol
and for Jl projects whether the host
country will transfer the Emission
reduction units as agreed by the
project sponsor.
l Transaction Costs Risk-Uncertain
market transaction Costs and
project cycle costs.
l Technology Risk-The operational
and/or commercial aspects of
technologies used in ER projects for
generating CER
l Geopolitical and economic risks-
political and taxation.
l Contract risks-Are the contracts
adequate, enforceable and adequate.
l Counter party risks-Are the
signatories to the contracts
creditworthy and abide by the terms
and eventually pay in time.
l Sponsors risks-are the project
sponsors financially viable and
likely to remain so.
l Market risks-It relates to the
expected market prices of ER on
delivery. ER are mostly purchased
in a forward contract at a fixed price
which may be different from the
market prices of ER at the time of
delivery.
These are primarily risks which are
factored in pricing and financial
lending/exposure against CERS
(CDM& Jl)...It is evident that being
dependent on too many factors the
pricing of CER’s has been dampended
The World bank in it’s circulation dated
17th sept 2005 has opined that with
experience and time delays,
uncertainties, with the risks and of the
the management accountant, December, 2007
project registration are expected to
decrease, in other words regulatory
certainly as it increases with time the
overall carbon risks will decrease CDM
credits are compliance assets that needs
to be created through a process that has
certain risks inherent with it and involve
higher transaction costs than EU-ETS
allowances which primarily generated
by entitlement and allocation. The CER
markets developing the market
dynamics still has not made the right
price discovery is a perception shared
by many.
European Emission Trading (EU-
ETS) :- The European Union having
ratified Kyoto Protocol has voluntarily
imposed stricter restriction/
commitments than those under Kyoto
and has committed to reduce it’s GHG
emissions to 92% of 1990 levels by
2012. The EU ETS (The Greenhouse
gas Emissions Trading Scheme
(Amendment) Regulations 2004 came
into force on 13th January 2005 and is
one of the key policies introduced
across Europe to tackle emissions of
carbon Dioxide and combat the serious
threat of climate change. It was
formulated as a cap and trade scheme
which means that where an installation
is emitting more CO2 than permitted
under its set allocation or cap, it will
have to purchase or trade additional
allowances (EUA) to make up this
shortfall. Similarly if the installation is
actually emitting less CO2 than the
volume set out in the allocation it can
sell the allowances for cash. In EU ETS
GHG emissions are quantified
according to tones of CO2 equivalent
and 1 tonne of CO2 equivalent is
known as European Union allowances
(EUA).
EU-ETS has imposed caps on the
amount of EUA permissible in any EU
member state. Each EU member has
drafted an National Allocation of Plan
(NAP) which after approved by EU sets
out the maximum annual volume of
EUA and how that EUA is to be

distributed between various sectors of
GHG emitters and finally setting limits
for individual emmitors. Any emitters
exceeding it’s GHG emission cap under
NAP in any given year after taking into
account any emission reduction credits
whether directly or through CDM
mechanism they have purchased to
offset their excess emissions will be
subject to a fine of 40 euros per tonne
of GHG emitted in excess of the
capturing Phase 1 and which will be
increased to 100 Euros during phase II
which commences from 2008.
In October 2004 the European
Union (EU) adopted a linking directive
that allows companies to buy CER from
Kyoto CDM mechanism to meet EU-
ETS emission allowances, thus making
CER’s a purchasing commodity for EU
states. A European company can but
CER credits from developing Non
Annexure I countries like India and it
will be issued an EU Emission
Reduction Unit in exchange for
surrendering the CER to the
government. The country can use those
CER to offset its Kyoto reduction
targets. This linkage links the Kyoto
CDM mechanism with EUETS system
there are a number of important
differences between the operation of the
EU trading regime and the functioning
of the Kyoto mechanisms.
First the JI and CDM are project
specific, based on baseline and credit
approach with an expost verification of
emission reactions achieved. In contrast
the EU ETS is a cap & trade
programmed for the reduction of GHG
based on exante allocation of
allowances to cover installations.
Secondly under Kyoto protocol are
free to choose/select which/whether
they wish to accept credits from another
party or project. In contrast the EU ETS
units are fully fungible, EU member
states are required to accept all EU
allowances for compliance.
JI & CDM credit will only be
the management accountant, December, 2007
Emission Trading
accepted for use in EU ETS from 1st
January 2008 when the Kyoto protocol
first commitment period starts.
Carbon credits-markets
l Markets-
l The EU-ETS at the end of
September 2006 was the largest
carbon market in terms of value and
volumes. In first nine months of
2006 the EU-ETS traded nearly 764
million Allowances worth US$18.9
billion compared to 324 million
Allowances worth US$8.2 billion in
all of 2005 reflecting more than
100% growth inferring the growing
importance of carbon Trading.
Other Exchanges like the NSW,
CCX and UK-ETS also grew by credits worth US$24.14 billion in
more than 100% both in value and first nine months of 2006. The
volume, the total trade of growth of project based transaction
allowances was 332.17 million was slow due to the inherent risk
allowances with a value of US$ factors effecting the Kyoto
82.67 Billion in 2005 and the value mechanism.
in the first nine months of 2006 was
l The total market of GHG reductions
788.34 million allowances with a
schemes was around US$110
value of US$ 190.51 billion.
billion (716 allowances/credits) in
l The Project based transaction 2005 which touched US$ 214
market mainly comprising of CDM billion (1022 million allowances/
and Jl Projects has transacted 384 credits) in only first 9 months of
million credits worth US$27.89 2006 reflecting a growth rate of
billion in 2005 and 284 million more than 75%.
979

Financing structures for financing
CDM projects
The World Bank Carbon Finance
unit (CFU) has been created for support
and developing Carbon markets. The
world bank’s carbon finance initiatives
are an integral part of the bank’s
mission to reduce poverty through it’s
environment and energy strategies.
Unlike World banks development
products the CFU does not lend/grant
resources to projects but rather
contracts to purchase emissions
reductions similar to commercial
transaction paying periodically or
staggered after they have been verified
by a third party auditor. This also is
reflective of the fact that risks of the
project is avoided by CFU focusing on
purchase of emission reduction units.
Some of the World Bank Funds are:-
1. Prototype Carbon Fund
(US$Million 180)
2. Bio Carbon Fund (US$Million
53.8)
3. Italian Carbon Fund (US$Million
154.9)
4. Community Development Carbon
Fund (US$Million 128.6)
5. The Netherlands European Carbon
facility
6. Carbon Fund for Europe
Asian Development Bank has also
taken up funding Carbon Projects.
ADB in a decision has decided to help
China to set up a fund through a grant
of US$600000. Few Indian banks like
Yes bank is also eying this sector.
However it is high time that Indian
financing institutions formulate and
bring into operation dedicated CDM
funds and financing Instruments.
Insurance products have also been
developed lately targeting the carbon
market to cover the various risk dealt
earlier in this article by World Bank’s
Multilateral Investment Guarantee
Agency (MIGA), AIG, Allianz, Rabo
bank to name a few.
Prevailing Prices of Carbon
Instruments
Prices across the board in every
980
Emission Trading
segment of the Project based Carbon
market have increased with weighted
average prices of primary CER at about
US$10.50 up from US$7.10 in 2005.
JI assets trade in a range from US$6.60
up to US$10.24.
Prevailing Indicative Prices of carbon
in different markets
Commodity Market Unit prices
($/Tonne)
Allowance EU ETS EUA 15-18
Allowance CCX CFI 2-4
Allowance RGGI tbd 2-4
Credit CDM CER 3-12
Credit JI ERU 3-12
Credit Voluntary VER 1-3
adopted from WWW.utilipoint.com
Accounting Issues and GAAP
Accounting for GHG emissions
remains yet to be regulated or guided
by evolved guidelines. In Dec 2004
International Financial Reporting
Interpretation Committee (IFRIC)
issued for inviting comments IFRIC 3,
Emission Rights an accounting
interpretation for a Cap & trade
emission rights scheme (IFRIC3) where
broadly the accounting treatment is as
follows:-
l Emission Allowances are intangible
assets (IAS 38) like a license and
recognized at fair value.
l For allocated allowances the
difference between fair value and
amount paid is a grant and is to be
accounted for under IAS 20
Government grant.
l Emission liabilities are treated as a
provision at market value of the
required number of allowances
(IAS 37).
l The interpretation also treats assets
(Allowances) independently to the
liabilities (ie obligations under EU)
and accordingly netting off of asset
and liability is not permitted.
Unfortunately considerable
pressure and opposition from EFRAG,
and concern raised led to it’s
withdrawal by IASB within one year
of it’s issuance.
the management accountant, December, 2007
In the US the Emerging Issues Task
Force (EITF) issue 03-14 “participants
accounting for emission allowances
under a Cap and trade program has yet
to be finalized. This leaves the carbon
trade with no clear accounting guidance
for companies leading to various
acceptable accounting treatments for
emission rights which naturally leads
to distortion in comparative figures of
companies with dependence on the
choice of accounting policy for carbon
trading.
In addition to financial reporting–
what shareholders see-management
accounting issues also needs to be
considered, including operating and
investing cash flows, appropriate
discounting rate vis vis risks, risk
management option leverages and
hedging, allocation of capital etc.
Companies need a structured processes
to quantify the impact of Carbon in their
financial and other decision making
tools.
Carbon credits Indian scenario
Asia leads in the supply of CDM
credits with 84% of the market volumes
with China leading with 60% market
share and India at 15% however with
this opportunity the Indian corporate
have lined up projects and stategies to
tap the additional cash flow
opportunity. According to Mr. S. K.
Joshi Jt Secretary Ministry of
Environment & Forests the carbon
Credit market in India is likely to the
tune of Rs. 15000 Cr., other estimates
have put the CDM carbon trade at Rs.
22500 Cr to Rs 45000 Cr. The
unfolding opportunity of carbon
Credits in India has caught the eye of
Indian corporate for an additional cash
flow via this route Between end of 2005
and Dec 2006 around 450 CDM
projects has been submitted to the
Ministry of Environment and Forests
of which around 420 CDM projects has
received government approval, which
sum up to around 350 million Carbon
credits, of the approved projects.
Torrent power has sought for 11
million credits, ONGC Hazira plant 2

million Credits, IFFCO 1.5 million
credits, and the list goes on.
ONGC is the first Public sector
company to have a CDM project
registered with UNFCC (waste heat
recovery and using recovered heat for
heating oil at MS Platform in Mumbai
high). ONGC aims to get 850000
tonnes of Carbon Credits in 2007
generating revenues of around Rs. 600
million.
Villagers in South of India were
using biomass as a source of cooking
fuel never realized that they are
preventing a sizable amount of carbon
from being emitted into the atmosphere.
The Chicago Climate Exchange (CCX)
North Americas only private integrated
greenhouse gas emission registry has
entered into a tie up with Antyodaya
an Indian NGO and Bangalore based
Foretell Business solutions Private
Limited for giving Carbon credit based
on emissions prevented by the use of
biomass against which each villager
will earn a minimum of Rs 800 pa for
offsetting carbon emissions. Dr.
Richard L Sandor CEO CCX
comments on this project” The project
proves that carbon can be an
instrument for social transformation.”
Many projects which were found
not viable has become viable after
factoring in the CDM benefits for
example Allain Duhangan
Hydroelectric project (ADHP) the 192
MW hydropower project at Himachal
Pradesh with a Capital cost USD Mn/
MW at 1.04 had an IRR of 10.69%
without considering the CDM benefits,
whereas the cost of Capital (WACC)
was around 12.60% was found unviable
without CDM benefits, however was
viable after factoring the CDM benefits.
While CER revenue would provide
additional cash flows an analysis (by
Jotzo and Michaelowa 2002) shows
that IRR will improve by 0-3% for a
variety of project types (on the basis if
prices at CER 3$ to 5$).
However with the CER markets
developing the market dynamics still
has not made the right price discovery
the management accountant, December, 2007
Emission Trading
is a perception shared by experts. At
present the trading in carbon Credits
takes place primarily in two stock
exchanges Chicago Climate Exchange
(CCX) and European Climate
Exchange (ECX). However the thriving
OTC (Over The Counter Market) trades
in carbon credits have still till recently
distorted a proper price discovery. In
OTC market dealers purchase CER’s
under their own account and sell them
to customers with a mark up over the
wholesale prices with intermediaries
consultants buying CEF ‘s at low price
9 even at 5-6 Euros) ans selling them
at 13-16 Euros pocketing a tidy margin.
However with growing volumes at
CCX and ECX we are moving towards
a market discovered efficient price
Chicago Climate exchange has entered
into an agreement with Muilti
commodity exchange (MCX) India’s
commodity exchange for trading in
carbon derivatives which is great news
for Indian industries generating CER’s.
The MCX-CCX tie up is expected to
ensure better price discovery of carbon
credits besides helping the participants
cover the risks associated with selling
and buying of carbon credits. It is time
that futures trading in carbon
derivatives.
USA & Australia non signatories to
Kyoto
USA & Australia are not signatories
to the Kyoto framework ie the major
GHG emitters are outside the
framework of market mechanisms
developing in post Kyoto framework.
However there are positive indications
of development of regulatory systems
to manage GHG emissions both in
Australia and US. New South Wales
(NSW) in Australia has proposed a Cap
& Trade approach which is being
considered for national adoption. 7 US
States comprising of Regional Green
House Gas Initiative (RGGI) has also
in the process of developing a
framework for Carbon market. The US
State of California has also passed an
important new law to manage GHG
emissions reduction in late August
2006 which intends to use “market
based incentives” to reduce emissions
by 25% from today back to 1990 levels
by the year 2010. These along with
voluntary compliance efforts in US is
a welcome direction for evolution of a
global carbon market.
However it is time for policy
makers on global, national, state and
regional levels to set credible targets
overtime, harmonise the multiplicity of
financial instruments across different
markets and integrate the momentum
which has gathered primarily
concerning saving our Mother Earth.
Conclusion
Honorable Finance Minister Shri P
Chidambaram in his Budget Speech on
28th Feb 2007 has tabled a Proposal
for formation of a Expert Committee
on Climate change which is a welcome
development. However at the same
time it is felt that, to study and develop
options of financing, the cost
economics, accounting guidance of
monetary inflows of the CDM effect,
another committee needs to be initiated
comprising of professional institutes
like ICWAI, ICAI, TERI etc. ICWAI
can take the lead in initiating the
opinion mobilization for the need of
such study as after all it is cost
economics’ which drive the CDM
projects in India.
References
The Financial Express, New Delhi-
07.02.2007
The Hindu Business Line 05.12.2006
www.afponline.org/www.point
carbon.com
State & trends of Carbon Market-
2006 (update Q3’06)
www.ongcreports.net
www.cse.org
www.pointcarbon.com
www.ebrd.com
www.business-standard.com
State & Trends of the Carbon
Market-2006 World Bank
(The views expressed are the view
of the writer and does not any way
reflect the views of the organization
he works in)
981
 Emission Trading

982 the management accountant, December, 2007


Carbon Finance under
Kyoto Protocol
Pratul Kumar Ray*
Dharmendra Nath Sondhi**
The Protocol
K
yoto Protocol is an Agreement
negotional at Kyoto, Japan in
December, 1997 as an
amendment to the United Nations
Framework Convention on Climate
Change (UNFCCC, which was adopted
at Earth Summit in Rio de Janeiro in
1992). This agreement has been signed
and ratified by about 175 countries
including India and comes in legal force
from Feb. 16,2005. Kyoto Protocol is
currently the only legally-binding
International Agreement that seeks to
tackle the challenges of Global
Warming. The participating countries
that have ratified the Kyoto Protocol
have committed to cut emissions of not
only Carbon Dioxide (CO2), but also
other greenhouse gasses, being:
Methane (CH4), Nitrous Oxide (N2O),
Hydrofluorocarbons (HFCs),
Perfluocarbons (PFCs), Sulphur
hexafluoride (SF6). Greenhouse gases
like Carbon Dioxide are generated as a
result of burning fossil fuels like coal,
petrol and diesel. While the use of these
fuels have helped industrialization
enormously, it has caused a steady
increase in levels of carbon rich gases
and other pollutants leading to
significant warming of the earth.
For the purpose of implementing
the protocol, participating countries are
separated into two general categories
namely (1) Developed Countries,
referred to as Annex 1 countries (who
* Dy. Manager–Finance, THDC Ltd.
**Sr. Mgr.–Finance, THDC Ltd.
the management accountant, December, 2007
Emission Trading
have accepted greenhouse gas emission
reduction obligations and must submit
an annual greenhouse gas inventory)
AND (2) Developing Countries,
referred to as Non-Annex I countries
(who have no greenhouse gas emission
reduction obligations but may
participate in the Clean Development
Mechanism).
By setting individual Greenhouse
Gas (GHG) reduction targets for 38
industrialized Countries and Members
of the European Community (known as
Annex I Countries), the Protocol aims
to cut Global emissions by 5% of 1990
levels by 2012. These 38 relatively
developed countries have agreed to the
targets under the principle that richer
nations are most to blame.
There are two Flexible Mechanisms
which allow Annex I Economics to
meet their greenhouse gas emission
limitation by purchasing Greenhouse
Gas emission reductions from
elsewhere.
Flexible Mechanisms are:
1. Joint Implementation (JI)–whereby
developed countries are able to
invest in projects in other developed
countries to acquire credits of
emission reduction units (ERUs) to
assist in meeting their assigned
targets. This scheme is applicable
in transitional economies mainly
covering the former Soviet Union
and Eastern Europe.
2. Clean Development Mechanism
(CDM)–whereby developed
countries are able to invest in
emission reducing projects in
developing countries to obtain
credits of certified emission
reductions (CERs) to assist in
meeting their assigned targets. Only
CDM Executive Board–accredited
Emission Reduction (CER) can be
bought and sold. CDM Executive
Board of the participant countries
is to asses and approve the projects
(“CDM Projects”) in Non-Annex I
economies prior to awarding of
CERs. Non-Annex I economies
have no GHG emission restrictions,
but when a greenhouse emission
reduction project (a “Greenhouse
Gas Project”) is implemented in
these countries, that Greenhouse
Gas Project will receive Carbon
Credit which can be sold to Annex
I buyers.
CERs can be earned through a
variety of projects such as financing
renewable energy initiatives,
implementing energy efficient
technology, or increasing carbon sinks
by reducing deforestation.
Under the protocol, factories and
power stations are given carbon dioxide
quotas. If they overshoot they can buy
extra allowances in the market or pay a
financial penalty; if they undershoot
they can sell them. Developed countries
can earn credits to offset against their
targets by funding clean technologies,
such as hydro power in developing
countries.
India and China, which have ratified
the Kyoto Protocol, are not obligated
to reduce greenhouse gas production at
the moment as they are developing
countries ; they were not seen as the
main culprits for emissions during the
period of industrialization thought to be
the cause for the global warming of
today.
Carbon Finance/Credits :
The Kyoto Protocol allows for
983

Certified Emission Reductions (CERs)
created by eligible Projects under the
Clean Development Mechanism and
Emission Reduction Units (ERUs)
created by eligible Projects under the
Joint Implementation Mechanism to be
used towards meeting national emission
reduction targets. CERs and ERUs are
greenhouse gas (GHG) emission
reductions that are created when a
project reduces or avoids the emissions
of GHGs, such as carbon dioxide or
methane, relative to what would have
been emitted under a “business as
usual” scenario. For example, a new
wind power plant that displaces
existing or expected coal fired power
generation would create a significant
amount of credits.
Carbon credits are certificates
issued to companies that reduce their
greenhouse gas emissions. These
credits are then sold to companies who
can not fulfill the protocol norms. In
countries like India, greenhouse gas
emission is much below the target fixed
by the Kyoto Protocol and hence,
excluded from reduction norms of
emission. Such nations can sell surplus
credits to developed countries. Asia and
Latin America are other key sellers of
carbon credits in the international
market. Several companies here
produce hydrochlorofluorocarbons,
enabling them generate carbon
emission rights, much in demand from
corporates abroad. One credit is equal
to one tonne of carbon dioxide in the
international carbon credit market.
Carbon credit units are currently trading
at $15-20 per unit.
International Finance Corporation
(IFC), World Bank Group :
The Carbon Finance Unit (CFU)
serves as IFC’s in–house resouce for
all carbon finance-related issues,
providing services directly to buyers
and sellers. The Unit leads in the
development of new products and
services as an advisor on variety of
984
Emission Trading
products and services to support private
sector participation in the evolving
carbon market. IFC is well-positioned
to assist project sponsors with
participation in the rapidly growing
market for “Carbon Credits”. Through
the Carbon Finance Programme, IFC
contributes to the development of an
important new market for
environmental services. IFC has a
particular interest in projects of the
following types:
1. Renewable energy projects that
displaces use of fossil fuels;
2. Energy efficiency projects that
reduce consumption of fossil fuels;
3. Recovery and utilization of methane
from for example, waste landfills
and coal mines;
4. Switching from fuels with greater
or lesser greenhouse gas (GHG)
intensity (i.e. from coal to natural
gas);
5. Recovery and utilization or
destruction of industrial gases that
are potent GHGs, and
6. In Europe only, certain projects to
plant trees or other biomass to
sequester carbon on lands that have
not been forested since 1989 or
later.
The main project selection criteria
include, but are not limited to:
1. Location: Projects must be located
in am emerging market country that
has either ratified the Kyoto
Protocol or is in the process of doing
so.
2. Likely Project Closing: Projects
must be likely to reach financial
closing in the short term.
3. Amount of Credits: Projects must
generate a minimum number of
credits through to 2012.
4. IFC and non-IFC Investments:
While IFC’s preference is to
the management accountant, December, 2007
purchase credits from projects that
are also financed by IFC. IFC will
also consider projects that are not
IFC-financed.
5. Environmental and Social Impact:
All projects, whether financed by
IFC or not, must comply with IFC’s
Environmental and Social
Standards. Projects that have large-
scale adverse environmental or
social impacts will not be
considered.
6. Host Country Approval: The Govt
of the host country will have to
approve the project under the Clean
Development Mechanism of the
Kyoto Protocol. IFC can support the
application of the project company
to the government for such
approval.
7. Independent Verification: The
initial design of the project will need
to be validated by an independent
auditor, as required under the Kyoto
Protocol. In addition, the credits
generated by a project must be
verified and certified periodically
by auditors.
National Clean Development
Mechanism Authority in India
(Designated national Authority):
The Prime Minister Manmohan
Singh has spoken about the need for
India to tap the CDM potential. The
Central Govt. constituted the National
Clean Development Mechanism
(CDM) Authority to evaluate, review
and encourage projects. The Director
(Climate Change), Ministry of
Environment and Forests, being the
Member-Secretary of the National
CDM Authority, is responsible for day
to day activities of the Authority
including constituting committees or
sub-groups to co-ordinate and examine
the proposals or to get detailed
examination of the project proposals.
The National CDM Authority has
the powers:

1. to invite officials and experts from
Government, Financial Institutions,
Consultancy Organisations, Non-
governmental organizations, Civil
Societi, legal profession, industry
and commerce, as it may deem
necessary for technical and
professional inputs and may co-opt
other members depending upon
need.
2. to interact with concerned
authorities, institutions, individual
stakeholders for matters relating to
CDM.
3. to take up any environmental issues
pertaining to CDM or Sustainable
Development projects as may be
referred to it by the Central
Government, and
4. to recommend guidelines to the
Central Govt. for consideration of
projects and principles to be
followed for according host country
approval.
Clean Development Mechanism
(CDM) has taken strong roots in India.
India has emerged global leader when
it comes to the volume of submitted
projects under this mechanism. Indian
enterprises started preparing projects
under this mechanism in 2002. The
Government, recognizing this trend,
created the National CDM authority in
2003. The submitted projects span the
broad horizon of industries–renewable,
power, transport and waste
management sectors. The benefits to
India from CDM will be significant
considering the vast potential available.
Agencies in CDM Business :
State Bank of India (SBI) has
entered into Memorandum of
Understanding (MOU) with MITCON
Consultancy Services Limited,
Ecosecurities India Private Ltd. And
Cantor CO2E India Private Ltd. for
jointly providing one-step solutions to
industries for Clean Development
Mechanism (CDM) projects and
emission trade. SBI is to provide a
the management accountant, December, 2007
Emission Trading
single point delivery of services related
to Carbon Credits/CDM under the
Kyoto Protocol to its customers. These
include apart from finance to
implement CDM projects, advisory
services and valud added products like
securitisation of carbon credits
receivables, carbon credit delivery
guarantees and escrow mechanism for
carbon credits. With its large base of
SME customers, SBI sees the
possibilities for aggregating/bundling
of individual CDM projects from SMEs
into viable sized lots as a specific and
special area of thrust. Creating
awareness of the CDM among the
industrial units and the additional cash
flows it would generate would be the
focus of the Bank. With so many buyers
and sellers in this market, counter party
risk can become a key risk in carbon
credits trading and with its wide Indian
and International presence can play a
major role here. Apart from the
opportunity of generating substantial
fee based income, this also an
opportunity for the Bank to support the
fight against global warming. Analysts
peg the global carbon trading market
at $100 billion by 2020. Indian carbon
market has the potential to supply 30-
50% of the projected global market of
700 million CERs by 2012. SBI is
chalking out an aggressive strategy to
tap into this market. Other
Multinational Banks like IDBI and
ICICI and HSBC have already initiated
steps for being in the CDM business.
IFCCI projects that the Indian
companies may earn almost $4 billion
through carbon-credit sales in the year
future.
Under the CDM-business, Banks
facilitate a long term contract where the
seller in the domestic market and the
overseas buyer enter into an agreement
for purchase of carbon credits for a
specified period, say 5-10 years. Now,
instead of the overseas buyer making
periodic payments to the Indian
company, the overseas buyer makes
advance payment to the seller in India.
This prepayment is advanced as a loan
to the overseas buyer by an overseas
Bank and is repaid by the overseas
buyer in a phased manner as and when
the carbon credits are supplied by the
Indian company. Apart from margins
generated out of the funds lent to buyers
abroad, the Bank also earns a fee for
structuring the transitions.(E)
High Expectations of CDM Business
in India :
Since carbon trading took off in
India two years ago, domestic
companies have earned about $500
million from carbon-credit sales. India
has earned nearly 43% of CERs issued
so far by the CDM Executive Board,
the highest under the Kyoto Protocol.
CERs to the tune of 17% have been
issued to China. But the expected
average annual income from registered
projects through 2012 has China (44%)
far ahead of India (15%), although
India, with 259 projects, leads China
(101) in the number of registered
projects.
Many Govt. Projects such as :
l Delhi Metro are looking at the green
option to earn carbon revenues.
l ONGC has become the first State-
run Indian firm to gain credits it can
sell under the Kyoto Protocol, with
two projects registered by the
United Nations this year, and it has
identified another 27 projects to cut
greenhouse gas emissions. ONGC
aims to get more than 8,50,000
tonnes of carbon credits this year,
for revenue of around 600 million
rupees (US$13.5 million).
IFC and the Dutch Government
agreed to buy more than $6 million
carbon emissions reductions from six
small Hydropower Projects in India.
The IFC will use Dutch Govt. funds to
buy the Indian Hydro Reductions which
Amsterdam will then use to buy
Contd. on Page 990
985

Achieving Enterprise
Excellence- The Cost
Audit Approach
The present paper is an approach that will reposition cost audit so that it helps
the enterprise to re-look at the business process from the resource utilisation and
management angle, and suggest measures that they are used responsibly.
Meena Ramji*
Introduction:
I
n the current era “Corporate
Governance” is the manthra of
Board managed Corporates.
Although as a principle it goes beyond
the mere complying with the legal
procedures under the corporate and
Regulatory (SEBI) bodies, on paper it
has remained as a procedure and
compliance oriented concept. As this
defeats the very purpose of good
governance practices, the PAIB
Committee under IFAC was asked to
explore why corporate governance fails
in companies and what must be done
to ensure that things go right. It was
also asked to explore the emerging
concept of “Enterprise Governance”
which goes much beyond the
“Corporate Governance”.
“Enterprise Governance” is defined
as “the set of responsibilities and
practices exercised by the board and
executive management with the goal of
providing strategic direction, ensuring
that objectives are achieved,
ascertaining that risks are managed
appropriately and verifying that the
organisation’s resources are used
responsibly” (Ref: Enterprise
Governance-Getting the balance right-
IFAC & CIMA 2003). Good practices
in Enterprise Governance lead to
enterprise excellence.
An important corollary in the above
definition is that the “verification that
the organisation’s resources are used
responsibly”.
F.I.C.W.A, Practicing Cost Accountant
986
Cost Audit for Enterprise Governance
The present paper is an approach
that will reposition cost audit so that it
helps the enterprise to re-look at the
business process from the resource
utilisation and management angle, and
suggest measures that they are used
responsibly.
Cost Audit an Essential Tool:
The cost audit is a‘ tool in the hands
of the management, to help them to
identify areas where there is sub
optimal utilisation of resources which
are a drain on the business and try to
reduce them if not eliminate them
completely. But this has to be both a
top driven as well as bottoms up
approach. The top management should
lay down the strategies for managing
the resources , and the middle and lower
level management have to implement
them in their sphere of work.
Generally the term “audit” raises the
bristles among certain sections of the
top management and “cost audit “ more
so, as it is trumpeted as one more
compliance to be undertaken by the
overloaded corporate world. The
common accounting profession has
understood this basic human nature,
and has sought to pacify the ruffled
feelings with the combined terminology
“audit and assurance”. The same logic
holds good for “Cost Audit” which has
to reposition itself as “ Cost Audit and
Cost Assurance”, where an important
sweetener of (normal) cost assurance
is the result of the audit. The assurance
by an independent professional that the
management has efficiently managed
the management accountant, December, 2007
the cost of product or service during
the period under review, gives the
comfort level to all the stakeholders that
the performance of the business is
primarily as the result of normal
operations of the company, and where
there are deviations, they have been
highlighted to enable the management
to focus their attention on these
abnormalities.
In todays’ corporate world, it is not
enough if a company is good in funds
management, it is equally important for
it to optimise resource utilisation. The
traditional accounting and audit focuses
on efficiency of internal control system
and proper accounting of the incomes
and expenses for the year . It assures
the stakeholders that all the known
sources of income have been
recognised and that revenue has not
been recognised without recognition of
corresponding expenses incurred to
earn such revenue. It does not go
beyond identification and accounting
for known liabilities as well as
recognising dues to the company as
recoverable assets. No where is the
efficiency of utilisation of resources
commented upon in the statutory audit
report under sec 227 of the companies
act 1956, The government in its
wisdom, has rightly brought in the tool
of Cost audit for the first time in the
world , as a means of assuring the
stakeholders that the entity covered
under the same is also being managed
efficiently . The only lacunae in this
exercise is that since the appointment
of a cost auditor is by the board of
directors, the seemingly independence
of a cost auditor is compromised , since
there is a tendency to assuage the fears
of the management in the aftermath of
a negative comment in the report.
There was also a cry from the
companies covered by the cost audit
that confidential data would leak out
to the competitors. The government ,
after the MCA 21 . has been
introduced, has ensured that the
reports, can only be accessed by only

senior officers of the government who
are highly competent and respectable
professionals . This would however
enable the government to get
comparative data on important
industries so that proper policies could
be framed for the benefit of the public
at large especially in sensitive industries
like pharma, sugar, metals etc . The
present e filing of course has many
lacunae in the filling of forms which
need to be improved if full benefit of
the e governance has to be availed
without sacrificing the quality of
information.
Resource Management:
Sustaining and enhancing the
profitability of a business is an essential
for its survival and growth. Almost all
the performance measures – whether
financial or non financial has to help
the management to take informed
decisions which should increase profit
or reduce loss. While the past indicates
the path travelled (we cannot do
anything about it), the future is the one
which can be shaped better. A Peep into
the past enables us to shape the future.
The analysis of the past enables us to
think in terms of a template in which
the uncertainties and risks can be
reduced as much as possible. The
advancement of technology enables us
to focus on areas which help us improve
the process and methods thereby reduce
the costs. The cost audit provides an
authenticated and verified information
base which makes it possible to make
an informed analysis of the past.
The various key paragraphs of the
Cost Audit report rules now prescribed
under the Cost Audit report rules 2001,
which look at the resource management
part are outlined below:
a) Capacity Utilisation – Para 4 (7)
b) Input material consumption per unit
of product– Actual Vs Standard –
Para 5 (B)
c) Utilities (Power etc.,) consumption
per unit of product– Actual Vs
the management accountant, December, 2007
Cost Audit for Enterprise Governance
Standard – Para 7 (B)
d) Labour idle time analysis – Para 8
1. (d), Para 8. 2. (d).
e) Productwise Asset/depreciation –
Para 10 & 11
f) Analysis of key costs productwise.
a. Overheads – Para 12
b. Research and development-
Para 13
c. Royalty and technical knowhow
– Para 14
d. Quality control expenses – Para
15
e. Pollution control – Para 16
g) Margin per unit – Para 21
h) Value addition – Para 23.
i) Analysis of key Ratios – Para
24
Some of the above areas are
analysed below in case study in
spinning industry. Each one of the
above audit paragraphs provide
important inputs for us to comment on
the enterprise governance of any entity.
Though these inputs are there , indepth
analysis and proper interpretation for
management guidance is the need of the
hour. This approach is definitely
welcomed by managements since it
then assumes importance as a control
tool rather than mere formality.
A Case Study of Textile (Spinning)
Industry Cost Audit – Enterprise
Excellence Perspective:
Current Scenerio:
The textile industry is famous for
its cyclic nature, which appears
regularly every decade. This is one
industry, which has been exposed to
international competition much before
the freeing of markets from a controlled
era to a market era. The largest earner
of foreign exchange and the also the
largest employer had always been
shackled in the past by the Quota
regime, manufacturing Obligations and
Selective Credit Control. If the industry
has survived all those onslaughts of the
past, it is mainly due to the basic
resilience it has and its ability to adopt
to the changing environment.
The Current business environment
of the textile industry is characterised
by :
l Dynamic & Fast Changing
Markets
l Global Reallignments
l Market Share and Long Term
Sustenance
l Compressing Decision Cycle
l Need for upto Minute Infor-
mation
l Technology Driven
l Highly it Oriented
l Strategy Becomes a Key Factor
l Transition from a Volume
Market to small lot Market
l No Parity between Raw
Material Price & Selling Price
l Market Teaming with
Competition from Small Players
l Competition from Across the
Globe
l Customer Becoming more
Demanding
l Quality & Delivery at the Lowest
Cost Becoming the Watch Word,
Cost Management - Analysis of
profits and identification of costs into
non value and wasteful costs
The profit and waste can be
diagrammatically represented as
follows:
The reduction or elimination of grey
areas in the circle increases the profit
element. The key focus areas for
attaining enterprise excellence are
Quality, Cost and Delivery. While
Quality and delivery help in adding and
retaining the customers, cost leadership
helps in survival and growth of the
business. Cost leadership can be
achieved through sound cost
management practices, and depends on
how the firm manages its own value
987

Waste
Source : CMA- Canada- Mcnair 1995.
chain relative to those of its
competitors. Both intuitively and
theoretically, competitive advantage in
the market place ultimately derives
from providing better customer value
for equivalent cost or equivalent
customer value for a lower cost. It is a
treadmill game to stay ahead balancing
the cost and functionality on a world
class quality platform.
Similar to the transformation of Quality
aspects from that of control to
Assurance mode, Cost also is striving
to follow from a compilation/
accounting mode to the management
mode. The cost management has
become a companywide movement
with the ownership resting with
respective functional operators right
from the top level to bottom level.
Traditionally, cost sheets have been
denominated in value terms, and
understandable only the top
management or the finance persons.
The cost management, translates the
cost sheets into understandable formats,
throughout the business so that the
identification and elimination of
activities, which do not add value to the
product or service is possible.
Cost management systems are
essentially management systems rather
than financial systems. This is the area
of divergence between the traditional
988
Cost Audit for Enterprise Governance
statutory audit and the cost audit –
emphasis on physical performance
measures assumes greater importance
in its interpretation . To be effective,
cost management has to be accepted as
a policy by Company’s top
management – a concept akin to TQM.
The process of charting the causes and
effects of visible costs often reveals
invisible costs. The TQM methodology
of empowering, when adopted , makes
all employees responsible for cost
management. The break down of costs
into processes and activities also enable
induction of activity and process based
budgeting and planning systems.
We find that the Board Room
discussions nowadays are more on
mitigating the risks that affect the future
performance than an analysis of the past
performance. No body expected the
current complete reversal of foreign
exchange scenario, which has affected
the textile industry to the maximum.
All of us know about the Pareto
Analysis, where the concentration is on
the major cause for product defects. If
we add the Cost element to it, we may
land up with surprising results. The last
ranked quality Pareto may become a
first ranked cost Pareto, as we may find
that even with smaller no of defects;
the impact on profitability may be high.
The Cost Audit to Cost Assurance
Process
the management accountant, December, 2007
The cost assurance process
precedes the cost audit process. The
feed back control loop of the cost audit
is integrated into the cost assurance
process, by which the identification and
elimination of value adding activities,
become a part of the profit
improvement systems of the enterprise.
The cost assurance process consists of
the following key elements:
l Business Process Analysis
l A Costing System To Correctly
Reflect The Business Process.
l Continuous Improvement Through
Performance Measures And Decision
Support Systems
The Business Process Analysis
breaks down the entire business into
processes and activities and identify the
resources that are used by these
processes. BPR to some extent does this
exercise, but in that the focus is more
from the HR point of view. The
Business Process Analysis helps in
identifying the Value Adding and Non
Value adding activities at a later stage
when seen in juxtaposition with cost
systems.
The Costing Systems provide a
formal structure to the cost assurance
process where both the Product View
as well as the Process View of cost can
be obtained. The product view is the
traditional cost sheet view where the
final cost of product is arrived at to
decide on product mix or make or buy
decisions. The Process View leads to
performance measures that ultimately
can be used for cost reduction, process
re-engineering, cost of quality,
continuous improvement, and waste
elimination and benchmarking
exercises.
Total Cost Assurance – Metho-
dology:
The CA (Cost Assurance)
methodology to be successful has to be
top driven team based approach. Based
on the past experiences, the following
methodology has been found to be
 Cost Audit for Enterprise Governance

practical and implementable. proportionate to increase in sales reduction in down time due to routine
l Make a Business Process Analysis l CA Focus areas: Capacity maintenance of machines will be the
of the Company. Utilisation, Raw Materials, Power main focus area for increase in capacity
l Make a Resource Mapping of
utilisation.
business processes to enable Further break down of the routine
Resource Management : Machines -
evaluation of resources utilised for maintenance activities done in Ring
Capacity Utilisation%
capacity building Frame department are detailed below:
The capacity utilisation is the beta
l Compare resources utilised in noire for many an industry. In
a. General Cleaning – once in 5 days.
capacity building , in value terms continuous process commodity type b. Top roller cots buffing- once in 60
between past periods as well as industries such as textiles, it is a very days.
against industry benchmarks. important measure. Technology has c. Spindle and lappet gauging – once
l Identify Focus Areas both in terms enabled the plants to work on 24 X 7 X in 90 days.
of processes as well as resources for 365 days approach. The cost audit d. Top arm pressure checking – once
achieving cost optimisation revealed that one of the main reasons in 60 days.
l Form Cost Assurance teams to for lower capacity utilisation in
e. Spindle oiling: topping and
analyse and evaluate the resources Spinning Department was stoppages
replenishing – once in 90 days.
and processes. due to maintenance. A management
f. Traveller changing – once in 5 days.
l Cost Assurance teams should be a
discussion and analysis revealed that
for every 1% capacity utilisation loss, g. Traveller clearer setting – once in
cross functional team involving
an average 50,000 spindle mill losses 30 days.
core functions associated with the
approximately Rs.50 lacs per annum in The maximum time taken was for
business processes identified. The
profits. activities a, d, f and g.
Cost Accountant should be
facilitator to guide the team This triggered a process outlined in A brainstorming session during the
members to focus on priority areas the Cost Assurance Methodology and cross functional team revealed that the
based on costs. a series of projects under Design of spindles have been grouped under
l Cost Assurance team should
Experiments methodology was section wise within the latest model
undertaken. A cost pareto revealed that 1000 spindle ring frame and each frame
identify CA Projects, through
brainstorming sessions.
l Cost Assurance team does sample
studies and projects based on DOE
concept.
l Based on the findings the processes
should be optimised and a
methodology to be designed for
institutionalising the Cost
Assurance mechanism, on a
continuous improvement mode.
Case Study On Textile Industry:
For the present case study, a
spinning mill has been taken for
analysis,
The analysis of the Profit and Loss
Account of the Company for this Case
Study is as follows:
Key Points:
l Increase in Turnover and
Profitability
l Increase in Profitability more than

the management accountant, December, 2007 989


consists of 5 section of 200 spindles
each. The maintenance fitters and
supervisors came out with the
suggestion that the individual sections
can be stopped for certain types of
routine cleaning while the other four
sections of the machines can be run.
It was decided by the Cost Management
team to experiment with one machine
to find out which types of operation can
be done while the machine is running
and which ones necessitated the
stopping of frames. In the above
mentioned list, activity a and activity f
could be done without stopping the
entire frame. This possibility enabled
the company to divide the total
maintenance activity into type of
maintenance that can be done with
stopping only one section of the
machine, while the other sections are
able to continue with the production.
After a series of experiments, the
Contd. from page 985
certified emissions reductions to
comply with its Kyoto Protocol targets.
According to IFC, this will open the
door for Hydropower projects to assess
the commercial carbon finance market
and improve their return on risk capital.
FICCI proposed a project which
will be funded by Norwegian Embassy
in New Delhi. The Embassy has
approved Three and a Half million
Norwegian Kroners for implementing
various activities under this project.
India’s Private sector companies
like:
Ø JSW Steel has earned 5.4 million
carbon credits .
Ø Chemical firm SRF has sold 2.5
million units of carbon credits to
two European Agencies for Rs. 250
crore.
Ø Grasim Industries expects to earn
Rs. 55 crore over the next couple
of months by selling carbon credits.
Ø Gujrat Fluorochemicals expects
revenue of about Rs. 500 crore over
the next 6-7 years through the sale
of carbon credits.
Ø Even under Plantation projects,
990
Cost Audit for Enterprise Governance
process of “online cleaning” was
systematised and became a standard
operating procedure for the company.
This way 80% of the down time
(representing 4/5 th of the ring frame)
was eliminated thereby increasing the
capacity utilisation from 96.50% to
98.50%. This increased the profit for
the company by more than Rs.1 crore
for the company. This enabled the idle
resource of the company was put to use
and the non value adding machine
down time was eliminated.
This approach led to a series of other
Design of Experiments, in other areas,
aimed at cost assurance and reduction,
which will be dealt with in subsequent
articles on cost audit.
Conclusion:
As indicated in the beginning, the
textile industry has been able to adopt
itself to various business situations and
have emerged as a winner. The adoption
CERs can be earned by planting
fast-growing trees.
Ø As on 30th September, 2007 India’s
Clean Development Authority
(CDA) has approved 15 projects,
almost all of which are based on
renewable energy technologies.
Hydro-electric Projects under CDM:
The Hydroelectric projects, which
do not emit greenhouse gases, are
creating credits for Italy and Finland to
use in meeting their emissions
reduction commitments under the
protocol. In Bonn, Germany, the
Executive Board of the CDM issued the
first credits to La Esperanza
Hydroelectric project registered in
partnership with Italy and the Rio
Blanco Small Hydroelectric Project,
registered in partnership with Finland.
La Esperanza Hydroelectric project
registered in partnership with Italy and
the Rio Blanco Small Hydroelectric
Project, registered in partnership with
Finland. La Esperanza Hydroelectric
project on the Intibuca River is
expected to generate 37,000 CERs
annually, while the Rio Blanco project
the management accountant, December, 2007
of Cost Assurance approach and a real
cost audit on these lines by the cost
management profession will help the
management to fine tune the strategies
and business decisions for long term
sustenance and growth of the business.
This will enable the use of resources of
the business responsibly which is an
important step in adopting good
practices in “Enterprise Governance”,
leading to “Enterprise Excellence”. The
importance of profession will come
only when the profession assumes a
participative role and plays the role of
a mentor in the journey towards
enhancement of corporate
performance. This can be achieved
only if professionals constantly update
themselves , take part in institutes’
activities proactively , participate in
industry programmes meant for mutual
updation of technical skills, and spend
time purposefully in reading latest
materials.q
produces 17,800 CERs per year. Both
the projects in Honduras supply
renewable energy to the national grid.
The country would otherwise have to
rely on carbon-emitting fossil fuels to
generate the equivalent electrical
power.
Future of Kyoto Protocol :
The Kyoto Protocol is viewed by
many as only a first step in the right
direction. More drastic emission
reductions will be required beyond the
current commitment period in order to
seriously tackle global warming. As
negotiations begin for extending the
Kyoto Protocol beyond 2012, the
parties will have to agree on new and
more stringent targets for reducing
global emissions in the developed and
developing world. They envisage a
global cap-and trade system that would
apply to both industrialized nations and
developing countries, and hoped that
this would be in place by 2009.
As this is a very new concept of
accelerating the business/income
through sustainable development, one
may enjoy in exploring the possibilities
of entering the CDM business.q

A Study of Receivables
Management of Indian
Pharmaceutical Industry.
In India, pharmaceutical industry is considered as one of the fast growing industry
of the economy. This industry has gained significant drive after liberalization. As
this industry is capital intensive and has several players who are listed companies,
it is worth asking if these companies are efficiently managing their receivables.
Dr.Hitesh J. Shukla*
C
reating value by optimizing
cash flow, profitability and
customer service is a
fundamental challenge for all
businesses. Receivables, the key
element of working capital usually
push-ups business revenue, helps to
earn profit but may affect liquidity and
also increase chances of bad debts,
though important for growth (2007),
Janaki Ramudu and Durga Rao. The
volume of credit sales and average
period of collections determine the
level of receivables in working capital.
To evaluate the credit risk, financial
managers consider the five C’s of credit
i.e. character, capacity, capital collateral
and conditions, all of which indicate the
likelihood that the buyer will pay its
obligations. Credit analysis and the
evaluation of prospective customers
typically include analysis of financial
ratios, the average age of accounts
receivables and record of past
payments. Evaluating the credit
worthiness of the customer is the key
factor in credit management.
Traditional credit analysis calls for
assessing the customer in terms of his
character capacity to pay capital
*Associate Professor, Department of
Business Management, (MBA
Programme) Sauarashtra University,
Rajkot.
the management accountant, December, 2007
Industry
position collateral security offered and
general economic conditions in which
his business is operated.
The term receivable is defined as;
‘debt owed to the firm by customers
arising from sale of goods or services
in the ordinary course of business.’
(Joy, O M) Economic conditions and
the firm’s credit policies are the chief
influences on the level of receivables.
Finance manager has to keep the trade
off between profitability and risk. The
objective of receivables management
therefore is to have a trade off between
the benefits and costs associated with
the extension of credit. The benefits are
increased sales and anticipated
increased profit / incremental
contribution. (Khan & Jain) The major
costs are collection costs, capital costs,
delinquency costs and default costs.
The firm should consider only the
incremental benefits and costs that
result from a change in the receivables
or trade credit policy. The management
of receivables involves crucial decision
in three areas; credit policies, credit
terms and collection policies. The
framework of analysis of all the three
decision areas in receivables
management is to secure a trade off
between the costs and benefits of the
measurable effects on the sales volume,
capital cost due to change in investment
in debtors, collection costs, bad debts
and so on. The firm should select an
alternative which has potentials of more
benefits than the cost.
In India, pharmaceutical industry is
considered as one of the fast growing
industry of the economy. This industry
has gained significant drive after
liberalization. As this industry is capital
intensive and has several players who
are listed companies, it is worth asking
if these companies are efficiently
managing their receivables. The
broader objective of this paper is to
analyze the formation of receivables in
selected units and to assess the
effectiveness of receivables
management in these units. This paper
aims to assess the effectiveness of
receivables management in Indian
pharmaceutical industry.
Review of literature: The short
term finance i.e. working capital
management holds an important place
in the theory of finance. A large number
of models, theories and techniques
(Baumol 1952, Beranek 1963, Haskel
Benshay 1965, Haley and Higgins
1973, walker 1964 and Krause 1974)
have been developed in the past
towards the optimal allocation of funds.
Efficient utilization of working capital
has a direct bearing on profitability and
liquidity. In large firms, efficient
working capital management can
significantly affect the firm’s risk,
return and share price. (Lawrnce J.
Gtman, Michael D. Joehnk and George
E. Pinches) Credit management is all
about different management style for
different needs said by Anand Rego,
Head ANZ Information technology,
during his discussion at the Economic
Times BIFT Expo 2005. He discussed
how the Indian credit management
business evolves based on global trend.
Ron Gruendl (2006) Mellon Global
Cash Management, a payments
industry leader considered it as
synonymous with quality performance.
991

Working capital management; an
urgent need to refocus, Maynard E.
Rafuse, Managing Director, Bennecon
Limited, Process Analysis and Stock
Management Consultants, London,
UK, creditor management is essentially
a Darwinian situation, the survival of
the fittest. Large companies enforce
their terms with smaller companies,
who in turn enforce their terms with
those smaller yet. This article proposes
that improvement of working capital by
delaying payment to creditor
management is an inefficient and
ultimately damaging practice, both to
its practitioners and to the economy as
a whole. Cash and Working Capital
Management, by KPMG international
group (2007), have noted that the main
work of financial manager is to work
with management to help and generate
cash and embed a cash culture within
the business. They have suggested that
working capital cycle reviews to help
identify process and control
opportunities for improvement, detailed
balance sheet review for cash
generation opportunities, hands-on
assistance in implementing
opportunities, development and
transfer of skills to the management
team, Design of enhanced cash
reporting. Bhatttacharya (2003) in
Indian context observed that an average
Indian company maintained twenty six
percentages of receivables to total
assets that is higher than the suggested
standard and that of USA based
manufacturing firms. Gitman (2001)
suggested that an average
manufacturing firm could not afford to
have more than sixteen percentage of
receivables to total assets. Mian and
Clifford (1992) observed that advanced
economy like US, the percentage of
receivables to total assets was twenty
percentages in an average
manufacturing firm. Prasad (1999), in
his study of working capital
management of Indian paper industry
with an emphasis on individual current
992
Industry
assets like cash, receivables and
inventory. This study revealed that there
was a close relation between
profitability and working capital
efficiency. It also makes clear that
difficulty in collection of receivables
and inadequate working capital were
serious problems in running the
business. Suk et al (1992), a survey
conducted in US were found that they
differed in working capital
management practices in terms of lower
levels of inventory and high level of
accounts receivables. This study
revealed that US firms piled up their
inventories, Japanese firms had higher
percentages of receivables to total
assets. Khandelwal (1985) investigated
that working capital management
process and practices among small-
scale industry in the state of Rajasthan,
between 1975-76 and 1979-80, reviled
that the management of receivables was
highly ineffective and disorderly. It was
also found that receivables were about
fifty percentages of total current assets
in this industry. It was also observed
that the reasons behind the sickness of
units were inefficient management of
working capital. Oppedahl and Richard
(1990) had examined in many studies
that receivables management was a
neglected area that affects the decisions
of working capital management. In
conclusion one may finds that
receivables management is found
disorganized in the financial
management of corporate world.
Considering this fact that
pharmaceuticals industry is poised for
unprecedented growth, it is relevant to
examine the trends of receivables
management in the light of various
developments taking place in the
economy.
Research method: The scope of
above research can be extended to other
sectors of economy, industry. One can
find independent studies on working
capital management of the
the management accountant, December, 2007
manufacturing firms in India. This
work is an attempt to study receivables
management of pharmaceuticals in
some selected units in India. Wide
sample will provides more realistic
picture of the receivables management
in the industry. The main purpose of
this paper is to analyze the important
dimensions of the efficient
management of receivables within the
framework of a firm’s objectives of
value maximization. The study attempts
to analyze the efficiency of receivables
management in terms of receivables’
turn over average collection period and
the relationship between receivables
and payables along with critically
examining the percentage of
receivables to current assets, total assets
and sales. In order to meet the
objectives of the study, eight units of
the industry based on their sales were
considered for the study. They are
Aurobindo Pharma Ltd, Cadila
Healthcare Ltd, Cipla Ltd, Dr Reddys
Laboratories Ltd, Ipca Laboratories
Ltd, Matrix Laboratories Ltd, Nicholas
Piramal India Ltd and Sun
Pharmaceuticals Industries Ltd. This
study has used two way ANOVA
analyses along with necessary ratio
analysis. The period of the study was
from 1997-98 to 2005-06 i.e. nine
years. Data were collected from
secondary source such as capital line
plus.
Receivables to Current Assets
Ratio: Receivables as a percentage of
current assets would reveal the size of
receivables in current assets and the
opportunity cost associated with the
same; higher the percentage, higher the
cost of carrying the receivables. It is
therefore desired that a firm needs to
carry the least percentage of receivables
as possible without affecting the sales
volume. This ratio is calculated as =
[(closing receivables / current assets) *
100]. Table-1 provides the ratios of
receivables to current assets of the
sample companies.
 Industry

Table No-1
Receivables to Current Assets Ratio
Year Aurobindo Cadila Cipla Dr. Reddys IPCA Matrix Nicholas Sun Mean
Piramal
1997-98 59.118 59.079 57.233 71.815 51.697 49.138 69.474 62.972 60.066
1998-99 61.897 48.669 58.444 68.164 51.864 35.427 61.441 73.986 57.486
1999-00 63.508 21.275 54.294 68.522 58.245 24.681 49.241 69.084 51.106
2000-01 60.014 50.192 55.650 68.489 57.491 36.320 60.194 51.074 54.928
2001-02 74.762 71.925 57.565 45.991 59.996 30.462 61.547 52.182 56.804
2002-03 68.731 54.307 53.346 40.010 61.865 53.620 65.222 51.881 56.123
2003-04 67.130 54.441 59.952 49.601 55.535 54.287 60.182 50.648 56.472
2004-05 66.000 52.756 56.583 34.612 51.223 59.382 48.707 38.636 50.987
2005-06 68.900 58.320 59.580 44.620 56.420 57.780 58.530 40.620 55.596
Mean 65.562 52.329 56.961 54.647 56.038 44.566 59.393 54.565 55.508
ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 542.64 8 67.83 0.65 0.7262 2.10
Within Groups 2250.21 7 321.45 3.10 0.0077 2.17
Error 5795.43 56 103.48
Total 8588.29 71
Above table makes us clear that different in the ratios of receivables to benchmark, Cadila has best
Aurobindo has large amount of current assets within the group. It was performance of receivables to total
receivables as a part of current assets, respectfully submitted that the average assets. It was followed by Sun, Matrix,
followed by Nicholas, IPCA, of Aurobindo, Cipla, IPCA and Nicolas Dr.Raddys, Nicholas, IPCA,
Dr.Raddys, Sun, Cadila. Matrix has the have higher ratios than that of the Aurobindo and Cipla. It was
lowest amount of receivables as a part industry average ratios. respectfully submitted that IPCA,
of current assets. Though that is far Receivables to Total Assets Ratio: Aurobindo and Cipla have higher
away from industry average that is Another indicator of effective percentages of receivables to total
suggested by Gitman (2001), an management of receivables, i.e. the assets. The two-way ANOVA result for
average manufacturing company could percentages of receivables to total the ratios of receivables to total assets
afford to have 37 percent of receivables assets is found out using the following shows that calculated value of F for
to current assets. Over all the situation formula = [(closing receivables / total between the groups (2.20) was higher
of Matrix was better in compare to other assets) * 100]. Receivables to total than that of the critical value (2.10), that
sample units. Table also provides the assets ratio of the sample companies is leads to the conclusion that the ratio of
two-way ANOVA result. Data makes presented in Table-2. receivables to total assets differed
us clear that calculated value of F for significantly across the sample. While
Table No-2 shows that the 9 years
between the group (0.65) was lesser F calculated for within the group (15)
industry average percentage of
than critical value of F (2.10), that leads was higher than that of the critical value
receivables to total assets was 39.32%.
to the conclusion that the there was no (2.17), it also suggests that the ratio of
A study of Bhattachariya (2003)
significant different in the ratio of receivables to total assets differed
observed that an average Indian
receivables to current assets of the significantly within the group.
company maintained 26 % of
sample companies. While looking at the receivables to total assets. One may Receivables to Sales Ratio:
data of within the group, calculated study from the above data that Receivables to sales ratio indicates the
value of F (3.10) was higher than the pharmaceutical industry has a high amount of receivables held by the
critical value of F (2.17) that leads to percentage of receivables to total assets. business firm as a percentage of sales
the conclusion that there was significant Keeping the industry average as a during a particular period. The main

the management accountant, December, 2007 993

 Industry

Table No-2
Receivables to Total Assets Ratio
Year Aurobindo Cadila Cipla Dr. Reddys IPCA Matrix Nicholas Sun Mean
Piramal
1997-98 58.967 51.217 52.745 44.429 36.184 37.065 31.428 37.074 43.639
1998-99 66.401 28.839 45.922 40.177 36.016 29.720 36.920 43.471 40.933
1999-00 54.986 16.468 43.210 32.747 38.141 23.803 27.587 41.530 34.809
2000-01 53.048 21.213 47.122 41.436 38.460 36.387 39.189 33.029 38.736
2001-02 61.814 34.873 60.463 39.249 49.451 29.612 43.914 31.738 43.889
2002-03 49.130 24.267 59.127 33.735 49.870 39.222 52.664 35.809 42.978
2003-04 44.129 24.968 58.391 31.138 44.984 39.633 40.829 20.774 38.106
2004-05 40.483 24.952 56.719 26.960 33.487 39.261 29.777 23.214 34.357
2005-06 41.320 25.320 58.450 29.460 37.820 40.120 34.420 24.450 36.420
Mean 52.253 28.013 53.572 35.481 40.491 34.980 37.414 32.343 39.319
ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 885.76 8 110.72 2.20 0.0404 2.10
Within Groups 5269.29 7 752.75 15.00 7.471234E-11 2.17
Error 2809.33 56 50.16
Total 8964.39 71

Table No-3
Receivables to Sales Ratio
Year Aurobindo Cadila Cipla Dr. Reddys IPCA Matrix Nicholas Sun Mean
Piramal
1997-98 3.554 4.064 2.547 1.858 3.396 3.447 2.525 2.737 3.016
1998-99 3.515 5.443 2.709 2.142 3.658 4.628 2.739 2.134 3.371
1999-00 3.731 3.917 2.955 2.469 3.465 8.338 3.673 2.779 3.916
2000-01 3.650 3.968 2.969 2.558 2.970 6.171 2.797 3.695 3.597
2001-02 2.301 2.038 2.480 2.697 2.978 8.522 3.468 4.397 3.610
2002-03 2.269 4.582 2.250 2.581 2.956 4.577 3.253 3.399 3.233
2003-04 2.200 4.729 2.293 2.655 3.341 3.643 4.497 4.081 3.430
2004-05 1.761 4.574 2.347 2.568 3.844 2.556 5.168 1.847 3.083
2005-06 1.890 4.830 2.472 2.780 3.010 2.870 5.190 2.120 3.145
Mean 2.763 4.238 2.558 2.478 3.291 4.972 3.701 3.021 3.378
ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 5.49 8 0.68 0.59 0.7769 2.10
Within Groups 48.43 7 6.91 6.00 3.0447E-05 2.17
Error 64.52 56 1.15
Total 118.44 71

994 the management accountant, December, 2007

 Industry

purpose of this ratio is to work out the receivables to sales of sample This ratio is calculated as; Receivables
efficiency of receivables management companies were, F calculated between turnover ratio in times = (sales / average
in the business organization. High ratio the groups (0.59) was less than that of receivables). Average collection period
indicates that the business firm is doing the critical value (2.10) that leads to the in days is calculated = (365 /
business with huge debtors and wise conclusion that the receivables to sales receivables turnover ratio). The average
versa. Higher the sales and lower the ratio between the sample companies receivable is calculated as = [(opening
debtors indicate that the company has were same. While looking to the receivables + closing receivables) / 2].
a good collection system. This ratio is calculated value of F for within the For the purpose of assessing the
calculated as = [(closing receivables / group was 6.00 against the critical value efficiency of receivables turnover of the
sales) * 100]. The ratio of receivables of 2.17. It was respect fully submitted sample companies the suggested norms
to sales of the sample companies is that the receivables to sales ratios by the Tandon committee of 68 days
presented in Table-3 within the group of the sample (the average collection period) could be
Above data makes us clear that the companies differ significantly. compared. Receivables turn over ratio
amount of receivables as percentage of Receivables Turn Over Ratio: is presented in Table-4
sales across the industry on an average Receivables turn over ratios measures The receivables turnover of the
was the lowest of 3.016 in the year the liquidity of debtors of a business sample companies varied in between
1997-98 and the highest was 3.91 in the firm and average collection period. It 3.016 to 3.916 (times) during the period
year 1999-00. Dr.Raddys was the more indicates the average time lag in days of study. The overall average ratio of
efficient by holding less amount of between sales and collection thereof. the industry was 3.40 times. Matrix has
investment in receivables as percentage Debtors’ velocity indicates receivables the highest receivables turnover ratio.
of sales while compared to the yearly management efficiency rate. Higher It shows the efficient receivables
industry average, where as Matrix, receivables turnover and lower debtor management to achieve higher
Cadila, IPCA and Nicholas were found collection period reflect the firm’s turnover. The ratio of Aurobindo,
inefficient as they had the ratio above ability of managing a larger volume of Cipla, Dr.Raddys and Sun was found
the industry average ratio. Two-way business without corresponding much below the industry average. Two-
ANOVA result for the ratios of increase in receivables and vise versa. way ANOVA result for the receivables
Table No-4
Receivables Turnover Ratio (Times)
Year Aurobindo Cadila Cipla Dr. Reddys IPCA Matrix Nicholas Sun Mean
Piramal
1997-98 3.554 4.064 2.547 1.858 3.396 3.447 2.525 2.737 3.016
1998-99 3.515 5.443 2.709 2.142 3.658 4.628 2.739 2.134 3.371
1999-00 3.731 3.917 2.955 2.469 3.465 8.338 3.673 2.779 3.916
2000-01 3.650 3.968 2.969 2.558 2.970 6.171 2.797 3.695 3.597
2001-02 2.301 2.038 2.480 2.697 2.978 8.522 3.468 4.397 3.610
2002-03 2.269 4.582 2.250 2.581 2.956 4.577 3.253 3.399 3.233
2003-04 2.200 4.729 2.293 2.655 3.341 3.643 4.497 4.081 3.430
2004-05 1.761 4.574 2.347 2.568 3.844 2.556 5.168 1.847 3.083
2005-06 1.860 4.980 2.830 2.940 3.810 3.010 4.910 2.650 3.374
Mean 2.760 4.255 2.598 2.496 3.380 4.988 3.670 3.080 3.403
ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 5.01 8 0.62 0.55 0.814 2.10
Within Groups 47.68 7 6.81 6.00 3.03164E-05 2.17
Error 63.50 56 1.13
Total 116.20 71

the management accountant, December, 2007 995

 Industry

Table No-5
Average Collection Period (in Days)
Year Aurobindo Cadila Cipla Dr. Reddys IPCA Matrix Nicholas Sun Mean
Piramal
1997-98 102.698 89.813 143.302 196.456 107.478 105.878 144.528 133.345 127.937
1998-99 103.853 67.052 134.713 170.406 99.783 78.861 133.245 171.070 119.873
1999-00 97.818 93.180 123.536 147.845 105.347 43.777 99.361 131.364 105.278
2000-01 100.010 91.980 122.932 142.716 122.882 59.152 130.496 98.789 108.620
2001-02 158.618 179.080 147.149 135.353 122.562 42.830 105.245 83.010 121.731
2002-03 160.871 79.667 162.211 141.419 123.459 79.744 112.196 107.374 120.868
2003-04 165.890 77.186 159.161 137.497 109.244 100.194 81.159 89.437 114.971
2004-05 207.241 79.792 155.531 142.139 94.964 142.818 70.626 197.593 136.338
2005-06 197.260 79.410 149.420 132.780 97.690 151.020 81.510 175.220 133.039
Mean 143.807 93.018 144.217 149.623 109.268 89.364 106.485 131.911 120.962
ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 6935.31 8 866.91 0.88 0.5326 2.10
Within Groups 37167.44 7 5309.63 5.43 8.4747E-05 2.17
Error 54675.86 56 976.35
Total 98778.63 71

turn over ratios of the sample
companies shows that the calculated
value of F for between the group was
0.55 while the critical value was 2.10,
it leads to the conclusion that there was
no significant difference between the
ratios of sample companies. While
looking at the data of within the group,
calculated value of F (6.0) is higher than
that of the critical value (2.17) means,
there was significant difference
between the ratios of sample
companies.
Table- 5 shows the data of average
collection period of the sample
companies. On an average basis, the
receivables collection period across the
industry varied between 105 days
(1999-00) to 136 days (2004-05) and
the overall aggregate period was 120
days. As in case of receivables turnover,
Matrix and Cadila were performing
well by holding receivables for a lesser
period than the yearly industry average,
where as Aurobindo, Cipla and
Dr.Raddys were found highly
996
inefficient companies as they holds
receivables for a higher time period
than the industry average. Two-way
ANOVA results for the average
collection period of the sample
companies were found, calculated
value of F for between the groups was
0.88 as against critical value of 2.10, it
leads to the conclusion that the average
collection period of sample companies
were found same. While looking at the
calculated value of within the group, F
calculated was 5.43 against the critical
value of 2.17, it makes us clear that the
average collection period of sample
companies differ significantly within
the group.
Receivables to Payables Ratio: the
ratio of receivables to payables would
help the finance manager to establish
the relationship between credit offered
to the customers and credit obtained
from the supplier of the business firm.
This ratio is computed as = (sales /
average receivables). The receivables
to payables ratio of the sample
the management accountant, December, 2007
company is shown in Table-6
As we could observe from Table-6,
Matrix extended extremely higher units
of credit to its customers during the
entire period under the review, while
compare to other sample units.
Dr.Raddys extended much lower units
of credit to its customers for every units
of credit it obtain from its supplier.
Cadila, Matrix, Nicolas has higher
ratios than that of industry average for
the period. The two-way ANOVA
results of receivables to payables ratios
of sample companies; calculated value
of F for between the groups was 0.60
as against the critical value 2.10. It leads
to the conclusion that there is no
significant different between the
receivables to payables of sample
companies. While looking at the
calculated value of F for within the
group, it was recorded 6.06 as against
critical value of 2.17. It makes us clear
that the ratios of receivables to payables
of the sample companies differ
significantly.
 Industry

Table No-6
Receivables to Payables Ratio
Year Aurobindo Cadila Cipla Dr. Reddys IPCA Matrix Nicholas Sun Mean
Piramal
1997-98 3.554 4.064 2.547 1.858 3.396 3.447 2.525 2.737 3.016
1998-99 3.515 5.443 2.709 2.142 3.658 4.628 2.739 2.134 3.371
1999-00 3.731 3.917 2.955 2.469 3.465 8.338 3.673 2.779 3.916
2000-01 3.650 3.968 2.969 2.558 2.970 6.171 2.797 3.695 3.597
2001-02 2.301 2.038 2.480 2.697 2.978 8.522 3.468 4.397 3.610
2002-03 2.269 4.582 2.250 2.581 2.956 4.577 3.253 3.399 3.233
2003-04 2.200 4.729 2.293 2.655 3.341 3.643 4.497 4.081 3.430
2004-05 1.761 4.574 2.347 2.568 3.844 2.556 5.168 1.847 3.083
2005-06 2.012 4.681 2.762 2.810 3.481 2.983 4.636 1.857 3.153
Mean 2.777 4.222 2.590 2.482 3.343 4.985 3.640 2.992 3.379
ANOVA
Source of Variation SS df MS F P-value F crit
Between Groups 5.46 8 0.68 0.60 0.7666 2.10
Within Groups 47.68 7 6.81 6.06 2.72053E-05 2.17
Error 62.86 56 1.222
Total 116.01 71
Conclusion: This study divulges Comoany, New Delhi, 2003 (10)Lawrnce J. Gtman, Michael D.
that the level of receivables to current (4)`Gitman L J (2001) “Principles of Joehnk and George E. Pinches,
assets ratio of the industry was found Managerial Financial Explanation Managerial Finance, New York:
55 percentages. It shows that high for Trade Credit”, Journal of Harper and Row Publishers, 1985,
amount of current assets was blocked Financial and Quantitative p.g. 320
into receivables. While looking at the Analysis, Vol.19, pp.271-285 (11)Maynard E. Rafuse Management
receivables to total assets this industry Decision, 34/2 [1996] 59–63
(5) Janki Ramudu and Durga Rao,
has about 39 percentages of receivables
(2007), Receivables Management (12)Main and Cliffor (1992),
against total assets. While the data of
in the Commercial Vehicle Industry “Accounts Receivables
receivables turnover of the industry, it
of India: A Note, ICFAI Journal of Management Policy: Theory and
was about 3.4 times in a year. The study
Accounting, Vol. 13, No3, 2007 Evidence”, Journal of Finance,
reveals the level of investment in
receivables as a percentage of sales was (6) Joy, O M, Introduction to Financial pp.169-200
only 3.37 only. Average collection Management, Irwin, Homewood (13)Oppedhl and Richard, (1990),
period of the industry was higher than Ill., 1992, p.g. 456 “Working Capital Management”,
the prescribed norms by the Tandon (7) KhanY.M. , P.K.Jain, Financial South Dakota Business Review,
committee. Management, Text, Problems and Vol.49, pp.1-4.
References: Cases, The McGraw Hill (14)Prasad R.S. (1999), “Working
(1) Anand Rego (2005), www.anz- Companies, 2007, p.g. 15.15 Capital Management in Indian
it.com (8) Khan & Jain, Financial Paper Industry.” Thesis, Nagarjuna
(2) Bhattacharya H. (2003) “Working Managemet, The Mc Grow-Hill University, Nagarjuna Nagar.
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Corporate Finance, 7th Edition, Small Scale Industries.”Ashish US”, Financial Practice and
Tata McGrow Hill Publishing Publishing House, New Delhi. Education, Vol.2, pp.88-92q

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999
 Admission to Membership

M/26337 P-174, Kalindi Housing Estate, M/15694 M/26353

Shri Anand S., Kolkata 700089 Shri S. Chandrasekhar, Shri Sameer Gupte,
BCOM, AICWA M/26346 MCOM, MPHIL, FICWA BCOM, AICWA
Flat A3, “Mahalakshmi Shri Goutam Chakrobarty, S1-JVL Paradise, 49, New 165-1-1, Royal Orchard, Wing -
Estates”, Old No. 6, MA(ECON), AICWA Avadi Road, Kilpauk, A2, Flat No. 9, Aundh,
Karaneeswarar Koil St., L-646, Dumduma HB Colony, Chennai 600010 Pune 411007
Saidapet, Chennai 600015 Second Phase, M/16588 M/26354
M/26338 Bhubaneswar 751019 Shri Vinod Krishnan Panicker, Shri Sandeep Ghosh,
Shri Rakesh Kumar Awasthi, BCOM, FICWA BSC, AICWA
BCOM, AICWA Advancement to Fellowship Flat No. 1062, UF Apartment, B-9, Flat-42C,Sector-34, Biren
C/o. Markancley Singh 12A, Date of Advancement : Plot No. 9, Sector 6, Dwarka, Ray Road (West),
Street 3A, Phase-5, Maitri 15th May 2007 Kolkata 201301
Delhi 110075
Nagar, Resali, M/10049 M/26355
Dist- Durg, Bhilai Shri Arun Mehra, Admission to Associateship Shri Naresh Gupta,
M/26339 BCOM, FICWA Date of Admission: 15th May BSC, AICWA
Shri Buyakar Shyamanand, 237 FF, Today’s Blossoms I, 2007 Flat No. 10, Bachchaji Apart-
MCOM, AICWA Near Mayfield Gardens, ment, 7, Mission Road,
M/26347 Allahabad 211002
H. No. 21/5, Kolamamani Sector 47, Gurgaon Shri Sumeet Bahadur,
Amman Koil St., M/11291 BCOM, AICWA M/26356
Kodambakkam, Mrs. Aruna Mohan, Shri Kavikondala Kiran Kumar,
S.M.46. Padmanabhpur,
Chennai 600017 BCOM, FICWA MCOM, AICWA
Durg 491004
M/26340 Sr. Cost Accountant, Office of 70, Puttanna Road, Gandhi
M/26348 Bazar, Basavanagudi,
Shri Prashanth Kamath, FA & CAO/SSW/PER,
Ms. Vidya Balasubramanian, Bangalore 560004
AICWA Southern Railway, Joint
BCOM, ACS, AICWA M/26357
I Main, I Cross, Shreyas Office, Aynavaram,
15B, Railway Colony III Shri Manoj Kumar,
Colony, J.P. Nagar, 7th Phase, Chennai 600023
Street, Aminjikarai, Off nelson BCOM(HONS), AICWA
Bangalore 560078 M/7157 Manickam Road, Plot No. 29, Mohan Nagar, Near
M/26341 Shri Prasad Narayan Akolkar, Chennai 600029 Ganadhish Residency, Mahabal,
Shri Vineet Agarwal, BCOM, LLB(GEN), FICWA
M/26349 Jalgaon 425002
BCOM, AICWA Managing Director Vadodara
B-261, HAL Korwa, Amethi, Stock Exchange Ltd., 3rd Shri Jayanta Kumar M/26358
Sultanpur 226024 Floor, Fortune Towers, Bandyopadhyay, Shri Modekurti Kameswara
Sayajiganj, Vadodara 390005 BCOM, AICWA Rao, MCOM, MBA, AICWA
M/26342
146/2, Dewanagazi Road, 49/53/16/30, Flat No. 18,
Shri Royyru Viswa Prakash, M/13283
P.O. Bally, Howrah 711201 Ratnam Towers, B S Layout,
MCOM, AICWA Shri Manish Sachar, Visakhapatnam 530013
D. No. S2-C/144, Sachivalaya MCOM, FICWA M/26350
C/o. Orient Fashions, Shri K. Chandra Sekhar, M/26359
Nagar, Opp. Venkateswara
MCOM, ACS, AICWA Shri R. Krishna Kumar Prabhu,
Swamy Temple, E-45/14, Okhla Industrial
Ramaiah Bldg., H. No. 5284, BCOM, AICWA
Vanasthalipuram, Area, Phase-II,
Thimmasetty Layout, Subash Madhuvan, Thirunakkara, South
Hyderabad 500070 New Delhi 110020
Nagar, Nelomangala, Gate,
M/26343 M/12351 Kottayam 686001
Bangalore 562123
Shri P. Manoharan, Shri B. Hari Gopal,
M/26351 M/26360
MCOM, AICWA BCOM, FCA, FICWA Shri Kirori Lal,
Plot No. 14, Umar Nagar, Flat No. 38,’Victoria Gardens’, Shri Denil Scaria,
BA, AICWA
Sirdaiyur, Lalgudi, 20, Jawaharlal Nehru BCOM, AICWA
C/o. Ved Prakash Yadav House
Trichy 621601 Road,(100ft Road) Medayil Puthenpurayil (H),
No. 1365, Sector-4
M/26344 Koyembedu, Chennai 600107 Pallikkoottumma, Ramankary- Rewari 123401
Shri R. Dhanasekaran, P.O., Dist- Alappuzha,
M/22460 M/26361
BCOM, AICWA Prof V. N. Parthiban, Ramankary 689595
Shri Prasad Suresh Mahadik,
42A, 7th Cross, MA, MCOM, MSC, MPHIL, M/26352 BCOM, AICWA
Nandeeshwarar Nagar, Dist- LLM, FICWA Shri Firos Sha I., Shivam Complex, Building No.
Kanchi, Kanchi (T.N.) 603202 Sr. Lecturer, RKM BSC, LLB, AICWA 4, Block -25 Rajaji Path Lane 3,
M/26345 Vivekananda College, Valiyathu Veedu, Pada-North, Ramnagar,
Shri Deb Kumar Dwibedi, Department of Commerce, Karunagappally-P.O., Kollam- Dombivli (E),
MCOM, ACA, AICWA Mylapore, Chennai 600004 Dist, Karunagappally 690518 Mumbai 421201

1000 the management accountant, December, 2007


M/26362
Shri Kommineni Murali
Mohan,
BSC, AICWA
H. No. 22-108/2, Kanukunta,
Ashoknagar (Post), R.C.
Puram, Hyderabad 502032
M/26363
Shri Manish,
BSC(HONS), AICWA
Q. No. CD/126,
Sector-II, P.O. Dhurwa,
Ranchi 834004
M/26364
Shri Kuldip Nagar,
BCOM, AICWA
A-11, Sun Co-op. Society,
Opp. Aalishan Enclave,
Hazira-Surat Road, Adajan,
Surat 395009
M/26365
Shri Om Prakash Prasad,
BCOM(HONS), AICWA
S/o. Ramadhar Prasad At-
Master Colony, Chand Kuiya,
Near I.D. Hospital, Jairampur
More, P.O. Jharia,
Dhanbad 828111
M/26366
Shri Padma Kumar V. K.,
AICWA
Bhattarakam, Kulasekharam,
Kodunganoor-P.O.,
Trivandrum 695013
M/26367
Shri Maguluri Parthasarathi,
MCOM, AICWA
7-2-1800 & 1803, E-111,
Vasavi Dreams Apts., Czech
Colony, Sanathnagar,
Hyderabad 500018
M/26368
Shri Anand Prakash,
BCOM(HONS), AICWA
Flat No. S2/52, Tata Chemicals
Township, Mithapur,
Jamnagar 361345
M/26369
Shri S. K. Radhakrishnan,
MCOM, ACS, AICWA
Site No. 51, Sri Pathy Nagar
(III Cross), Nanjundapuram
Road, Coimbatore 641036
M/26370
Ms. S. Sheba Sangeetha,
the management accountant, December, 2007
Admission to Membership
MCOM, AICWA
D-30, Flat No. 7, Shyams
Villa, 8th Street, Annanagar
East, Chennai 600102
M/26371
Shri Sajith Kumar S. S.,
BSC, AICWA
Sajitha Bhavan, K.D VIII/440,
A.G.R.A-69, N.C.C. Road,
Perurkada 695005
M/26372
Shri Renjith N.,
MCOM(FIN.), AICWA
50/D-Ushus, Kairali Nagar,
Choondyi, Dist- Ernakulam
Aluva 683112
M/26373
Shri Ramakrishna Vudata,
MCOM, AICWA
S/o. Anjaneyulu,
P.O. Konayapalem, Mondal-
Chandarlapadu, Dist- Krishna,
Konayapalem 521182
M/26374
Shri Jagjeet Singh,
BCOM(HONS), AICWA
1G/7A, N.I.T.
Faridabad 121001
M/26375
Shri Suresh Kumar K.,
MCOM, BED, AICWA
Varya Veedu, Arasuparambu,
Nedumangad,
Thiruvananthapuram 695541
M/26376
Ms. Seetha S. Chandran,
BCOM, LLB, ACS, AICWA
Pura 122A, Nallath Road,
Poojapura,
Trivandrum 695012
M/26377
Ms. Srabani Sengupta,
BSC(HONS), ACA, AICWA
Flat No. ID, 122 Ruby Park
(East), Block-A, P.O. Haltu,
Kolkata 700078
M/26378
Shri Probal Kumar Banerjee,
BCOM(HONS), AICWA
C-1, Panchsheel Enclave, 1st
Floor, New Delhi 110017
M/26379
Shri Sushanta Kumar Bala,
BE, MBA, CMA, CFM,
AICWA
10-F-12, Ashirwad Pearl,
Mahavir Nagar-III,
Kota 324005
M/26380
Shri Abdul Bari,
MCOM, MA, AICWA
No. 138, Subbaih Nagar,
Thattanchavady,
Puducherry 600509
M/26381
Shri Hari Hara Dash,
MCOM, AICWA
M-86, Baramunda Hsg. Board
Colony Baramunda,
Bhubaneswar 751003
M/26382
Shri Golak Behari Dixit,
MCOM, AICWA
65/2, Sagarmanna Road,
Kolkata 700060
M/26383
Ms. Ulka Rajendra Deshpande,
MCOM, AICWA
A-5, Swati C.H.S.,
Indraprastha Park, WBF Road,
Mulund
Mumbai 400081
M/26384
Shri Subir Das,
BCOM(HONS), AICWA
51-A, Shambhu Babu Lane,
P.O. Entally, Kolkata 700014
M/26385
Shri P. Gopalkakrishnan,
BCOM, AICWA
A-302, Mahaveer Milan
C.H.S., Plot No. 1, Sector-28,
Vashi,
Navi Mumbai 400703
M/26386
Shri B. Gopala Ramanan,
BCOM, FCA, FCS, AICWA
195, 16th Main Road, I Floor,
Banasankari II Stage,
Bangalore 560070
M/26387
Shri Ravinder Singh Guleria,
BCOM(HONS), AICWA
Bhagini Nebedita Co-op. Bank
Bldg., House No. 66(7) Anand
Nagar, Old Sangvi,
Pune
M/26388
Shri Hamender Kumar Gupta,
BCOM, MBA, AICWA
21/65 EC Road,
Dehradun 248001
M/26389
Shri Tanmay Ghosh,
BCOM, AICWA
74/3/5, Dharmotala Lane,
Shibpur, Howrah 711102
M/26390
Shri Johnykutty T.,
MCOM, CMA, AICWA
TS-01, Behind Kali Mandir,
Meghahatuburu 833228
M/26391
Shri Anuj Juneja,
BCOM(HONS), AICWA
20A/23A Tilak Nagar,
Delhi 110018
M/26392
Shri Sanjay Kumar,
BCOM, AICWA
H. No. 2, Type-II, SJVN Ltd.
Colony, Jeori, Teh:- Rampur,
Shimla 172201
M/26393
Shri Laxmikant Khandayataray,
BCOM, AICWA
C/o. Bhaskar Samantaray At/P.o.
Garh Balabhadrapur
Via- Kanas, Dist- Puri
Garh Balabhadrapur 752017
M/26394
Shri Rajeev Kumar,
MCOM, AICWA
Qr. No. B-11/8, Meghahatuburu
Iron Ore Mine, Meghahatuburu,
Singhbhum (W),
Meghahatuburu 833223
M/26395
Shri Margabandu V.S., MCOM,
AICWA
No. 88-A, Opp. Govt. Hospital,
Next to Vidhyabaskar Advocate
House, Hosur 635126
M/26396
Shri Mathew M. Kurien,
BCOM, AICWA
P.O. Box- 277 (ESW)
Abudhabi
M/26397
Shri Ritesh Kumar Malik,
BCOM, AICWA
B-8/2, Meghahatuburu, Dist-
Singhbhum (W),
Meghahatuburu 833223
1001
 Admission to Membership

M/26398 Grihalaxmi Apts., S. M. Road, BCOM(HONS), AICWA H. No. 888, Sector-14,

Shri Syon Niyogi,
BCOM(HONS), AICWA
2A, Lake Drive,
Colombo-08
M/26399
Shri Rajnish Kumar Pandey,
BE, AICWA
D-602, Halwasiya Enclave,
Opp. HAL Faizabad Road,
Indira Nagar,
Lucknow 226016
M/26400
Shri Ashwini Kumar Patro,
MCOM, MPHIL, AICWA
Bank Colony, 2nd Lane,
Luchapada Road, Near Radio
Station, Dist- Ganjam,
Berhampur 760001
M/26401
Shri Apurva Nandubhai Patel,
BSC, AICWA
28, Parimal Park, Behind
Delux Society, Nizampura,
Baroda 390002
M/26402
Ms. Smita Pai,
MCOM, AICWA
E-303, “E” Block, Premier
Jalahalli (W), SAIL/RMD/MIOM/F&A., Sonepat 131021
Bangalore 560015 Meghahatuburu Iron Ore M/26412
M/26403 Mines, Shri Sukanta Kumar Sarangi,
Shri P. Rama Krishna Kumar, Meghahatuburu 833223
BCOM(HONS), AICWA
BCOM, MBA, AICWA M/26408 G3/9, Vidyanagar T.Ship, JSW
Door No. 65-4-65, APPM Shri Maripi Uma Shankar, Steel Ltd., Toranagallu,
Society Building, Near Anand BCOM, AICWA Bellary 583275
Nagar, Rajahmundry 533105 Flat No. 4F2, Sri Shridi Sai
Residency, Kakaraparthivari M/26413
M/26404
Street, Satyanarayanapuram, Shri Amit Jagdish Trivedi,
Shri Rebello Santan Ruzario,
Vijayawada 520011 BCOM(HONS), AICWA
BSC, MBA, AICWA
Block-B, Pocket-7, Flat-120,
5/II, Ravi Co-op. Hsg. Society, M/26409
Lam Road, P.O. Deolali Camp, Rohini Sector-17,
Shri M. A. Venkateshan,
Nashik 422401 Delhi 110085
BCOM, FCA, ACS, AICWA
M/26414
M/26405 Flat NO. R-102, Purva
Shri Ashok Kumar Rajaram, Fairmount Apartment, HSR Ms. Swati Atul Kulkarni,
BCOM, ACA, AICWA Layout, 24th Main, Sec.-II, BCOM, AICWA
D-6, Rajaji Road, Block-12, Bangalore 560034 DSK Akash Ganga “Swati” -
402, Near Medi-Point Hospital,
Neyveli 607803 M/26410
M/26406 Shri Ajaya Kumar Sitha, Off New D.P. Road, Aundh,
Shri R. Shankar, BSC, AICWA Pune 411007
BCOM, AICWA S/o. Sahadev Sitha At/P.o. M/26415
C-506,Indian Oil Apartment, Daspalla (Mahavir St.), Ms. Sheela Kumari,
Plot No. C-58/23, Sector-62, Nayagarh 752084 BCOM, AICWA
Noida M/26411 B-63, Surya Enclave, Loha
M/26407 Shri Someswar Mukherjee, Mandi Chawk,
Shri Buddhadev Sarkar, BCOM(HONS), AICWA Ghaziabad 201009

ICWAI National Award for Excellence List of Award Winner 2006

in Cost Management 2007 Category I (Public Sector – Large)
Participation National Mineral Development Corporation Ltd. - 1st
Bharat Electronics Ltd. - 2nd
An Organization / Unit is required to submit the
questionnaire alongwith an entry fee of Rs. 2500/- payable Gujarat State Fertilizers & Chemicals Ltd.- 3rd
by Cheque /DD in the name of ICWAI payable at New Central Electronics Ltd.- 3rd
Delhi. The questionnaire is to be sent along with Annual Category II (Public Sector Unit)
Reports (for the year 2006 - 07, 2005 - 06), Brochures,
Bharat Heavy Electricals Ltd. (Hyderabad)- 1st
Review, Case studies or any other material that can support
your candidature for the awards latest by 31st December LPG Plant Vaghodia (GAIL) -2nd
2007. Gujarat Alkalies and
The questionnaire and other details are available in the Chemicals Ltd.- 3rd
website : www.myicwai.com Category III (Private Sector – Large)
Selection process: Tata Motors Ltd. -1st
The methodology followed to decide the winner of award Lakshmi Machine Works Ltd. -2nd
based on the questionnaire designed to obtain information Tata Steel Ltd. -3rd
on cost management practices and performance of the
Category IV (Private Sector Unit)
companies involved in manufacturing or service operation.
The Madras Aluminium Company Ltd. -1st
The questionnaire submitted by the participating
organisation/unit will be evaluated and screened by the Category V (Service Sector)
screening committee and placed before the Jury for final Mumbai Port Trust -1st
selection of recipients of award under different categories. Cyber Media (India) Ltd.- 2nd

1002 the management accountant, December, 2007


List of Hotels for Delegates Requiring Budget Class Hotels
Sl No Name of the Hotel
1 Hotel Jyoti Deluxe
2 Hotel Ivory Palace
3 Hotel Crest Inn
4 Hotel Taj Princess
5 Hotel Welcome Plaza
6 Hotel Kafila
7 Hotel Pallavi Palace
8 Hotel Mohan
International
9 Hotel Yuvraj Deluxe
10 Hotel Chand Palace
11 Hotel Indraprastha
12 Hotel Citi International
13 Hotel Durga
International
the management accountant, December, 2007
Global Summit
Address Phone Nos. Tariff (Inclusive of Taxes)
on Double / Twin
Sharing Basis
4/68 WEA, Saraswati Marg, 011-25742938, 25820131 Rs 1125/-
Karol Bagh,
New Delhi-110005
14A/27, WEA, Channa Market, 011-25744106 / 41451678 Rs 1575/-
Karol Bagh,
New Delhi-110005
4/27, W.E.A., Saraswati Marg, 011-25760224 / 25760225 / Rs 1950/-
Karol Bagh, New Delhi 25760943
15A/25, WEA, Ajmal Khan Road, 011- 25742200, 25745500, Rs 2000/-
Behind Westside showroom, 25815500
Karol Bagh, new Delhi-110005
15A/53,W.E.A, Ajmal Khan Road, 011-25762201, 25762202-4, Rs 1400/-
Near Punjab Sweets, Karol Bagh, 25765289
New Delhi
10185-C, Arya Samaj Road, 011-25723471, 25729800 Rs 1475/-
Karol Bagh, New Delhi - 110005
8572, Arakashan Road, 011-23620600, 23613777, Rs 950/-
Behind Shiela Cinema 23530368, 23531497
New Delhi-55
2, Arakashan Road, 011-23516912, 23516913, Rs 960/-
Pahar Ganj, Behind Shiela Cinema , 23516914, 23516915,
New Delhi - 110055 23516916, 23516917
38, Arakashan Road, 011-23544053-58 Rs 960/-
Ram Nagar, New Delhi - 110055
54, Arakashan Road, 011-23620650, 23620465, Rs 1250/-
Pahar Ganj, Near Nav Shakti 23620268, 23530394,
School, New Delhi-110055 23530421
17A/54, W.E.A. Karol Bagh, 011-2875 7726 / 27 / 28, Rs 1900/-
New Delhi-110005 4145 1494 / 96 / 98
Mobile : 093122 84724
8/20, W.E.A., KAROL BAGH 011-28750022/ 28750077 Rs 1700/-
Satbharawan School Marg 011-28751133/ 45450075
(Near Pusa Road), Mobile: 09910234320,
New Delhi - 110 005 9910307011
8715, DB Gupta Road, 011-23521363, 23521364 Rs 1250/-
Pahar Ganj, New Delhi 110055
1003
 Letter to Editor

Cost Audit

1004 the management accountant, December, 2007


Cost of Avoiding Cost
In Your September 2007 Vol. 42 No. 9,
the editional on “Cost of avoiding cost”
was an excellent one. On reading the
editorial one does feel that cost in itself
has no utility unless strategically
utilised by the management & that is
where Management Accounting steps
in.
I would also like to make a point here
that Financial Audit (Statutory) is
merely an audit whereby an external
authority opines about the “Truth &
Fairness” about the Financial Accounts
as prepared by the management.
It may be noted that the same can be
misutilised/misrepresented both by the
management & the external authority
& can be misleading as a management/
financial tool.
Similarly, i believe the Statutory Cost
Audit is merely an audit whereby an
external authority opines about the
deviation of the Actual costs from the
expected standard costs.
It may be noted that the same can be
misutilised/misrepresented both by the
management & the external authority
& can be misleading as a management/
financial tool.
I think it is high time ICWAI starts
calling & functioning like Management
Accountants of the future & forges
strong links with world class
institutions which strong research back
the management accountant, December, 2007
Letter to Editor
grounds & leads from the front rather
than being a back bencher to the ICAI.
Dear Respected colleagues, the above
is only an opinion, your valuable
comments & guidance would be most
welcome.
Amit Tulsyan
Costing of Main Products & By-
Products
A company is manufacturing a product
which gives rise to a by-product. Say,1
kg of main product gives rise to 1 kg of
by-product,which is saleable in the
market without any further processing.
Now,variable cost of main product is
Rs.20/- per kg, fixed cost is Rs.5/- per
kg and by-product realisation is Rs.6/-
per kg.
While reporting variable cost, fixed
cost and total cost to the management,
by-product realisation is reduced from
variable cost whereas fixed cost is being
kept the same as the fixed cost in totality
remains same and fixed cost per unit
of production depends upon the volume
of production.
So,the product cost reporting to the
management will be as given below:
Rs/Kg
VariableCost 14.00
(Net of By-Product Realisation)
Fixed Cost 5.00
Total Cost 19.00
Professional collegues can share their
views.
Rajesh Kapadia
AICWA-13882
Core Areas of CMA
Both Mr. A V Ramanarao and the
Editor deserve commendation for their
article (A draft of Cost Audit Report to
shareholders) and Editorial (Cost of
avoiding cost) respectively, in
September 2007 issue.
I feel, we should give more emphasis on
Costing & Cost Management, Cost
Accounting & Cost Audit and Indirect
Taxation (VAT, Central Excise, Service Tax
etc.)–areas that give us our daily bread and
butter. Of course, we need to integrate
ourselves with the global perspectives of
Cost & Management Accountants but that
does not mean we should tune down
emphasis on our core areas.
It is good that two new columns have
been introduced: one on Financial
Reporting and another on CMA Global
Perspectives. But the latter contains
exclusively reproduction of old articles
from a Canadian Journal! Don’t we
have our own global perspective from
Indian side?
Yours etc.
Biswarup Basu
FICWA
1005

EASTERN REGION
ASANSOL CHAPTER
2nd Quarterly meet of Asansol Chapter
for the year 2007-08 held at Chapter’s
premises on 6th October 2007,
Saturday at 6.00 PM.
The speaker Bijon Kumar
Chowdhury (Life member of Insurance
Institute of India) delivered lecture on
“Self Management”.
CUTTACK BHUBANESWAR
CHAPTER
Seminar on “Tax Audit and Filing of
Tax Return – provisions &
compliance” for members and final
students.
A seminar on “Tax Audit and Filing
of Tax Return–Provision and
Compliance” for members and final
students was held on 07 October, 2007
at the conference hall of the CBC of
ICWAI. The seminar was inaugurated
by S. K. Mohanty, IRS, Chief
Commissioner of Income Tax,
Bhubaneswar, CA A.K. Sabat & CA
BK Mohapatra, leading Tax Practitoner
of Orissa, were Chief Speaker.
Practitioners meet
A practitioners’ meet was held on
07 October, 2007 at 2.30 PM at the
members meeting hall of the Chapter
office. Chairman G. B. Swain, CBC of
ICWAI presided over the meeting.
Soft skill development training
programme for Inter and Final
students.
A soft skill development training
programme 2(two) days was organized
by the Chapter on 26 October, 2007 and
27 October, 2007. Vijaya Puri, Soft
Skill faculty of OCAC gave
deliberation in communication skill to
the students and soft skill in order to
excel in their professional life.
Evening talk on “Economic Value
Added–A tool to Management and
Right to Information Act, 2005-An
over view.”
As a part of the continuing
education programme, the Chapter
organized an evening talk on
1006
Regions & Chapters
“Economic Value Added–A tool to
Management and Right to Information
Act, 2005 An over View” on 29
October, 2007 at the Conference Hall.
Ajaya Deep Wadhawa, Treasurer, EIRC
of ICWAI and Debasis Saha, Member
& Vice-Chairman, EIRC of ICWAI
gave deliberation on the above topics.
DURGAPUR CHAPTER
The following officer bearers have been
Appointed in the 41st Annual General
Meeting of the Durgapur Chapter of
Cost Accountants held on 05.10.2007.
S. R. Sanyal Chairman
S. K. Bhattacharya Secretary
P. K. Somaddar Treasurer
FARAKKA CHAPTER
New Executive Committee and its
office bearers for the year 2007-08.
Arun Kumar Ghosh Chairman
A K Acharya Vice-Chairman
P B Maiti Secretary
B P Nayak Treasurer
HOWRAH CHAPTER
Stydy Circle Meet on Capital
Market–A Financial Driver in
Emerging Economy
Howrah Chapter organized a Study
Circle Meet on 7th October, 2007
(Sunday) at the auditorium of Howrah
Jogesh Chandra Girls School on the
subject matter “Capital Market–A
Financial Driver in Emerging
Economy.” Soumitra Som, Chairman
welcomed the participants and
introduced the guests and dignitaries.
Kunal Banerjee, Vice President and
K. K. Sarkar, Chairman of ICWAI-
EIRC appreciated the topic for
discussion.
Dr. Tanupa Chakraborty, a Lecturer
of University of Calcutta presented the
technical paper on the subject
highlighting the recent development of
capital market, emerging scope of
investment in capital market, risk factor
and statutory guidelines of RBI, SEBI
etc., in brief, to protect their interest and
different technical aspects. Sripati Das,
the management accountant, December, 2007
Past Chairman of ICWAI-EIRC and
Howrah Chapter took the chair in the
session.
Felicitation
The Executive Committee of
Howrah Chapter felicitated Kunal
Banerjee, Vice President and K. K.
Sarkar, Chairman of ICWAI-EIRC on
7th October, 2007.
Group Discussion for ICWAI
Intermediate students
The Group Discussion session for
Intermediate students of Oral Coaching
of Howrah Chapter held on 7th
October, 2007 for the oral coaching
students of Stage-I and Stage-2.
WESTERN REGION
KALYAN AMBARNATH
CHAPTER
Study Circle Meeting
Chapter conducted its 4th Study
Circle Meeting on September 07 at
chapter premises D. M. Bathija
Chairman welcomed the guests. Pooja
M. Joshi, Cost Accountant spoke on
“Telecom Cost Management”. She
shared with the participants her
practical experience of Telecom Cost
Management by giving examples of
MNC.
Group Discussion
On 13th October, 2007, chapter
organized group discussion for the
benefit of Intermediate and Final
students. Topics of Group Discussion
were:1. Tax Management-a planning
tool, 2. Management Accounting -a
performance evaluation tool, 3.
Evaluation of Capital Expenditure, 4.
Cost Audit and Management Audit.
Study Circle Meeting
Chapter conducted its 5th Study
Circle Meeting on “Internal Audit” 6/
10/07 at 6.30 pm, Patro P. Narasingha,
Manager–Internal Audit, JSW Steel
Ltd., Vashind, Thane, spoke on the
subject, various members of the area
and students attended the meeting.
Inauguration of Modular Training
Chapter inaugurated the 15 days
Modular Training for Final students on
14/10/07 at 10.00 am. Mohan Bhatia,

Vice President, I-flex solutions,
inaugurated the training by lighting
lamp. He talked about the various
opportunities available in India and
abroad for professionals and skills
required to tap these opportunities.
Chapter conducted the Valedictory
function on 28/10/07, concluding day
of Modular Training. Prof. V. J. Talati,
Ex-Chairman-WIRC was the chief
guest.
NAGPUR CHAPTER
The following members have been
elected as office bearers for the year
2007-08.
Narendra Peshne Chairman
Kiran Badwe Vice-Chairman
Shriram N. Mahankaliwar Secretary
Anan R. Sahasrabuddhe Treasurer
PUNE CHAPTER
‘Inauguration of Modular Training
Programme’
The Inaugural Lecture in the
Modular Training Programme was
delivered by CMA Sanjay Bhargave,
CCM. He spoke on the role of cost
accountants in the area of Indirect Tax
Planning.
‘Campus Interviews’
As a part of placement activity the
chapter organized a campus interview
programme for the benefit of the
students, who passed in December,
2006 and June 2007 attempt.
‘Students’ Day and Prize
Distribution Function’
8th October, 2007 was a day of
celebration for the students of Pune
Chapter of Cost Accountants. The
Annual Day and the Prize Distribution
Function was held on Monday, 8th
October, 2007.
A Seminar on ‘VAT Audit’
A seminar on ‘VAT Audit’ was
organized by the Chapter Pramod
Parkhi, Past President of ICWAI, Pune
inaugurated the seminar. Dhananjay
Joshi, Past President of ICWAI was the
Guest of Honour who delivered the
keynote address on the role of CMAs
in Indirect Taxation.
the management accountant, December, 2007
Regions & Chapters
NORTHERN REGION
ALLAHABAD CHAPTER
Study circle meeting
Speaker: I.A. Khan practicing
company secretary and Chairman
Allahabad chapter of ICSI. Khan is also
member of ICWAI. Khan spoke on the
topic of Corporate Governance. He
informed that good corporate
governance practices means transparent
disclosures and accountability in the
financial statements, optimization of
shareholders’ value and accountability
of company towards the community,
customers, employees, government and
other segments of the society.
JAIPUR CHAPTER
Press Conference
Jaipur Chapter of cost accountants
organized a press conference on 06
October, 2007 on the recent
developments in the cost &
management field. R. K. Dwivedi,
Chairman of the Chapter welcomed the
media representatives.
The press conference was addressed
by the president of ICWAI Chandra
Wadhwa, who explained that the
institute is going for change of syllabus
form January 2008 onwards and also
imparting the compulsory training of 3
years for the students. The President
also informed that the institute is also
starting the specialization course for the
members of the institute. The institute
is also hosting an global summit in
January, 2008 at New Delhi.
Interaction of Chandra Wadhwa,
President of ICWAI
Jaipur Chapter of Cost Accountants
organized an Interaction Session of
Chandra Wadhwa President of ICWAI
& B. L. Jain Chairman of NIRC with
the members of Jaipur Chapter on 6th
October, 2007.
An Educational cum industrial
visit was organised on 22nd September,
2007 by Jaipur Chapter of Cost
Accountants for its students as a part
of curriculum of ICWAI course.
Get Together–Cum–Family Picnic
A get together cum family picnic
was organised by Jaipur Chapter on
19th August, 2007 at Fun Kingdom.
Seminar on–“Management of
Stress”
The Chapter organised a Seminar
on “Management of Stress” on 1st
September, 2007. Col. Parmesh K.
Royal, an Army Officer & renowned
Psychologist was the key speaker on
the subject.
Group Discussion and Business
Communication Seminar
The Chapter organized a talk on
“Skills in report writing and Business
Letters” as well as Group Discussion
and Business Communication Seminar
for intermediate students on 29th and
30th September, 2007 under the
Chairmanship of R. K. Dwivedi,
Chairman of the Chapter. It was
inaugurated by S. K. Rajpurawala,
Chief Accounts Officer, JVVNL and
Senior Member, of the Chapter.
PATIALA CHAPTER
Report on Inter-Action &
Felicitation function organized by
Patiala Chapter Cost Accountant.
To welcome the newly elected
President & Vice-President of the
Institute and Central Council Members
from northern region, Chairman NIRC
& members of regional council, Patiala
Chapter of Cost Accountants organized
a welcome function on 28 October,
2007 at Hotel Flyover, Patiala.
SOUTHERN REGION
Professional Development Meet on
Business Intelligence & ERP : A
Professional Development Meet on
‘Business Intelligence & ERP’ was
held on Saturday the 1st September
2007 at the Institute’s premises. R. Raj
Kumar, Vice-President and M. R.
Sundar, Director, Chainsys India Pvt.
Ltd., Chennai addressed the members
on the topic.
Two Training Programme on ‘Cost
Estimation of Development Projects’
for the Executives of Cvrde, Avadi :
1007

SIRC organized a Two Day Training
Programme on ‘Cost Estimation of
Development Projects’ for the
Executives of CVRDE, Avadi on 6th
& 7th September 2007 at their
premises. The training programme was
inaugurated by M. Gopalakrishnan,
Central Council Member, ICWAI.
Press Meet : SIRC organized a Press
Meet to brief the press about the new
initiatives during the visit of President,
ICWAI on 11th September 2007 at
Hotel Ambassador Pallava, Egmore,
Chennai. Chandra Wadhwa, President
of the Institute addressed the press
about the detailed plan of action of the
Institute. A. N. Raman, Chairman,
Global Summit on Management
Accounting, elaborated the press about
the Global Summit to be organized by
the Institute during January 2008 at
New Delhi.
Members Meet : SIRC organized a
Members Meet on 11th September at
the Institute’s premises during the visit
of the President, ICWAI to Chennai.
Soft Skill Training : 22nd Sep 2007 :
SIRC organized a Programme on
‘Interview Techniques’ as part of the
Campus Interview, on 21st & 22nd
September 2007 at the Institute’s
premises.
Professional Development Meeting
on ‘Six Sigma’ : SIRC organized a
Professional Development Meeting on
‘Six Sigma’ on Saturday the 22nd
September 2007 at the Institute’s
premises. Subhalakshmi Ram Kumar,
Sr. Executive–Projects, Wipro Ltd.,
addressed the members on the topic.
Campus Interview: The Campus
Recruitment was organized by the
Southern India Regional Council.
Leading Corporates from Chennai,
Bangalore and Hyderabad participated.
KPMG, ITC–International Business
Division–Hyderabad, Coromandal
Fertilisers Limited of Murugappa
Group. TVS Motor Company, Lucas
TVS Ltd., TG Kirloskar Automotive
Pvt. Ltd., Bharat Electronics Ltd.,
MICO Bosch, Amrutanjan Ltd., and
SAB Professional Services were the
recruiters.
1008
Regions & Chapters
Amongst the 200 candidates, many
were given spot offers and more than
80% were short listed for final
selection. Average pay package was 4.5
lacs per annum.
One-day Seminar on Value
Added Tax & Service Tax-28th Sep
2007 : SIRC organized a ‘One-Day
Seminar on ‘VAT & Service Tax’ on
Friday the 28th September 2007 at the
Institute’s Premises. The First Technical
Session on ‘Service Tax’ was addressed
by P. Raveendran, Superintendent,
Dept. of Central Excise and the Second
Technical Session on ‘VAT’ was
addressed by K. Sivarajan, Consultant–
Indirect Taxes.
Professional Development
Meeting on Forex Management 29th
September 2007: SIRC organized a
Professional Development Meet on
‘Forex Management’ on Saturday the
29th September 2007. C. V. Arun, Asst.
Vice-President, ABN-AMRO Bank,
Chennai was the guest speaker.
BANGALORE CHAPTER
Practitioners’ Meet
A Practitioners’ Meet was held on
4th October 2007.
Professional Development Meet
A Professional Development Meet
was organized on 8th October 2007
wherein Prof. V. B. Nandagopal,
Director, Saudi Entrepreneurship
Development Institute and Founder
Member of Arab Knowledge Economy
Association, addressed our members on
India Emerging as a Knowledge Based
Economy in the 21st Century-Challenges
for Accounting Professionals.
Inauguration of Oral Coaching
Classes–October 2007 Semester
The oral coaching classes of
October-2007 semester was
inaugurated on 19th October 2007 by
Yogish Acharya, Director-Finance, M/
s NDS Services Pay-TV Technology
Pvt. Ltd.
Training Programme
A 3-day training programme was
organized by the Bangalore Chapter for
the executives of Karnataka Power
the management accountant, December, 2007
Corporation Ltd., on Cost Accounting
Records and Cost Audit in Power
Sector from 29th to 31st October 2007.
COIMBATORE CHAPTER
Group Discussion and Seminar for
Students :
Two days Group Discussion and
Seminar for intermediate students was
held on 1st and 2nd September, 2007
at the Chapter premises. The
programme was conducted by CA. M.
Ramji, Certified International Trainer
of Junior Chamber International,
Florida, U.S.A., and Director, High
Value Consultancy Services (P) Ltd.,
Coimbatore. Enthusiastic interaction by
students was commended by the
conductor.
Cosma Fest–2007
The Festival of Cost and
Management Students for the year
2007–an event for the students doing
the ICWAI courses was held on 22nd
September 2007 at the Chapter’s
premises. The event was inaugurated
by Kavidasan GM-HR of Roots
Industries Ltd., Coimbatore. The Fest
had Paper Presentation Session and
Quiz programme. CA T.V. Suresh,
Financial Consultant, Coimbatore was
the chief guest for the Valedictory
function Apart from the ICWAI
Coimbatore chapter student members,
students from various local colleges and
institutions participated in these events.
National Conference on Quantitative
Finance and its Applications:
In association with DJ Academy for
Managerial Excellence, Coimbatore,
two days national conference on
Quantitative Finance and its
Applications was organized on 12th &
13th October 2007. R. Rajendran CFO
LMW Ltd., inaugurated and J. Sridhar,
Chairman, ICWAI–Coimbatore
Chapter presided over the function.
Technical Session on Corporate
Finance, Capital Markets, Portfolio
Management and Financial Services
and Panel Discussion on ‘Paradigm
Shift in Finance in the Emerging
Economy’ were held. The Valedictory
Address was delivered by Dr. P.

Thirumalvalavan, Registrar, Bharathiar
University.
65th Session of Oral Coaching
Classes:
The new batch of Foundation and
Intermediate courses were commenced
at the Chapter on 22nd October, 2007
which was inaugurated by Mr. S.
Subbaraman, CC Chairman of
Coimbatore Chapter.
TRIVANDRUM CHAPTER
Report on the Students Study Circle
Meeting held on 09.09.2007
A Meeting of the Students Study
Circle was held on 9th September 2007
at the Chapter premises. Manu Samuel
of Stage III welcomed the gathering of
Students Members and Faculty. S.
Hariharasubramanian, Chairman,
Students and Members welfare
Committee presided over the Function.
HYDERABAD CHAPTER
A practitioners’ Meet on “Auditing
& ERP” on 13 October 2007.
A Practitioners’ Meet on Auditing
& ERP was organized at Chapter
premises on 13.10.2007. The speaker
on the subject–Siva Prasad, a member
of the Institute, spoke about the
advantages of ERP over other finance
packages, importance of settings,
controlling modules, data management,
transaction controls and audit trails with
demonstration on selected items.
Earlier, CMA M. Kameswara Rao,
BRIEF ON SEMINAR ORGANIZED BY PD COMMITTEE OF ICWAI
Professional Development Committee of
the Institute of Cost & Works Accountants
of India organized a Seminar on MVAT
& MVAT Audit on 13th & 14th October,
2007 at Pune.
The Seminar was inaugurated by Shri
B.C. Khatua, IAS, Chairman, Forward
Markets Commission, Ministry of
the management accountant, December, 2007
Regions & Chapters
Chairman–Hyderabad Chapter
introduced the speaker.
Foundation Stone laid for Hyderabad
Centre for Excellence by Hon’ble Chief
Minister of AP-Dr. Y. S. Rajasekhara
Reddy on 18-10-2007:
Foundation Stone was laid by
Hon’ble Chief Minister of Andhra
Pradesh Dr. Y. S. Rajasekhara Reddy
on 18 October, 2007 for the Hyderabad
Centre for Excellence in site acquired
by the Institute for the purpose in the
prestigious Financial District,
Gachibowli, Hyderabad.
Addressing a large gathering
consisting industry-peers, senior Govt.
officials, electronic and print media and
our members, Dr. Reddy asserted that
the CMAs had a vital role to play in
nation’s development and India’s
growth rate at 9% GDP p.a. could be
attributed to their efforts.
Expressing confidence that the
Institute could produce more and more
efficient CMAs, he hoped that these
experts would ensure better and
efficient management systems in place
in the State and the Nation for
maintaining the growth rate.
He congratulated CMA K.
Narasimha Murty, who was felicitated
on the occasion.
Earlier, welcoming the Chief
Minister, CMA A. S. Durga Prasad,
Chairman–HCE explained that the
Centre would used exclusively for
research and training in service sector
Professional News
Consumer Affairs, Food and Public
Distribution. Ex. Commissioner of Sales
Tax Maharashtra State.
Shri D.V. Bhalachandra, Addl.
Commissioner of Sales Tax,Pune,
Government of Maharashtra was the
Chief Guest. The Seminar was also
addressed by Shri Vivek Bhimanwar, Dy
like Telecom, IT, Retail sectors and
focus on delivering research, best
practices and tools in management
accounting and finance profession. He
said that this would benefit corporates
in decision support, planning and
control functions.
On the occasion, CMA K.
Narasimha Murty practicing CMA and
Director-IDBI, was felicitated by our
President, CMA Chandra Wadhwa for
his contribution to the Profession and
several organizations joined the
Institute in felicitating him.
While speaking on the occasion, the
President spoke of the Council for
Valuation Professionals of India,
Introduction of New Syllabus from Jan.
2008, and Global Summit at New Delhi
in Jan. 2008. CMA Sunil Chako,
Chairman-SIRC also spoke, while
CMA K. Narasimha Murthy responded
for the felicitation.q
FOR ATTENTION OF
MEMBERS
“CD of List of Members, 2007
will be made available for sale
to the Members at a price of Rs.
100 per copy. Members
interested to procure the same
may remit Rs. 100 by Demand
Draft drawn in favour of
‘ICWA of India’, payable at
Kolkata, addressed to the
Secretary, ICWAI.”
Commissioner of Sales Tax, Mumbai. B.
M. Sharma, Chairman, Professional
Development Committee & CCM, ICWAI.
CCM S/shri V.C.Kothari, S.R. Bhargave
and WIRC Vice Chairman Shri A.B. Nawal
& Secretary Shri Amit Apte were also
present and graced the Inauguration
ceremony.
1009

The Management Accountant (Author Index) - 2007
(Volume 42, Nos. 1 to 12)
A K. Sudha Rani ..................................... 576
Amal Kumar Bose ................................ 19
A. Madhavan ........................................ 53
A V Ramana Rao ................................ 467
Anupam Karmakar ............................. 618
Alan Vercio & Ashok Vadgama ......... 689
A. V. Ramana Rao .............................. 705
Anurag Saxena & Sandhya
Chandrasekhar .................................... 790
A. Manor Selvi & Dr. A. Vijaykumar 813
Alexander Mersereau ......................... 942
Anne Papmehl .................................... 946
B Dr. Hitesh J. Shukla ............................ 991
B. L. Tholiya ...................................... 245
B. Madhu Seshanand .......................... 274
C Gora Chand Mondal ........................... 185
Cynthia Menezes ................................ 188
Chandresh Shah .................................. 685
C. T. Sam Luther ................................ 784
D H. Samuel, Dr. C. Samuel Joseph &
Dr. Rajni Sharma & Dr. J. P. Sharma ... 13
Dr. V. Gangadhar & Dr. M. Yadagiri .... 25
Dr. P. N. Harikumar & D. Susha .......... 32
Dr. Mukesh Chauhan ............................ 35
Dr. B. Ramachandra Reddy &
Dr. B. Yuvaraja Reddy .......................... 56
Dr. Arindam Ghosh .............................. 60
Dr. M. A. Joseph ................................... 70
Dr Majoj Pillai ...................................... 96
Dr. Nilay Kumar Saha ........................ 114
Dr. K. Rajender & B. Uma Devi ........ 137
Dr. T. Ramesh ..................................... 146
Dr. C. S. Yatnalli &
Dr. S. G. Hundekar ............................. 176
Dr. Arindam Ghosh ............................ 270
Dr. Kalyan Bhattacharjee ................... 344
Dr. Debabrata Mitra ............................ 389
Dr. Arindam Ghosh ............................ 428
Dr. B. K. Mohanty .............................. 441
Dr. Santanu Kumar Ghosh &
Paritosh Chandra Sinha ...................... 446
Dr. R. Parameswaran &
M. Thanihaivel ................................... 474
Dr. Halima Sadia Rizvi &
R. Soundara Rajan .............................. 480
Dr. M. R. Noronha .............................. 527
Dr. D. Raghunatha Reddy &
1010
Index 2007
Prof. U. K. Mallick &
Dr. T. Vanniarajan & Dr. Debasish Mukherjee ..................... 386
C. Samuel Joseph ............................... 614 Prof. C. T. Sam Luther ....................... 564
Dr. P. K. Chakraborty ......................... 680 Parimalendu Bandopadhyay &
Dr. Kanakhalli Balappa ...................... 719 Suvarun Goswami .............................. 560
Dr. K. Rajender & S. Suresh .............. 740 P. Hanumantha Rao &
Dr. Neetu Prakash ............................... 764 Vijay Kr. Mishra ................................. 623
Debaprosanna Nandy ......................... 803 Prof. Jafor Ali Akhan ......................... 662
Dr. Pradeep Singh ............................... 822 Pratul Kumar Ray & D. N. Sondhi ..... 983
Dr. M. Srinivasa & R
Dr. V. V. Sesha Mohan ....................... 850 Ramakutty V. Varier ........................... 635
David Crawford & Todd Scaletta ....... 856 Rakesh Bhalla & Kanwardeep Jaspal . 707
G R. K. Srivastava & Rakesh Singh ...... 101
Gurpreet Kaur ......................................... 8 R. Suresh .............................................. 91
R.K. Sinha .......................................... 894
Graham Ward ...................................... 936 S
H S C Das ................................................. 99
Howard Johnson ................................. 771 S. Rajaram .......................................... 119
S. Rajaratnam ..................................... 131
Dr. N. Rajasekar ................................. 817 S. Balakrishnam .................................. 133
J Shrikant Sortur ................................... 196
Joshy Andrews ................................... 151 S. Ramya ............................................ 266
K Shailendra Kumar Rai ........................ 431
KSVL Narasimha Murthy & Samir Kr. Lobwo ................................ 456
K. Gowri ............................................. 556 S. Raghupathy .................................... 488
K. S. Muthupandian ............................ 696 Shyamal Banerjee ............................... 514
K. S. Muthupandian ............................ 779 Saradindu Mukherjee ......................... 518
K. S. Muthupandian ............................ 861 S. Bhasker ........................................... 525
K. S. Muthupandian ............................ 954 S. Aravanan & N. Vijayakumar ......... 568
L S. C. Das ............................................. 600
L. Ramamirtham ................................. 191 S. S. Sen, B. K. Ghosh &
L. Venketasan ..................................... 701 Dr. S. K. Ghosh .................................. 820
L. Venketasan ..................................... 919 Shashikant Choubey ........................... 958
L. Venkatesan ..................................... 952 Shantonu Moitra ................................. 975
M
M Kannadhasan .................................. 469 T
Mukesh Chauhan ................................ 722 Tamara Bekefi & Marc Epstein .......... 775
Monika Aggarwal & Punam Agarwal 767 Tirunellai Radhakrishnan Anand ........ 831
Maureen T. McKay ............................. 949 U
Meena Ramji ...................................... 986 Uppaluri Venugopal ............................ 573
N V
N. Vijayakuma & V. Arunagiri .......................................... 92
Dr. K. Chandra Sekhara Rao ............. 535 Veeraraghavan Iyengar ....................... 142
Neeladri Chatterjee ............................. 211 Vanisree Talluri &
P Dr. K. Bharathi Nataraju .................... 350
P. V. Antony and Ragesh M ................ 261 Vanessa Magness ................................ 854
the management accountant, December, 2007
 Index 2007

ARTICLES ARTICLES
Title Page Title Page
A B
Are the weekly highest and lowest Indian CNX NIFTY Benchmarking and Benchtrending
cointegrated: Full Information Maximum Likelihood @ V. Arunagiri 92
approach of Soren Johansen Brand Building in Indian Market
@ Amal Kumar Bose 19
Accounting Standard for Environmental Accounting: A @ S. Rajaram 119
Proposal Biodiversity and Conservation Strategies of India
@ Dr. Mukesh Chauhan 35 @ Dr. Arindam Ghosh 428
Affinity Based Benchmarking : A Tool for Strategic Cost Banking Sector Reform: NPA Management Assets
Control Reconstruction Company (ARC) in Indian scenario
@ Dr. Majoj Pillai 96 @ Dr. Pradeep Singh 822
Accelerating Economic Growth–Unlocking Valye by C
Management Accountants : A Ringside View Capital Account Convertibility
@ Dr. V. Gangadhar & Dr. M. Yadagiri
@ Veeraraghavan Iyengar 142 25
A Study on the Growing Mutual Fund Industry in India Cheque Truncation System–a Substitute for the Paper
with Special Reference to Equity Mutual Funds Based Processing
@ Dr. P. N. Harikumar & D. Susha 32
@ Joshy Andrews 151
Analysis of Production and Marketing Cost of Maize Corporate Governance Standards and Practices in
Information Technology (IT) Industry in India
@ Dr. C.S. Yatnalli and Dr. S. G. Hundekar 176
A Model for Pricing Bank Loans @ S. C. Das 99
@ P. V. Antony and Ragesh M. 261 Cost and Productivity of Agricultural Production and
Activity Based Costing for Independent Crude Oil Applicable Costing for Managerial Decision
Business @ by Gora Chand Mandal 185
@ S. Raghupathy 488 Crime, Corruption and Socio-Economic Development
A Perspective for Managing & Leveraging Knowledge @ Dr. Arindam Ghosh 270
@ Saradindu Mukherjee 518
Can Firm’s Capital Structure Decision Help an Investor
Accounting for Taxes on Income–AS 22
(A Risk Averter or Risk Taker)?: A Case Study on
KSVL Narasimha Murthy & Automobile Industry in India
@ K. Gowri 556
@ Dr. Santanu Kumar Ghosh &
An Application of Dupont Control Chart in Analysing the Paritosh Chandra Sinha 446
Financial Performance of Banks
@ Dr. T. Vanniarajan & C. Samuel Joseph
Corporate Governance Standards and Practices in
614 Engineering Industry in India
Accountants in business–at the heart of sustainability?692
@ S. C. Das 600
An Introduction to International Financial Reporting
Standards Credit Rating of NBFCs: An Overview
@ Prof. Jafor Ali Akhan
@ K. S. Muthupandian 696 662
Cost Accounting and Management Reporting System in a
Accounting Standard AS 15 (Revised)
Star Hotel
@ L. Venketasan
@ Ramankutty V. Varier
701
635
A Draft of Cost Audit Report to Shareholders
@ A. V. Ramana Rao
Cost Management in the Competitive Environment : A
705 Case Study of Air Deccan
@ Mukesh Chauhan
Achieving Enterprise Excellence–The Cost Audit
722
Approach
@ Meena Ramji
Case for FDI in Retail
@ Monika Aggarwal & Punam Agarwal
986
767
A Study of Receivables Management of Indian Corporate Governance in Indian Banking Industry
Pharmaceutical Industry
@ Dr. Hitesh J. Shukla 991 @ Dr. M. Srinivasa & Dr. V. V. Sesha Mohan 850

the management accountant, December, 2007 1011

 Index 2007

ARTICLES ARTICLES
Title Page Title Page
Carbon Markets a Great Potential of Indian Corporates–An Formula for growth
@ Alan Vercio & Ashok Vadgama
Overview 689
@ Shantonu Moitra 975 Franchise management–the people make the difference
Carbon Finance under Kyoto Protocol @ Maureen T. McKay 949
@ Pratul Kumar Ray & D. N. Sondhi 983 H
D How Effective has Cost Audit been
Down Memory Lane—A Senior Member Reminisces @ A V Ramana Rao 467
@ S. Balakrishnan 133 How Efficient the Indian Banks Are: A DEA Approach
Desk Review–Analysis of available Information & Records @ Debaprosanna Nandy 803
@ Rakesh Bhalla & Kanwardeep Jaspal 707 I
Disclosure Practices as per AS 1 and Implications of WTO Regime on Plastic Processing
AS 11 and Companies Accounting Standard Rules 2006 Sector
@ Dr Rajni Sharma & Dr. J. P. Sharma 13
@ L. Venkatesan 919
Investor grievances and protection
Disciplined Vision @ Jogendra Kumar Nayak &
@ Anne Papmehl 946 Dr. Subhas Chandra DAs 48
E IFRS 1 First-time Adoption of International Financial
Reporting Standards-A Closer Look
@ K. S. Muthupandian
Effect of Reforms Process on Financial Performance : A 779
Case Study on Indian Banking Sector Incorporate Abroad – The Step 1 in Helping your Clients
@ Dr. Debabrata Mitra 389 Globalize
@ Anurag Saxena & Sandhya Chandrasekhar 790
Efficiency Study–Indian Banking IFRS 2 Share-based Payment-A Closer Look
@ Dr. Halima Sadia Rizvi &
@ K. S. Muthupandian 861
R. Soundara Rajan 480
Emotional Intelligence among Practicing Cost and IFRS 3, Business Combinations–A Closer Look
Management Accountants in Tamilnadu @ K. S. Muthupandian 954
@ H. Samuel, Dr. C. Samuel Joseph & IFRS–A ‘Must’ Journey To 2011
Dr. N. Rajasekar 817 @ Shashikant Choubey 958
Exceptional and Extraordinary Items
L
@ L. Venkatesan 952 Loyalty Test of Dividend-Dog Investing Strategy in
F Indian Context
Financial Performance through Market Value Added @ Dr. Kanahalli Balappa 719
(MVA) approach Liquidity, Risk and Profitability Analysis A Case Study of
@ Dr. B. Ramachandra Reddy & Madras Cements Ltd.
Dr. B. Yuvaraja Reddy 56 @ C. T. Sam Luther 784
Forest Audit of Post NAAC Activities in Indian Higher Lean or Green?
Education System @ Vanessa Magness 854
@ Dr. Nilay Kumar Saha 114 M
FDI Inflow into Retail Revolution–an Emerging Management Accountant’s Role in Six Sigma
Dimension for Rural Upliftment @ Shrikant Sortur 196
@ Dr. B. K. Mohanty 441 Measuring Financial Health of A Public Limited Com-
pany Using ‘Z’ Score Model–A Case Study
Future of Accounting Education in Response to Corporate
Scandals : A Study with Special Reference to USA @ M Kannadhasan 469
@ Samir Kr. Lobwo 456 Mutual Funds—A New Entrant in Real Estates
@ P. Hanumantha Rao & Vijay Kr. Mishra 623

1012 the management accountant, December, 2007

 Index 2007

ARTICLES ARTICLES
Title Page Title Page
Management of NPAs In Indian Banking–A Case of State Risk Management–The buzz word for success
Bank of Hyderabad @ Dr. P. K. Chakraborty 680
@ Dr. K. Rajender & S. Suresh 740 Retailing Revolution in India an Overview
Market Risk Management Regulations-Opportunity for @ Dr. Neetu Prakash 764
performance enhancement Risk - getting the whole picture
@ Tirunellai Radhakrishnan Anand 831 @ Tamara Bekefi & Marc Epstein 775
S
N Supply Chain Strategy : The Strategy for the Century
Non Performing Assets–Unavoidable but not @ Dr. M. A. Joseph 70
Unmanageable Structural Reforms in Co-operative Banking
@ S. Aravanan & N. Vijayakumar 568 @ Dr. T. Ramesh 146
O Supply Chain Management Challenges in Culturally
Outsourcing : The New Mantra in India Today Diverse Environment
@ L. Ramamirtham 191 @ T. V. Prakash Rao and Cynthia Menezes 188
Outsourcing–Myths & Realities–An Empirical Study on Strategic Financial Measurement of Human Resource
Outsourcing of Hospital Waste Performance using Balance Score Card
@ S. Ramya
@ Vanisree Talluri &
266
Service Departments : Need for Awakening
Dr. K. Bharathi Nataraju 350
@ B. Madhu Seshanand 274
Overview of Indian Textile Industry with Respect to
Sigma 6 Dabbawalas of Mumbai and their Operations
Dismantling of Multi Fiber Agreement (MFA) and
Management-An Analysis
Arrangement on Textile and
Clothing (ATC) @ Prof. U. K. Mallik &
@ Anupam Karmakar 618 Dr. Debasish Mukherjee 386
P Sensex–A Simplified Representation of Reality
Portfolio Management in General Insurance Industry–A @ Dr. R. Parameswaran & M. Thanihaivel 474
Case Study of New India Assurance Company Limited Strategies for shareholder value enhancement
@ Dr. K. Rajender & B. Uma Devi 137 @ Howard Johnson 771
Planner for Cost Accountants Stock Market Liquidity and Exchange Rate – A Case
@ B. L. Tholiya 245 Study on BSE & NSE
Performance Evaluation of Equity Based Mutual Funds: A @ S. S. Sen, B. K. Ghosh & Dr. S. K. Ghosh 820
Case Study of Three Asset Management Companies in Structure of Profit Rates in India Automobile Industry-A
India Comparison
@ A. Manor Selvi & Dr. A. Vijaykumar
@ Dr. M. R. Noronha
813
527
T
PAIBs: Meeting the Challenge of Performance and
Tax Titbits
Conformance
@ S. Rajaratnam
@ Graham Ward
131
936
The Need to Know and the Fear of Knowledge: Some
Pushing the Art of Management Accounting Tips for the HR Manager
@ Alexander Mersereau 942 @ Shyamal Banerjee 514
The Performance Evaluation of Non-banking Financial
R Companies
Role of a CFO in a Small to Medium sized company @ Dr. D. Raghunatha Reddy &
@ A. Madhavan 53 K. Sudha Rani 576
Reverse Mortgage–A Novel Financial Product for Elderly The Balanced Scorecard and Corporate
People Social Responsibility: Aligning values for profit
@ Dr. Kalyan Bhattacharjee 344 @ David Crawford & Todd Scaletta 856

the management accountant, December, 2007 1013

 Index 2007

ARTICLES ARTICLES
Title Page Title Page
V OTHERS
Venture Capital Financing and its Role in Economic Growth Admission to Membership 489, 642, 727, 998
@ Shailendra Kumar Rai 431 Annual Report 888
Volatility Smiles in Indian Options’ Market: A Study Book Scan74, 158, 246, 411, 495, 583, 660, 750, 836, 1003
@ N. Vijayakuma & Cost Audit - The Way Ahead 47
Dr. K. Chandra Sekhara Rao 535 Committees of the Council, 2007-08 598
Venture Capital in India–Present Scenario Citation 926
@ Prof. C. T. Sam Luther 564 Draft Cost Accounting Records Rules for
Banking Sector 203, 282, 392
Various Industrial Disputes in Collieries of West Bengal–A
Brochure of Global Summit 883
Case Study on Eastern Coal Fields Ltd. (ECL)
@ Parimalendu Bandopadhyay &
Executive Digest 39, 123, 207, 291, 375, 459, 543, 627,
711, 795
Suvarun Goswami 560
ERP Training 145, 406
Value at Risk Examination Programme 881
@ Chandresh Shah 685 For Attention of Practising Members 338, 377, 415,
W 506, 793
Working Capital Management Practices in some selected For Attention of Members 82, 150, 156, 575, 738, 922
Industries in India Gazette Notification 658
@ Dr. Arindam Ghosh 60 Hearty Felicitation 279
Winners Vs Losers in the LLP Scenario ICWAI Election 2007 286, 354
@ S. Bhasker 525 ICWAI Consolidated Accounts 409
COMMUNIQUE IFAC 551, 848
Legal Decision 876
President’s Communique 6, 90, 174, 258, 342, 426, 510,
List of Hotels at New Delhi 887
594, 678, 762, 846, 934
Letter to Editor 1004
Our New President 596
Programme Announcement 582
Our New Vice President 597
Union Budget 2007 215
EDITORIAL 48th National Convention 2007 68
The Most Government! 5 Renewal of Certificate of Practice 280, 384, 498
To myth of ‘competition’ 89 Review Article 383, 748
The Good, Bad and the Ugly 173 Regions and Chapters 77, 162, 250, 332, 414, 500, 584,
Beyond numbers 257 668, 751, 837, 924, 1006
Declining share of a growing pie 341
INDEX TO PAGE NOS.
Ecology of destruction 425
The Knowledge Immigration 509 Month Pages Month Pages
Paradox of Development 593 January 1—84 July 505—588
Cost of avoiding cost 677 February 85—168 August 589—672
March 169—252 September 673—756
Wealth of a nation 761
April 253—336 October 757—840
How fair is ‘fair value’ accounting 845 May 337—420 November 841—928
Can the world meet climate challenges? 933 June 421—504 December 929—1012
NOTIFICATIONS
Examination Notification Revised Syllabus 334, 418 29th Eastern India Regional Cost Conference
Examination Notification 378, 462, 838 22-23 December 2007 at Peerless Inn, Kolkata
Election Notification 88, 217 Theme : Role of Management Accountants
Govt. Notification/Circulars 867 in present global perspective
Institute Notification 135, 407, 512, 882 Contact
Legal Notes & Notifications 964 EIRC of ICWAI, www. eircoficwai.com

1014 the management accountant, December, 2007