Accountants’ Battle Flares Up with Cos Act

Chartered & cost accountants lobbying to sway decision-making with Act’s provisions seemingly limiting scope for the latter

The rivalry between the two accountancy streams — cost and chartered — has escalated into a battle over what one group perceives as the machinations of the other to cut it down to size. At the heart of the dispute is the new Companies Act, the provisions of which have curtailed the scope of the cost auditors. 

Ranged on opposite sides of the dispute are two groups that share an acronym and a profession – the Institute of Chartered Accountants of India and the Institute of Cost Accountants of India.
Both are currently engaged in hectic lobbying to sway decision making, according to officials in the ministry of corporate affairs (MCA) and other stakeholders.
Suresh Chandra Mohanty, president of the cost accountants’ institute, told corporate affairs minister Sachin Pilot in a November 22 letter that the elected members of the institute may resign en masse if the ministry did nothing to protect its interests. EThas a copy of this letter.
Cost accountants say they feel betrayed by the latest turn of events. An expert panel set up by the ministry in 2008 to review the cost audit mechanism had made certain recommendations about widening the scope of such checks. To start with, only 44 specific industries and businesses — in which administered prices, subsidies, regulation and strategic public interest are involved — had been covered by cost accountants. The field was enlarged through various notifications in 2011 and 2012 as per the suggestions of the expert committee.
However, draft rules issued by the ministry in November under the newCompanies Act roll back these changes. Mohanty described the draft rules as “de-facto withdrawal of recognition” in a November 23 press release.
By definition, this branch of accounting analyses costs such as raw material, wages and marketing that a company incurs and establishes a link with the profit margin it earns. In the process, companies get better clarity on costs, making them easier to control. Cost accountants say the audit process helps authorities build authentic cost data on industries, which could be used in instances such as controlling drug prices, setting tariffs, plugging tax leakage or sniffing out fraud. Chartered accountants look at the company’s books and validate balance sheet.
Cost accountants feel that their utility won’t be realised fully if more than 96% of the corporate sector is kept out of their purview as proposed in the latest draft rules. They believe cost audits play a critical role in ensuring good fiscal behaviour. Chartered accountants, on the other hand, say cost audits are intrusive and blur the lines of accountability — to the extent that two sets of auditors look at the same data — besides making it difficult for companies to do business.
While both look at the same data, their approach is different. Statutory auditors need to give their opinion on whether the balance sheet gives a “true and fair view” of the financials, since the accounts are based on a number of assumptions. The work of cost accountants is more focused as they certify the actual cost of production of a product or service based on actual payments made.
Chartered accountants say they also uphold responsible business conduct and good governance.
“The purpose of company law is not to micro-manage business aspects. In an era where competitiveness is essential, no business appreciates intrusion, burdens or regulations which add to complexity of business without true value addition,” said a member of the chartered accountants’ institute.
Industry is mostly in favour of the new draft rules as it feels these are less onerous.
Applying the cost audit mechanism to products and services through a statutory diktat would be in direct conflict with recent growth-oriented economic policies, said Sidharth Birla, president-elect, Federation of Indian Chambers of Commerce and Industry (Ficci).
Such rules may be regarded with suspicion by the overseas investors that India has been trying to woo, he said. Added a Mumbai-based industrialist with interests in fast-moving consumer goods, “What have such regulations achieved other than to provide income to one profession?” Chartered accountants say Pakistan is the only other country that has mandated the maintenance of cost records and cost audits for business entities.
Cost accountants say the animosity of chartered accounts is of long standing.
“Way back in 1959, when the Institute of Cost and Works Accountants of India was enacted under a statute of parliament, the (Institute of Chartered Accountants) in its representation had stated that no such profession existed in India or anywhere else in the world,” said a past president of the cost accountants’ institute.
It “had then said that cost accounting was only a specialised branch of accountancy,” this person said, quoting the protest made at the time, “By a mere enactment, a profession which does not actually exist cannot be brought into existence.”
Cost records provide information that’s useful for running businesses efficiently, said PR Ramesh, chairman, Deloitte India. However, extending such audits widely may be counterproductive.
“While it is desirable that all entities maintain cost records, it would be appropriate if legislation mandated such maintenance only for businesses which operate in critical sectors or which are in receipt of subsidies from the state,” he said. “In a free-market economy, businesses should be free to determine what systems and processes they need, considering the benefits they perceive are derived from maintenance of such systems and processes.”
Cost accountants say they didn’t get a chance to represent their case when the draft rules were being drawn up.
Rakesh Singh, central council member of the institute and its president until July, told ET that no formal invite was received from the corporate affairs ministry to join the rules committee.
Singh said he wrote to the ministry in May when he came to know about what he described as misconceptions being spread about the cost audit mechanism. The institute then submitted its suggestions formally to the ministry.
“Both communications appear to have been ignored when preparing the draft rules,” Singh said. “The MCA has a specialised department on cost, but I doubt if their views were also considered at the time of finalising the draft rules.”
The committee that drew up the draft rules was made of representatives from the corporate affairs ministry, industry, the professional institutes, besides domain experts in law and capital markets, said additional secretary Mohan Joseph.