Institute of Chartered Accountants adopts step brotherly treatment to its professional brother – Institute of Cost Accountants of India by CMA Amit Apte, CCM Institute of Cost Accountants of India in WIRC newsltter Bulletine 2013
The Draft rules on Cost Audit were released by the MCA on 21st November 2013. These were instantaneously proclaimed as “Black Rules” by many. No doubt these Draft rules are a cause of concern not only to the Cost & Management Accountants, but to the Consumers, Investors, Financial Institutions, revenue authorities and public at large. The Draft Rules however did succeed in getting the entire Cost Accounting fraternity to stand united and work towards ensuring that these Draft rules do not materialise.
There have been allegations that the Institute of Chartered Accountants of India has a role to play in the recent draft rules on Cost Audit issued by the government. The draft rules if implemented will virtually restrict the role of Cost Audit only to certain government companies and a very few companies in private sector.
I refer to an article published in the Economic Times in August 14th issue that Government was likely to rethink compulsory Cost Audit. In the same article, Subodh Kumar Agrawal, President of Institute of Chartered Accountants of India had remarked “that the cost audit order of Nov 2012 increases the burden on the part of companies in covering and conducting cost of audit of so many activities.” He had further added that many companies are not comfortable with sharing the cost information through cost audit report to a third party due to fear of data theft. Mr. Agarwal was however silent on these issues as far as the Financial and Tax audits being conducted by members of his own Institute.
In fact apparently the Institute of Chartered Accountants (ICAI) has been objecting to every move of the Government in favour of Cost Accountants. Here are a few instances.1. Formation of the Institute
Way back in 1959 when the Institute of Cost & Works Accountants of India was enacted under a Statute of the Parliament, the ICAI, in its representation had stated that “there is no such profession existing in India or in any other part of the world. Cost Accounting is only a specialised branch of Accountancy. The Institute of Cost & Works Accountants in the United Kingdom, the
National Association of Cost Accountants (now called the National Association of Accountants), the Society of Industrial and Cost Accountants of Canada and similar institutions all over the world are only Associations or Societies dealing with this particular branch of Accountancy, by a mere enactment, a profession which does not actually exist, cannot therefore be brought into existence”. The ICAI in this representation further stated that “With his expert knowledge of accounts and intensive practical training in various kinds of undertakings, the Chartered Accountant is quite competent to perform Cost Accounting work”. The Government of India however recognised the need to have a separate Institution that specialises in Cost Accountancy and thus the Institute of Cost & Works Accountants of India was formally enacted under a Statute of the Parliament in 1959.2. Cost Audit – introduction of concept in 1965
Further when Government introduced the concept of “Cost Audit”; The Institute of Chartered Accountants of India (ICAI) lodged a protest before the select committee against Companies (Amendment) Bill, 1964 that introduced the concept of statutory cost audit by cost accountants. During debate on the amendment bill, Shri N. Dandekar, M.P. aChartered Accountant himself had also strongly opposed the introduction of Cost Audit. He had stated that provision on Cost audit if introduced would be “detrimental to the best interests of the companies and ought not to be passed”.3. Name Change of the ICWAI
Another instance of unnecessary intervention by ICAI in matters not relating to their profession was demonstrated when the matter of name change was discussed. The Institute of Cost & Works Accountants of India wanted the name of the Institute to be changed to Institute of Cost & Management Accountants of India in lines with their counterparts and associate professional groups at the international level. The ICAI while opposing the proposal for change of name of ICWAI to ICMAI, submitted in their written memorandum that “Management Accounting is one such area which is common to all (i.e. ICAI, ICSI & ICWAI) and is not exclusive to any of the three professions. It is a position in an organization and not a function or discipline. It cannot be chartered or regulated through a legislation like a public accounting function. The members of one Institute cannot be allowed to use the designation of Management Accountants”.In fact when asked by the standing Committee on Finance to respond to this representation by the ICAI, the Ministry stated that “….There are several countries such as Canada, USA, UK, Bangladesh, Pakistan and Sri Lanka where the dual model of accounting institutes exists. In none of these countries confusion has been created by the existence of two titles and both CMAs and CAs co-exist in harmony rendering service to the society. The objections of ICAI to name change do not seem to carry conviction”. However the standing committee, stated in its report that “while the Committee had, on an earlier occasion in 2004, favoured the change in the name of the Institute and the designation attached to the profession, which has now been proposed in the Bill (re-terming the Institute and re-designating the profession as cost and management accountants) on the basis of the submissions made by the Ministry, the vehement opposition expressed by the ICAI to the proposal in particular, who also detailed the implications thereof has prompted a detailed rethink on the matter”. Thus the then ICWAI was denied to be Institute of Cost & Management Accountants of India.4. South Asian Federation of Accountants (SAFA)
The ICAI did not restrict this step brotherly treatment given to ICWAI only in India. It is a documented fact that in 2002 when it was the turn of the then ICWAI to nominate its Vice President on South Asian Federation of Accountants (SAFA) in line with the rotation policy of SAFA, the ICAI virtually bulldozed the government and ensured that this did not happen and thus instead of a representative of ICWAI, A representative from Institute of Chartered Accountants of India was nominated as VP of SAFA in 2002 and further took charge as President in 2003. Thus the Institute of Chartered Accountants snatched away the coveted presidentship from its younger brother, the then Institute of Cost & Works Accountants of India. 5. Expert Group constituted by Ministry of Corporate Affairs
On matter of Cost Audit, the MCA had constituted an Expert Group
to enable development of relevant cost accounting methodologies and standards to increase the competitiveness of the Indian manufacturing sector and to advise the Government on suitable measures for the same, Government of India, Ministry of Corporate Affairs in 2008. It were the findings of this group that are the backbone of the various notifications of MCA issued in 2011 and 2012 on Cost Records and Cost Audit. Even at that time “dissent note” was given only by the representative of ICAI, Shri Vinod Jain which stated that “there is no need to amend and apply these rules to all classes of companies. The provisions of CARRs should be applicable to those organizations only where there is a question of subsidy, anti-dumping, administered prices, requirements of Regulatory Bodies or in such industries where in view of public interest the Government consider it appropriate to prescribe compulsory maintenance of cost accounts”. He further argued that “there should not be any legal mandate on the applicability of Cost Accounting Record/Report Rules (CARRs) i.e., on the maintenance and the Cost Audit rather the Companies should be educated properly about the importance of costing system so that they voluntarily adopt the same for improving internal efficiency of the management. The burden of compliance audit should not jeopardize the day-to-day managementfunction. The management should be left free to concentrate more on operational aspects rather than on compliance formalities”. Mr. Jain had further recommended that “the appointment of Cost auditor should be made by Board of Directors without seeking prior approval from the Central Government. It is not necessary that the Cost Auditor should be appointed in Annual General Body meeting of shareholders”. Conclusion
It is noteworthy to observe that the draft rules on Cost Audit issued by MCA on 21st November 2013 are on the lines of these recommendations of the representative of ICAI, in the Expert Group rather than the recommendations of the entire Expert group.
From all the above, the underlying premise seems the
‘perceived superiority’ of Chartered Accountants as custodians of the entire accounting world, of which, they thought, cost accounting formed a small part. The recurring motif in all the representations of the ICAI is harped on the same tune, not understanding that the world had changed very dynamically beyond the cocoon of traditional accounting. It is high time that we Cost & Management Accountants come out of the shadow of our big brother and establish our self as a preferred professional.
Source: WIRC Newsletter Bullentine